ophc-10q_033113.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from______________ to __________________

Commission File Number: 000-50755

OPTIMUMBANK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Florida		55-0865043

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

2477 East Commercial Boulevard, Fort Lauderdale, FL 33308

(Address of principal executive offices)

954-776-2332

(Registrant’s telephone number, including area code)

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 31,530,109 shares of Common Stock, $.01 par value, issued and outstanding as of May 7, 2013

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

INDEX

	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets - March 31, 2013 (unaudited) and December 31, 2012	2

Condensed Consolidated Statements of Operations - Three Months ended March 31, 2013 and 2012 (unaudited)	3

Condensed Consolidated Statements of Comprehensive Loss - Three Months ended March 31, 2013 and 2012 (unaudited)	4

Condensed Consolidated Statements of Stockholders' Equity - Three Months ended March 31, 2013 and 2012 (unaudited)	5

Condensed Consolidated Statements of Cash Flows - Three Months ended March 31, 2013 and 2012 (unaudited)	6-7

Notes to Condensed Consolidated Financial Statements (unaudited)	8-24

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	25-31

Item 4. Controls and Procedures	32

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 6. Exhibits	32

SIGNATURES	33

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

	March 31, 2013			December 31, 2012
	(Unaudited)

Assets
Cash and due from banks	$	3,929		$	4,541
Interest-bearing deposits with banks		12,012			19,070

Total cash and cash equivalents		15,941			23,611

Securities available for sale		16,920			18,648
Loans, net of allowance for loan losses of $2,540 and $2,459		86,074			85,209
Federal Home Loan Bank stock		1,419			1,478
Premises and equipment, net		2,941			2,906
Foreclosed real estate, net		11,452			10,938
Accrued interest receivable		500			499
Other assets		355			454
Total assets	$	135,602		$	143,743

Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits		2,402			4,626
Savings, NOW and money-market deposits		33,172			34,153
Time deposits		60,309			62,832

Total deposits		95,883			101,611

Federal Home Loan Bank advances		27,700			27,700
Junior subordinated debenture		5,155			5,155
Advanced payment by borrowers for taxes and insurance		611			461
Official checks		290			581
Other liabilities		1,232			1,325

Total liabilities		130,871			136,833

Stockholders’ equity:
Preferred stock, no par value; 6,000,000 shares authorized, no shares issued or outstanding		0			0
Common stock, $.01 par value; 50,000,000 shares authorized 31,530,109 and 31,511,201 shares issued and outstanding		315			315
Additional paid-in capital		31,066			31,057
Accumulated deficit		(26,845	)		(24,688	)
Accumulated other comprehensive income		195			226

Total stockholders’ equity		4,731			6,910

Total liabilities and stockholders’ equity	$	135,602		$	143,743

See Accompanying Notes to Condensed Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)

	Three Months Ended March 31,
	2013			2012
Interest income:
Loans	$	1,093		$	995
Securities		192			298
Other		16			16

Total interest income		1,301			1,309

Interest expense:
Deposits		229			291
Borrowings		335			389

Total interest expense		564			680

Net interest income		737			629

Provision for loan losses		1,372			27

Net interest (expense) income after provision for loan losses		(635	)		602

Noninterest income:
Service charges and fees		34			3
Other		12			1

Total noninterest income		46			4

Noninterest expenses:
Salaries and employee benefits		488			410
Professional fees		168			239
Occupancy and equipment		136			119
Data processing		72			50
Insurance		78			70
Foreclosed real estate expenses		285			68
Regulatory assessment		88			44
Other		49			188

Total noninterest expenses		1,364			1,188

Other-than-temporary impairment on securities:
Total other-than-temporary impairment losses		204			0
Portion of losses recognized in other comprehensive income		0			0

Net loss	$	(2,157	)	$	(582	)

Net loss per share:
Basic	$	(.07	)	$	(.03	)

Diluted	$	(.07	)	$	(.03	)

Dividends per share	$	0		$	0

See Accompanying Notes to Condensed Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2013			2012

Net loss	$	(2,157	)	$	(582	)

Other comprehensive loss-
Unrealized gains on securities available for sale:
Unrealized gain arising during the period		173			327
Other than temporary impairment on securities		204			—

Unrealized holding (loss) gain arising during period		(31	)		327

Comprehensive loss	$	(2,188	)	$	(255	)

See Accompanying Notes to Condensed Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2013 and 2012

(Dollars in thousands)

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

Balance at December 31, 2011		22,411,108	$	224	$	27,491	$	(19,991	)	$	(938	)	$	6,786

Net loss for the three months ended March 31, 2012 (unaudited)		0		0		0		(582	)		0			(582	)

Net change in unrealized loss on securities available for sale (unaudited)		0		0		0		0			327			327

Proceeds from sale of common stock (unaudited)		4,076,289		41		1,602		0			0			1,643

Balance at March 31, 2012 (unaudited)		26,487,397	$	265	$	29,093	$	(20,573	)	$	(611	)	$	8,174

Balance at December 31, 2012		31,511,201	$	315	$	31,057	$	(24,688	)	$	226		$	6,910

Net loss for the three months ended March 31, 2013 (unaudited)		0		0		0		(2,157	)		0			(2,157	)

Net change in unrealized loss on securities available for sale (unaudited)		0		0		0		0			(31	)		(31	)

Issuance of common stock as compensation (unaudited)		18,908		0		9		0			0			9

Balance at March 31, 2013 (unaudited)		31,530,109	$	315	$	31,066	$	(26,845	)	$	195		$	4,731

See Accompanying Notes to Condensed Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2013			2012
Cash flows from operating activities:
Net loss	$	(2,157	)	$	(582	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		47			26
Provision for loan losses		1,372			27
Net amortization of fees, premiums and discounts		9			9
Provision for losses on foreclosed real estate		183			25
Common stock issued as compensation		9			—
(Increase) decrease in accrued interest receivable		(1	)		4
Decrease (increase) in other assets		99			(100	)
Decrease in official checks and other liabilities		(384	)		(502	)
Other-than-temporary impairment losses		204			0

Net cash used in operating activities		(619	)		(1,093	)

Cash flows from investing activities:
Principal repayments and calls of securities		1,487			2,286
Net (increase) decrease in loans		(2,937	)		929
Purchases of premises and equipment		(82	)		(8	)
Capital improvements on foreclosed real estate		0			(22	)
Redemption FHLB stock		59			0

Net cash (used in) provided by investing activities		(1,473	)		3,185

Cash flows from financing activities:
Net decrease in deposits		(5,728	)		(2,362	)
Net increase (decrease) in advanced payments by borrowers for taxes and insurance		150			(58	)
Proceeds from sale of common stock		0			1,643

Net cash used in financing activities		(5,578	)		(777	)

Net (decrease) increase in cash and cash equivalents		(7,670	)		1,315

Cash and cash equivalents at beginning of the period		23,611			22,776

Cash and cash equivalents at end of the period	$	15,941		$	24,091

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)

	Three Months Ended
	March 31,
	2013			2012
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	525		$	640

Income taxes	$	0		$	0

Noncash transactions:
Change in accumulated other comprehensive loss, net change in unrealized gain on securities available for sale	$	(31	)	$	327

Loans transferred to foreclosed real estate	$	697		$	0

See Accompanying Notes to Condensed Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

(1)	General. OptimumBank Holdings, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a state (Florida)-chartered commercial bank. The Bank’s wholly-owned subsidiaries are OB Real Estate Management, LLC, OB Real Estate Holdings, LLC and OB Real Estate Holding 1503, LLC, all of which were formed in 2009, OB Real Estate Holdings 1695, OB Real Estate Holdings 1669, OB Real Estate Holdings 1645, OB Real Estate Holdings 1620 and OB Real Estate Holdings 1565, all formed in 2010; OB Real Estate Holdings 1443 and OB Real Estate Holdings Northwood, OB Real Estate Holdings 1596, OB Real Estate Holdings 1636 formed in 2011; and OB Real Estate Holdings 1655, OB Real Estate Holdings 1692, OB Real Estate Holdings 1704, OB Real Estate Holdings Rosemary and OB Real Estate Holdings Sillato formed in 2012 (the “Real Estate Holding Subsidiaries”). The Holding Company’s only business is the operation of the Bank and its subsidiaries (collectively, the “Company”). The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of commercial banking services to individual and corporate customers through its three banking offices located in Broward County, Florida. OB Real Estate Management, LLC is primarily engaged in managing foreclosed real estate. This subsidiary had no activity in 2012 and 2011. All other subsidiaries are primarily engaged in holding and disposing of foreclosed real estate.
	In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at March 31, 2013, and the results of operations and cash flows for the three-month periods ended March 31, 2013 and 2012. The results of operations for the three months ended March 31, 2013, are not necessarily indicative of the results to be expected for the full year.
	Comprehensive Loss. Generally accepted accounting principles 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 sheet, such items along with net loss, are components of comprehensive loss. The only component of other comprehensive loss is the net change in the unrealized loss on the securities available for sale.
	Income Taxes. During the year ended December 31, 2009, the Company assessed its earnings history and trend over the past year and its estimate of future earnings, and determined that it is more likely than not that the deferred tax asset will not be realized in the near term. Accordingly, a valuation allowance was recorded against the net deferred tax asset for the amount not expected to be realized in the future. Based on the available evidence at March 31, 2013, the Company determined that it is still more likely than not that the deferred tax asset will not be realized in the near term.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(1)

General, Continued.

Recent Pronouncements. In January 2013, the FASB issued Accounting Standards Update No. 2013-01 (“ASU 2013-01”), Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2013, the FASB issued Accounting Standards Update 2013-2 (“ASU 2013-2”), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (Topic 220). ASU 2013-2 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company adopted the standard in January 2013 and it did not have a significant impact on the Company’s consolidated financial statements.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

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

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
At March 31, 2013:
Securities Available for Sale-
Mortgage-backed securities	$	16,725	$	325	$	(130	)	$	16,920

At December 31, 2012:
Securities Available for Sale-
Mortgage-backed securities	$	18,422	$	305	$	(79	)	$	18,648

	In June 2011, the Company transferred securities with a book value of approximately $50.5 million from the held to maturity category to the available for sale category. The fair value of the securities was $49.8 million resulting in unrealized losses of approximately $0.7 million. The net unrealized loss was recorded in accumulated other comprehensive income. Due to this transfer, the Company will be prohibited from classifying securities as held to maturity for a period of two years.

	Securities with gross unrealized losses at March 31, 2013, 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					Gross
	Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value
Securities Available for Sale-
Mortgage-backed securities	$	(68	)	$	2,194	$	(62	)	$	1,984

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), 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.

In evaluating mortgage-backed securities with unrealized losses greater than twelve 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. During the three months ended March 31, 2013, the Company recorded other-than-temporary impairment charges totaling $204,000 which resulted in cumulative OTTI of $708,000 at March 31, 2013.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(2)

Securities, Continued. The unrealized losses on 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.

(3)

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

	At March 31,			At December 31,
	2013			2012

Residential real estate	$	29,803		$	30,064
Multi-family real estate		3,885			3,916
Commercial real estate		38,944			39,126
Land and construction		7,233			7,276
Commercial		8,604			7,158
Consumer		107			70

Total loans		88,576			87,610

Add (deduct):
Net deferred loan fees, costs and premiums		38			58
Allowance for loan losses		(2,540	)		(2,459	)

Loans, net	$	86,074		$	85,209

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

	Residential Real Estate			Multi-Family Real Estate			Commercial Real Estate			Land and Construction			Commercial		Consumer			Total
Three Months Ended March 31, 2013:
Beginning balance	$	434		$	267		$	1,372		$	166		$	216	$	4		$	2,459
Provision (credit) for loan losses		32			(224	)		1,567			(36	)		40		(7	)		1,372
Charge-offs		(97	)		0			(1,197	)		0			0		0			(1,294	)
Recoveries		0			0			0			0			0		3			3

Ending balance	$	369		$	43		$	1,742		$	130		$	256	$	0		$	2,540

Individually evaluated for impairment:
Recorded investment	$	7,410		$	0		$	9,579		$	872		$	0	$	0		$	17,861
Balance in allowance for loan losses	$	0		$	0		$	882		$	17		$	0	$	0		$	899

Collectively evaluated for impairment:
Recorded investment	$	22,393		$	3,885		$	29,365		$	6,361		$	8,604	$	107		$	70,715
Balance in allowance for loan losses	$	369		$	43		$	860		$	113		$	256	$	0		$	1,641

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)	Loans, Continued.

	Residential Real Estate		Multi-Family Real Estate			Commercial Real Estate			Land and Construction			Commercial			Consumer		Total
Three Months Ended March 31, 2012:
Beginning balance	$	549	$	247		$	1,190		$	187		$	161		$	15	$	2,349
Provision (credit) for loan losses		112		(33	)		(307	)		294			(44	)		5		27
Charge-offs		0		0			(69	)		(335	)		0			0		(404	)
Recoveries		0		0			0			0			0			3		3

Ending balance	$	661	$	214		$	814		$	146		$	117		$	23	$	1,975

Individually evaluated for impairment:
Recorded investment	$	8,006	$	0		$	15,438		$	6,877		$	0		$	0	$	30,321
Balance in allowance for loan losses	$	0	$	0		$	0		$	0		$	0		$	0	$	0

Collectively evaluated for impairment:
Recorded investment	$	21,885	$	4,059		$	25,587		$	4,520		$	3,693		$	125	$	59,869
Balance in allowance for loan losses	$	661	$	214		$	814		$	146		$	117		$	23	$	1,975

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued. The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified by the Company are as follows:

Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Real estate mortgage loans are typically segmented into four categories: Residential real estate, Multi-family real estate, Commercial real estate, and Land and Construction. Residential real estate loans are underwritten in accordance with policies set forth and approved by the Board of Directors (the “Board”), including repayment capacity and source, value of the underlying property, credit history and stability. Multi-family real estate and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Company’s Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Land and construction loans to borrowers are to finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, costs estimates and pre-construction sale information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued.

Commercial Loans. Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, the Company takes as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets. These loans are also affected by adverse economic conditions should they prevail within the Company’s local market.

Consumer Loans. Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to ten years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

The following summarizes the loan credit quality (in thousands):

	Pass		OLEM (Other Loans Especially Mentioned)		Substandard		Doubtful		Loss		Total
At March 31, 2013:
Residential real estate	$	22,393	$	0	$	7,410	$	0	$	0	$	29,803
Multi-family real estate		3,885		0		0		0		0		3,885
Commercial real estate		26,858		1,390		10,696		0		0		38,944
Land and construction		4,379		1,982		872		0		0		7,233
Commercial		7,544		995		65		0		0		8,604
Consumer		107		0		0		0		0		107

Total	$	65,166	$	4,367	$	19,043	$	0	$	0	$	88,576

At December 31, 2012:
Residential real estate	$	22,491	$	0	$	7,573	$	0	$	0	$	30,064
Multi-family real estate		3,916		0		0		0		0		3,916
Commercial real estate		24,967		2,624		11,535		0		0		39,126
Land and construction		4,402		1,987		887		0		0		7,276
Commercial		7,092		66		0		0		0		7,158
Consumer		70		0		0		0		0		70

Total	$	62,938	$	4,677	$	19,995	$	0	$	0	$	87,610

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued. 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.

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. 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.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)	Loans, Continued. Age analysis of past-due loans is as follows (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
At March 31, 2013:
Residential real estate	$	0	$	1,309	$	0	$	1,309	$	23,983	$	4,511	$	29,803
Multi-family real estate		0		0		0		0		3,885		0		3,885
Commercial real estate		2,973		0		0		2,973		26,392		9,579		38,944
Land and construction		0		0		0		0		6,361		872		7,233
Commercial		696		0		0		696		7,908		0		8,604
Consumer		0		0		0		0		107		0		107

Total	$	3,669	$	1,309	$	0	$	4,978	$	68,636	$	14,962	$	88,576

At December 31, 2012:
Residential real estate	$	0	$	2,915	$	0	$	2,915	$	22,492	$	4,657	$	30,064
Multi-family real estate		0		0		0		0		3,916		0		3,916
Commercial real estate		0		0		0		0		27,591		11,535		39,126
Land and construction		0		0		0		0		6,389		887		7,276
Commercial		699		0		0		699		6,459		0		7,158
Consumer		0		0		0		0		70		0		70

Total	$	699	$	2,915	$	0	$	3,614	$	66,917	$	17,079	$	87,610

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)	Loans, Continued. The following summarizes the amount of impaired loans (in thousands):

	At March 31, 2013						At December 31, 2012
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Residential real estate	$	7,410	$	7,959	$	0	$	7,573	$	8,024	$	0
Commercial real estate		6,721		13,425		0		8,661		11,412		0

With an allowance recorded:
Commercial real estate	$	2,858	$	2,858	$	882	$	2,874	$	2,874	$	366
Land and construction		872		2,396		17		886		2,410		0

Total:
Residential real estate	$	7,410	$	7,959	$	0	$	7,573	$	8,024	$	0
Commercial real estate	$	9,579	$	16,283	$	882	$	11,535	$	14,286	$	366
Land and construction	$	872	$	2,396	$	17	$	886	$	2,410	$	0

Total	$	17,861	$	26,638	$	899	$	19,994	$	24,720	$	366

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

	For the Period Ended March 31,						For the Period Ended March 31,
	2013						2012
	Average		Interest		Interest		Average		Interest		Interest
	Recorded		Income		Income		Recorded		Income		Income
	Investment		Recognized		Received		Investment		Recognized		Received

Residential real estate	$	7,520	$	95	$	126	$	8,011	$	52	$	68
Commercial real estate	$	10,904	$	0	$	45	$	15,568	$	0	$	51
Land and construction	$	869	$	0	$	15	$	7,123	$	0	$	29

Total	$	19,293	$	95	$	186	$	30,702	$	52	$	148

No loans have been determined to be troubled debt restructurings (“TDR’s”) during the three months ended March 31, 2013 or 2012.

The allowance for loan losses on commercial and consumer loans that have been restructured and are considered TDR’s is included in the Company’s specific reserve. The specific reserve is determined on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral-dependent. TDR’s that have subsequently defaulted are considered collateral-dependent.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(4)	Regulatory Capital. The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at March 31, 2013 of the regulatory capital requirements and the Bank’s capital on a percentage basis:

	Bank			Consent Order Regulatory Requirement

Tier I capital to total average assets		7.10	%		8.00	%

Tier I capital to risk-weighted assets		8.68	%		N/A

Total capital to risk-weighted assets		9.93	%		12.00	%

As a result of the Consent Order discussed in Note 10, the Bank is categorized as “adequately capitalized” until the Consent Order is lifted, even if its ratios were to exceed those required to be a “well capitalized” bank.

(5)

Loss Per Share. Basic loss per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. Basic and diluted loss per share is the same due to the net loss incurred by the Company. Loss per common share has been computed based on the following:

	Three Months Ended
	March 31,
	2013		2012
Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share		31,511,412		22,509,296

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(6)

Stock-Based Compensation. On December 27, 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”). A total of 2,128,499 shares of common stock are available to be issued under the 2011 Plan. Options, restricted stock, performance share awards and bonus share awards in lieu of obligations may be issued under the 2011 Plan. Both incentive stock options and nonqualified stock options can be granted under the 2011 Plan. The exercise price of the stock options cannot be less than the fair market value of the common stock on the date of grant. Effective January 1, 2012, the Company adopted a Non- Employee Director Compensation Plan under which bonus shares issuable under the 2011 Plan may be earned as compensation to outside directors. During the three months ended March 31, 2013, 18,908 shares of stock valued at approximately $9,000 have been earned under the 2011 Plan and Non-Employee Director Compensation Plan as compensation to outside directors.

The Company’s prior stock option plan terminated on February 27, 2011. At March 31, 2013, no options were available for grant under this plan. Options must be exercised within ten years of the date of grant.

A summary of the activity in the prior plan is as follows:

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

Outstanding at December 31, 2012		27,356	$	36.27
Options forfeited		13,674		40.30
Outstanding and exercisable at March 31, 2013		13,682	$	32.24	2.4 years	$	0

(7)	Fair Value Measurements. Securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):

			Fair Value Measurements at Reporting Date Using
			Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
As of March 31, 2013-
Mortgage-backed securities	$	16,920	$	0	$	16,920	$	0

As of December 31, 2012-
Mortgage-backed securities	$	18,648	$	0	$	18,648	$	0

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(7)	Fair Value Measurements, Continued. There were no transfers of securities between levels of inputs for the three months ended March 31, 2013.

	Assets measured at fair value on a nonrecurring basis are as follows (in thousands):

											Losses
	Fair								Total		Recorded in
	Value		Level 1		Level 2		Level 3		Losses		Operations
At March 31, 2013:
Residential real estate	$	1,556	$	0	$	0	$	1,556	$	548	$	0
Commercial real estate		6,769		0		0		6,769		4,391		516
Land and construction		872		0		0		872		449		0

	$	9,197	$	0	$	0	$	9,197	$	5,388	$	516

Foreclosed real estate	$	11,452	$	0	$	0	$	11,452	$	1,046	$	184

At December 31, 2012:
Residential real estate	$	1,247	$	0	$	0	$	1,247	$	451	$	0
Commercial real estate		6,232		0		0		6,232		2,780		366
Land and construction		887		0		0		887		449		0

	$	8,366	$	0	$	0	$	8,366	$	3,680	$	366

Foreclosed real estate	$	10,938	$	0	$	0	$	10,938	$	102	$	102

(8)	Fair Value of Financial Instruments. The estimated fair values and fair value measurement method with respect to the Company’s financial instruments were as follows (in thousands):

	At March 31, 2013						At December 31, 2012
	Carrying		Fair				Carrying		Fair
	Amount		Value		Level		Amount		Value		Level
Financial assets:
Cash and cash equivalents	$	15,941	$	15,941		1	$	23,611	$	23,611		1
Securities available for sale		16,920		16,920		2		18,648		18,648		2
Loans		86,074		85,898		3		85,209		85,046		3
Federal Home Loan Bank stock		1,419		1,419		3		1,478		1,478		3
Accrued interest receivable		500		500		3		499		499		3

Financial liabilities:
Deposit liabilities		95,883		96,333		3		101,611		101,985		3
Federal Home Loan Bank advances		27,700		29,497		3		27,700		29,633		3
Junior subordinated debenture		5,155		4,832		3		5,155		4,836		3
Off-balance sheet financial instruments		0		0		3		0		0		3

Discussion regarding the assumptions used to compute the estimated fair values of financial instruments can be found in Note 1 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2012.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(9)	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 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.

	Management believes the Company is in substantial compliance with the requirements of the Written Agreement.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(10)	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 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.
	●	The Bank is required to revise, implement and incorporate recommendations of the FDIC and OFR with respect to the following policies or plans:

	m	Lending and Collection Policies
	m	Investment Policy

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(10)	Regulatory Matters – Bank, Continued.

	m	Liquidity, Contingency Funding and Funds Management Plan
	m	Interest Rate Risk Management Policy
	m	Internal Loan Review and Grading System;
	m	Internal Control Policy; and
	m	A plan to reduce concentration in commercial real estate loans;

	●	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.

Management believes that the Bank is currently in substantial compliance with all the requirements of the Consent Order except for the following requirements:

	●	Scheduled reductions by October 31, 2011, and April 30, 2012, of 60% and 75%, respectively, of loans classified as substandard and doubtful in the 2009 FDIC Examination;
	●	Development of a plan to reduce Bank’s concentration in commercial real estate loans acceptable to the supervisory authorities;
	●	Capital ratio requirements of 12% Tier I and 8% Tier I leverage capital ratio.

	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. The Company entered into a contract with Moishe Gubin, Chairman of the Board of Directors, to sell approximately $2.2 million of common stock to Mr. Gubin. The additional $2.2 million in capital from Mr. Gubin is expected to enable the Bank to comply with the total risk-based capital ratio of 12% and Tier 1 leverage capital ratio of 8%. The investment by Mr. Gubin is contingent upon receiving regulatory approval. At the present time, neither the Company nor Mr. Gubin can predict when or if the regulatory approval will be obtained. In the event regulatory approval is not obtained, the Board intends to seek capital through other investors. Accordingly, there can be no assurance that the Company will raise sufficient capital for the Bank to achieve and maintain material compliance with this ratio.

(11)	Junior Subordinated Debenture. The terms of the debenture agreement allow 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 consecution quarterly periods. The Company has elected its right to defer payment of interest on the debenture. Accrued and unpaid interest on the debenture totaled $523,000 at March 31, 2013.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto presented elsewhere in this report. For additional information, refer to the financial statements and footnotes for the year ended December 31, 201 2 in the Annual Report on Form 10-K.

Regulatory Enforcement Actions

Bank Consent Order. On April 16, 2010, the Bank consented to the issuance of a Consent Order (“Consent Order”) by the FDIC and OFR. The Consent Order covers areas of the Bank’s operations that warrant improvement and imposes various requirements and restrictions designed to address these areas, including the requirement to maintain certain minimum capital ratios. A detailed discussion of the Consent Order is contained in Footnote 10 to the condensed consolidated financial statements contained in this report. Management believes that the Bank is currently in substantial compliance with all the requirements of the Consent Order except for the following requirements:

●

Scheduled reductions by October 31, 2011, and April 30, 2012, of 60% and 75%, respectively, of loans classified as substandard and doubtful in the 2009 FDIC Examination;

●

Development of a plan to reduce Bank’s concentration in commercial real estate loans acceptable to the supervisory authorities;

●

Capital ratio requirements of 12% Tier I and 8% Tier I leverage capital ratio.

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. As of March 31, 2013, scheduled reductions of the aforementioned 2009 classified loans were 65.75%.

Company Written Agreement with Reserve Bank. On June 22, 2010, the Company and the Reserve Bank entered into a Written Agreement with respect to certain aspects of the operation and management of the Company, including, without the prior approval of the Reserve Bank, paying or declaring dividends, taking dividends or payments from the Bank, making any interest, principal or other distributions on trust preferred securities, incurring, increasing or guaranteeing any debt, purchasing or redeeming any shares of stock, or appointing any new director or senior executive officer. Management believes that the Company is currently in substantial compliance with the requirements of the Written Agreement. A detailed discussion of the Written Agreement is contained in Footnote 8 to the condensed consolidated financial statements contained in this report.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company), including adverse changes in economic, political and market conditions, losses from the Company’s lending activities and changes in market conditions, the possible loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of federal and state securities laws and the impact of changes in technology in the banking industries. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company’s actual results will not differ materially from any results expressed or implied by the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance.

Capital Levels

At March 31, 2013, the Bank did not meet the regulatory capital requirements of the Consent Order. The following table summarizes the capital measures of the Bank at March 31, 2013 and December 31, 2012:

					FDIC Guideline Requirements
	March 31,		December 31,		Adequately-		Well-		Consent
	2013		2012		Capitalized		Capitalized		Order

Leverage ratio		7.10		8.12		4.00		5.00		8.00

Tier I risk-based capital ratio		8.68		10.23		4.00		6.00		*

Total risk-based capital ratio		9.93		11.48		8.00		10.00		12.00

*No additional requirement is established by the Consent Order

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued

Financial Condition at March 31, 2013 and December 31, 2012

Overview

Our total assets declined by $8.1 million to $135.6 million at March 31, 2013, from $143.7 million at December 31, 2012, due to a $1.5 million reduction in securities primarily as a result of repayments and a $7.7 million reduction in cash primarily as a result of a reduction in deposits. Deposits decreased by $5.7 million to $95.9 million at March 31, 2013, from $101.6 million at December 31, 2012, primarily due to a reduction in time deposits. Total stockholders’ equity decreased by $2.2 million to $4.7 million at March 31, 2013 from $6.9 million at December 31, 2012, due to a $2.2 million net loss for the three month period ended March 31, 2013.

The following table shows selected information for the periods ended or at the dates indicated:

	Three Months Ended March 31, 2013			Year Ended December 31, 2012			Three Months Ended March 31, 2012
Average equity as a percentage of average assets	4.23		%	5.15		%	4.67		%

Equity to total assets at end of period		3.49	%		4.81	%		5.34	%

Return on average assets (1)		(6.16	)%		(3.10	)%		(1.54	)%

Return on average equity (1)		(145.47	)%		(60.28	)%		(33.07	)%

Noninterest expenses to average assets (1)		3.90	%		3.62	%		3.15	%

(1) Annualized for the three months ended March 31, 2013 and 2012.

Despite the slowing decline of real estate values in South Florida, we continue to experience the adverse effects of the prolonged real estate devaluation resulting in significant levels of non-performing loans, foreclosed real estate and loan charge-offs. Management, however, is committed to minimizing further losses in the loan portfolio and reducing our nonperforming assets.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued

Liquidity and Sources of Funds

The Bank’s sources of funds include customer deposits, advances from the Federal Home Loan Bank of Atlanta (“FHLB”), principal repayments and sales of investment securities, loan repayments, foreclosed real estate sales, the use of Federal Funds markets, net income, if any, and loans taken out at the Federal Reserve Bank discount window.

Deposits are our primary source of funds. Under the Consent Order, the interest rates that we pay on our market area deposits and our ability to accept brokered deposits is restricted. The restriction on brokered deposits is not expected to alter the Bank’s current deposit gathering activities since the Bank has not accepted, renewed or rolled over any brokered deposits since December 2009. With respect to the yield limitations, it is possible that the Bank could experience a decrease in deposit inflows, or the migration of current deposits to competitor institutions, if other institutions offer higher interest rates than those permitted to be offered by the Bank. Despite these yield limitations, we believe that we have the ability to adjust rates on our deposits to attract or retain deposits as needed.

In addition to obtaining funds from depositors, we may borrow funds from other financial institutions. At March 31, 2013, the Bank had outstanding borrowings of $27.7 million, against its $27.7 million in established borrowing capacity with the FHLB. The Bank’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance. In 2010, the Bank obtained an available discount window credit line with the Reserve Bank, currently $1.9 million. The Reserve Bank line is subject to collateral requirements and must be repaid within 90 days; each advance is subject to prior Reserve Bank consent. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs.

The Company, on an unconsolidated basis, typically relies on dividends from the Bank to fund its operating expenses, primarily expenses of being publicly held, and to make interest payments on its outstanding trust preferred securities. Under the Consent Order, the Bank is currently unable to pay dividends without prior regulatory approval. In addition, under the Written Agreement, we may not pay interest payments on the trust preferred securities or dividends on our common stock, incur any additional indebtedness at the holding company level, or redeem our common stock without the prior regulatory approval of the Reserve Bank. Since January 2010, we have deferred interest payments on our trust preferred securities.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract amounts of these instruments reflect the extent of the Company’s involvement in these financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter party. As of March 31, 2013, the Company had commitments to extend credit totaling $245,000.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued

Results of Operations

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) ratio of average interest-earning assets to average interest-bearing liabilities.

	Three Months Ended March 31,
	2013							2012
			Interest		Average					Interest		Average
	Average		and		Yield/			Average		and		Yield/
	Balance		Dividends		Rate			Balance		Dividends		Rate
Interest-earning assets:
Loans	$	89,442		1,093		4.89	%	$	90,721		995		4.39	%
Securities		18,581		192		4.13			28,367		298		4.20
Other (1)		15,548		16		0.41			22,236		16		0.29

Total interest-earning assets/interest income		123,571		1,301		4.21			141,324		1,309		3.70

Cash and due from banks		4,076							421
Premises and equipment		2,915							2,685
Other		9,574							6,363

Total assets	$	140,136						$	150,793

Interest-bearing liabilities:
Savings, NOW and money-market deposits		33,579		49		0.58			34,831		55		0.63
Time deposits		61,310		180		1.17			69,275		236		1.36
Borrowings (2)		32,855		335		4.08			36,855		389		4.22

Total interest-bearing liabilities/interest expense		127,744		564		1.77			140,961		680		1.93

Noninterest-bearing demand deposits		3,757							545
Other liabilities		2,704							2,247
Stockholders’ equity		5,931							7,040

Total liabilities and stockholders’ equity	$	140,136						$	150,793

Net interest income			$	737						$	629

Interest rate spread (3)						2.44	%						1.77	%

Net interest margin (4)						2.39	%						1.78	%

Ratio of average interest-earning assets to average interest-bearing liabilities		0.97							1.00

(1)	Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
(2)	Includes Federal Home Loan Bank advances, other borrowings and junior subordinated debenture.
(3)	Interest rate spread represents the difference between average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4)	Net interest margin is net interest income divided by average interest-earning assets.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued

Comparison of the Three-Month Periods Ended March 31, 2013 and 2012

General. Net loss for the three months ended March 31, 2013, was $2.2 million or $(.07) per basic and diluted share compared to a net loss of $.6 million or $(.03) per basic and diluted share for the period ended March 31, 2012. This increase in the Company’s net loss was primarily due to a $1.3 million increase in provision for loan losses.

Interest Income. Interest income remained at $1.3 million for the three months ended March 31, 2013 from $1.3 million for the three months ended March 31, 2012.

Interest Expense. Interest expense on deposits decreased to $.2 million for the three months ended March 31, 2013 from $.3 million for the three months ended March 31, 2012. Interest expense decreased primarily because of a decrease in average deposits.

Provision for Loan Losses. The provision for the three months ended March 31, 2013, was $1.3 million compared to $27,000 for the same period in 2012. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at March 31, 2013. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio. The allowance for loan losses totaled $2.5 million or 2.87% of loans outstanding at March 31, 2013, compared to $2.5 million, or 2.81% of loans outstanding at December 31, 2012. The decrease in the allowance was due to the use of specific reserves for charge-offs of loans deemed uncollectible. Management believes the balance in the allowance for loan losses at March 31, 2013 is adequate.

Noninterest Income. Total noninterest income increased to $46,000 for the three months ended March 31, 2013, from $4,000 for the three months ended March 31, 2012 primarily due to an increase in service charges and fees.

Noninterest Expenses. Total noninterest expenses increased to $1.4 million for the three months ended March 31, 2013 compared to $1.2 million for the three months ended March 31, 2012, primarily due to an increase in foreclosure expenses.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Item 4. Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that these disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Non-Employee Director Share Issuances

On March 31, 2013, the Company allocated an aggregate of 18,908 shares of its common stock to the Company’s non-employee directors under the Company’s 2011 Equity Incentive Plan and the Company’s Non-Employee Director Compensation Plan (the “Director Compensation Plan”) for attendance fees at board meetings of the Company during the first quarter of 2013. Under the Director Compensation Plan, which became effective on January 1, 2012, fees for attendance at board and committee meetings are payable 75% in shares of common stock and 25% in cash on a quarterly basis. The shares were issued at the price of $0.48, the fair market value of the shares on the date of issuance. The issuance of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.

Item 6. Exhibits

The exhibits contained in the Exhibit Index following the signature page are filed with or incorporated by reference into this report.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	OPTIMUMBANK HOLDINGS, INC.
	(Registrant)

Date: May 10, 2013	By:	/s/ Thomas Procelli
		Thomas Procelli,
		Principal Executive Officer and Principal
		Financial Officer

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

EXHIBIT INDEX

Exhibit No.		Description

	3.1	Amended and Restated Articles of Incorporation (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 30, 2012)

	4.1	Bylaws (incorporated by reference from Current Report on Form 8-K filed with the SEC on May 11, 2004)

	4.2	Form of stock certificate (incorporated by reference from Quarterly Report on Form 10-QSB filed with the SEC on August 12, 2004)

	4.3	Form of Registration Rights Agreement between OptimumBank Holdings, Inc. and Investors (incorporated by reference from Current Report on Form 8-K filed with the SEC on October 31, 2011)

	4.4	The Company has outstanding certain long-term debt. None of such debt exceeds ten percent of the Company’s total assets; therefore, copies of the constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the SEC upon request.

	10.1	OptimumBank Holdings, Inc. Non-Employee Director Compensation Plan (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 30, 2012)

	10.2	Amended and Restated Stock Purchase Agreement, dated as of December 5 2011, between OptimumBank Holdings, Inc. and Moishe Gubin (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 30, 2012)

	10.3	First Amendment dated June 29, 2012 to Amended and Restated Stock Purchase Agreement between OptimumBank Holdings, Inc. and Moishe Gubin dated December 5, 2011 (incorporated by reference from Current Report on Form 8-K filed with the SEC on July 6, 2012)

	10.4	Second First Amendment dated October 25, 2012 to Amended and Restated Stock Purchase Agreement between OptimumBank Holdings, Inc. and Moishe Gubin dated December 5, 2011

	31.1	Certification of Principal Executive and Principal Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act

	32.1	Certification of Principal Executive and Principal Financial Officer under 18 U.S.C. Section 1350

	101.INS	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

EXHIBIT INDEX

Exhibit No.		Description

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document