Edgar Filing: OptimumBank Holdings, Inc.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Form 10 K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2011

¨	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)		(I.R.S. Employer Identification No.)

2477 East Commercial Blvd., Fort Lauderdale, FL 33308

(Address of principal executive offices)

Registrant’s telephone number, including area code: (954) 776-2332


Securities registered pursuant to Section 12(b) of the Act:
Title of each class		Name of each exchange on which registered
Common Stock, Par Value $0.01 per share		NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1993. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant ( 742,418 shares) on June 30, 2011, was approximately $ 705,297, computed by reference to the closing market price at $ .95 per share as of June 30, 2011. For purposes of this information, the outstanding shares of common stock owned by directors and executive officers of the registrant were deemed to be shares of common stock held by affiliates.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest most practicable date: The number of shares of common stock, par value $0.01 per share, of the registrant outstanding as of March 28, 2012 was 22,411,108 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on April 24, 2012, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the issuer’s fiscal year end are incorporated by reference into Part III, Items 10 through 14, of this Annual Report on Form 10-K.

TABLE OF CONTENTS


		Page
PART I			1

Item 1.	Business
	Forward-Looking Statements		1
	General		1
	Recent Developments		1
	Banking Products		2
	Strategy		2
	Lending Activities		3
	Deposit Activities		3
	Investments		4
	Correspondent Banking		4
	Data Processing		4
	Internet Banking		4
	Competition		4
	Employees		4
	Supervision and Regulation		4
	Statistical Profile and Other Financial Data		12

Item 2.	Properties		12
Item 3.	Legal Proceedings		12
Item 4.	Mine Safety Disclosures

PART II			13

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		13
Item 6.	Selected Financial Data		14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 8.	Financial Statements		31
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		31
Item 9A.	Controls and Procedures		31
Item 9B.	Other Information		32

PART III			32

Item 10.	Directors, Executive Officers, and Corporate Governance		32
Item 11.	Executive Compensation		32
Item 12.	Security Ownership of Certain Beneficial Owners and Management		32
Item 13.	Certain Relationships and Related Transactions, and Director Independence		33
Item 14.	Principal Accounting Fees and Services		33

PART IV			33

Item 15.	Exhibits and Financial Statement Schedules		33

SIGNATURES			34

PART I

Item 1.

Business

Forward-Looking Statements

We have made forward-looking statements in this Annual Report about the financial condition, results of operations, and business of our company. These statements are not historical facts and include expressions concerning the future that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among other things, the following possibilities:

•

general economic conditions, either nationally or regionally, that are less favorable than expected resulting in, among other things, a deterioration in credit quality and an increase in credit risk-related losses and expenses;

•

changes in the interest rate environment that reduce margins;

•

competitive pressure in the banking industry that increases significantly;

•

changes that occur in the regulatory environment; and

•

changes that occur in business conditions and the rate of inflation.

When used in this Annual Report, the words “believes,” “estimates,” “plans,” “expects,” “should,” “may,” “might,” “outlook,” and “anticipates,” as well as similar expressions, as they relate to OptimumBank Holdings, Inc., or its management, are intended to identify forward-looking statements.

General

OptimumBank Holdings, Inc. (the “Company”), is a Florida corporation formed in 2004 as a bank holding company for OptimumBank (the “Bank”). The Company’s only business is the operation of OptimumBank and the Bank’s subsidiaries. The Bank is a Florida state chartered bank established in 2000, with deposits insured 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. The Bank has 13 wholly-owned subsidiaries primarily engaged in holding and disposing of foreclosed real estate under substantially similar names of OB Real Estate Holdings, LLC, with a separate identifying loan number or name for the real estate owned by each subsidiary, e.g., OB Real Estate Holdings 1645, LLC. OptimumBank Real Estate Management, LLC, a wholly owned subsidiary of the Bank, is primarily engaged in managing foreclosed real estate.

OptimumBank Holdings is subject to the supervision and regulation of the Federal Reserve. OptimumBank is subject to the supervision and regulation of the State of Florida Office of Financial Regulation (“OFR”) and the FDIC. OptimumBank is a member of the Federal Home Loan Bank of Atlanta.

Recent Developments

On April 16, 2010, the Bank agreed to the issuance of the Consent Order by the FDIC and the OFR, which required the Bank to take certain measures to improve its safety and soundness. Under the Consent Order, the Bank was required to take certain measures to improve its capital position, reduce its level of problem assets, reduce its loan concentrations in certain portfolios, improve management practices and board supervision and assure that its reserve for loan losses was maintained at an appropriate level. Among the corrective actions required were for the Bank to have and maintain a Tier 1 leverage ratio of at least 8% and a total risk-based capital ratio of 12% beginning 90 days from the issuance of the Consent Order.

In addition to the Consent Order, on June 22, 2010, the Company entered into the Written Agreement, with the Federal Reserve Bank of Atlanta, which required the Company to take certain measures to ensure the Bank complied with the Consent Order. Under the Written Agreement, the Company is subject to restrictions on paying interest on debt, or paying dividends or distributions on stock, including its common stock, as well as incurring additional debt or redeeming stock. Additional details on the Consent Order and the Written Agreement are contained in “Business-Supervision and Regulation- Consent Order- and -Written Agreement with the Federal Reserve.”

In order to address the capital requirements of the Consent Order, during the fourth quarter of 2011, the Company sold approximately 21.6 million shares of its common stock in a private placement offering. The Company received net proceeds of approximately $8.6 million all of which was downstreamed into the Bank. At December 31, 2011, after giving effect to $8.6 million in new capital, the Bank remained out of compliance with the 8% Tier 1 leverage ratio requirement set forth in the Consent Order. At December 31, 2011, the Bank would have needed approximately $.4 million in additional capital in order to comply with the Tier 1 leverage ratio requirement of the Consent Order.

In the fourth quarter of 2011, the Company entered into an agreement with Moishe Gubin, Chairman of our board of directors, to sell 6,750,000 shares to Mr. Gubin at a price of $.40 per share, for a total of $2.7 million. The transaction is subject to approval by the Federal Reserve Board of Governors and the OFR and is scheduled to close on or before June 30, 2012. This amount is expected to be sufficient to allow the Bank to meet the capital requirements of the Consent Order at the time of the closing of the transaction. We also expect that we will need to raise additional capital in the future in order to grow our banking operations and to implement our business plan.

Banking Products

Our revenues are primarily derived from interest on, and fees received in connection with, real estate, and other loans, and from interest from mortgage-backed securities and short-term investments. The principal sources of funds for our lending activities are deposits, borrowings, repayment of loans, and the repayment, or maturity of investment securities. Our principal expenses are the interest paid on deposits, and operating and general administrative expenses.

As is the case with banking institutions generally, our operations are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial institution regulatory agencies, including the Board of Governors of the Federal Reserve System and the FDIC. Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds. We face strong competition in attracting deposits (our primary source of lendable funds) and originating loans.

We provide a range of consumer and commercial banking services to individuals and businesses. The basic services we offer include: demand interest-bearing and noninterest-bearing accounts, money market deposit accounts, NOW accounts, time deposits, credit cards, cash management, direct deposits, notary services, money orders, night depository, travelers’ checks, cashier’s checks, domestic collections, savings bonds, bank drafts, automated teller services, drive-in tellers, and banking by mail. In addition, we make residential and commercial real estate loans and consumer loans. We provide ATM cards, as a part of the Star, Presto and Cirrus networks, thereby permitting customers to utilize the convenience of ATMs worldwide. We do not have trust powers and provide no trust services.

Strategy

Our continuing goal is to become one of the leading community banking organizations in Broward County through steady, reasonable and controlled growth and a prudent operating strategy.

Our operating and business strategy emphasizes:

•

Local management and local decision making resulting in rapid, personalized customer service, rapid credit decisions and expedited closings;

•

Maintaining our presence in Broward County through a branch network- we currently have three branch banking offices in Broward County;

•

Real estate, commercial and consumer lending activities by originating primarily adjustable rate residential and commercial mortgage loans, commercial loans, and consumer loans for our customers;

•

Maintaining high credit quality through strict underwriting criteria, and our knowledge of the real estate values and borrowers in our market area;

•

Personalized products and service - we strive to provide innovative financial products, high service levels and to maintain strong customer relationships. We seek customers who prefer to conduct business with a locally owned and managed institution.

Our management is focusing its efforts on a long-term strategy with the following objectives:

•

Stabilize the Loan Portfolio - Management is devoting significant resources to the identification and workout of problem loans.

•

Increase and Diversify Loan Originations - Management is focused on increasing its loan production to add more interest bearing assets and interest income to its asset based. In addition, Management is diversifying its loan originations and portfolio to include commercial and consumer loans, in addition to residential and commercial real estate loans.

•

Lower the Cost of Deposits - Management is focused on changing the Bank’s deposit mix by replacing higher cost interest bearing time deposits with non-interest bearing demand deposits.

•

Increase Capital Ratios - Management continues to seek additional sources of capital in order to increase the Bank’s capital ratios, which in turn allows the Bank to grow, implement its business plan and return to profitability.

Lending Activities

We offer real estate, commercial and consumer loans, to individuals and small businesses and other organizations that were located in or conduct a substantial portion of their business in our market area. Our market area consists of the tri-county area of Broward, Miami-Dade and Palm Beach counties. Our net loans at December 31, 2011 were $89.2 million, or 57.8% of total assets. The interest rates we charge on loans vary with the degree of risk, maturity, and amount of the loan, and are further subject to competitive pressures, money market rates, availability of funds, and government regulations. We have no foreign loans or loans for highly leveraged transactions.

Our loan portfolio is concentrated in two major areas: residential and commercial real estate loans. As of December 31, 2011, 99.8% of our loan portfolio consisted of loans secured by mortgages on real estate, of which approximately 34.0% of the total loan portfolio was secured by one-to-four family residential properties. Our real estate loans are located primarily in our tri-county market area.

Our real estate loans are secured by mortgages and consist primarily of loans to individuals and businesses for the purchase or improvement of, or investment in, real estate. These real estate loans were made at fixed or variable interest rates and are normally adjustable rate mortgages which adjust annually after the initial three to five year period. Our fixed rate loans generally are for terms of five years or less, and are repayable in monthly installments based on a maximum 30-year amortization schedule.

Loan originations are derived primarily from director and employee referrals, existing customers, direct marketing and an independent mortgage broker that processes our loans. We pay fees to this broker in connection with their services; however, we perform the underwriting and approval of each of the loans we fund. Loan originations have also been derived from existing customers, and referrals from existing customers, and Company directors and employees.

Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions including interest rates, and risks inherent in dealing with individual borrowers. A significant portion of our portfolio is collateralized by real estate in south Florida, and we are susceptible to local economic downturns. We attempt to minimize credit losses through various means. On larger credits, we rely on the cash flow and assets of a debtor as the source of repayment as well as the value of the underlying collateral. We also generally limit our loans to 80% of the value of the underlying real estate collateral. On brokered loans, we generally charge a prepayment penalty if a loan is repaid within the first two to three years of origination to recover any fees we paid for the origination of the loan.

Due to the effects of the current recession, our earnings have been materially affected by required provisions for loan losses, and to a lesser degree, reduced interest income and increased loan administration expenses, stemming primarily from deterioration in our commercial real estate and land loan portfolios. For the two year period from October 2009 through September 2011, due to the need for the Bank to reduce its exposure to credit risk and preserve regulatory capital, we have limited our lending activities to restructuring, modifying, or extending existing loans and lending to purchasers of real estate properties owned by the Bank. Since completion of the capital raise in the last quarter of 2011, we have resumed all of our lending activities.

Deposit Activities

Deposits are the major source of our funds for lending and other investment activities. We consider the majority of our regular savings, demand, NOW, money market deposit accounts and CD’s under $100,000 to be core deposits. These accounts comprised approximately 72.0% of our total deposits at December 31, 2011. Approximately 66.6% of our deposits at December 31, 2011 were certificates of deposit. Generally, we attempt to maintain the rates paid on our deposits at a competitive level. Time deposits of $100,000 and over made up approximately 27.9% of our total deposits at December 31, 2011. Although these large deposits are not traditionally considered core deposits, the majority of these deposits have served as a stable source of funds in our targeted market. The majority of our deposits are generated from Broward County.

We have used brokered deposits to facilitate the funding of our mortgage lending activities in circumstances when larger than anticipated loan volumes occur and there is not enough time to fund the additional loan demand through traditional deposit solicitation. The time frame from the initial order to the final funding of brokered deposits is generally one to three days. The rates paid on these brokered deposits are typically equal to or slightly less than the high end of the interest rates in OptimumBank’s competitive market area. Since December 2009, we have no longer solicited or renewed existing brokered deposits due to regulatory restrictions. Brokered deposits amounted to 0.4% and 1.2% of our total deposits at December 31, 2011 and 2010, respectively.

Investments

Our investment securities portfolio was approximately $29.0 million and $51.1 million at December 31, 2011 and 2010, respectively, representing 18.8% and 26.8% of our total assets. At December 31, 2011, approximately 41.7% of this portfolio was invested in U.S. government agency mortgage-backed securities and 58.3% of this portfolio was invested in private label mortgage-backed securities. Mortgage backed securities generally have a shorter life than the stated maturity. Our investments are managed in relation to loan demand and deposit growth, and are generally used to provide for the investment of excess funds at minimal risk levels while providing liquidity to fund increases in loan demand or to offset fluctuations in deposits.

Federal funds sold is the excess cash we have available over and above daily cash needs. This money is invested on an overnight basis with approved correspondent banks.

Correspondent Banking

Correspondent banking involves one bank providing services to another bank which cannot provide that service for itself from an economic or practical standpoint. We are required to purchase correspondent services offered by larger banks, including check collections, purchase of federal funds, security safekeeping, investment services, coin and currency supplies, overline and liquidity loan participations, and sales of loans to or participations with correspondent banks.

We have established a correspondent relationship with Independent Bankers Bank of Florida. We pay for such services in cash as opposed to keeping compensating balances. We also sell loan participations to other banks with respect to loans which exceed our lending limit.

Data Processing

We outsource most of our data processing services, including an automated general ledger and deposit accounting; however, we service all our loans in-house.

Internet Banking

We maintain a website at www.optimumbank.com where customers can access account balances, view current account activity and their previous statement, view images of paid checks and transfer funds between accounts. Our website provides information regarding our Visa credit card offering.

Competition

We encounter strong competition both in making loans and in attracting deposits. The deregulation of the banking industry and the widespread enactment of state laws which permit multi-bank holding companies as well as an increasing level of interstate banking have created a highly competitive environment for commercial banking. In one or more aspects of our business, we compete with other commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Most of these competitors, some of which are affiliated with bank holding companies, have substantially greater resources and lending limits, and may offer certain services that we do not currently provide. In addition, many of our non-bank competitors are not subject to the same extensive federal regulations that govern federally insured banks. Recent federal and state legislation has heightened the competitive environment in which financial institutions must conduct their business, and the potential for competition among financial institutions of all types has increased significantly.

To compete, we rely upon specialized services, responsive handling of customer needs, and personal contacts by our officers, directors, and staff. Large multi-branch banking competitors tend to compete primarily by rate and the number and location of branches while smaller, independent financial institutions tend to compete primarily by rate and personal service.

Employees

As of December 31, 2011, we had seventeen full-time employees, including executive officers. The employees are not represented by a collective bargaining unit. We consider relations with employees to be good.

Supervision and Regulation

Banks and their holding companies are extensively regulated under both federal and state law. The following is a brief summary of certain statutes, rules, regulations and enforcement actions affecting OptimumBank Holdings and OptimumBank. This summary is qualified in its entirety by reference to the particular statutory and regulatory provisions referred to below and is

not intended to be an exhaustive description of the statutes or regulations applicable to the business of our company and our bank. Supervision, regulation, and examination of banks by regulatory agencies are intended primarily for the protection of depositors, rather than shareholders.

Consent Order. On April 16, 2010, OptimumBank was required to enter into a Consent Order with the FDIC and the Florida Office of Financial Regulation. Under the Consent Order, the Bank is required to implement a number of corrective measures intended to improve the Bank’s condition, including a requirement to maintain a ratio of Tier 1 capital to adjusted total assets (the “Tier 1 Leverage Ratio”) of 8.0%, and a ratio of total risk based capital to risk-weighted assets of 12.0% (the “Total Risk Based Capital Ratio”). The Consent Order also contains significant operating restrictions.

The Consent Order contains the following principal requirements:

•

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 must revise and implement its written lending and collection policy to provide effective guidance and control of the lending function. 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

•

Plan to reduce concentration in commercial real estate loans;

•

The Bank must develop and implement a satisfactory interest rate risk management policy that is appropriate to the size of the Bank and the complexity of its assets.

•

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 prior to undertaking asset growth of 10% or more per annum while the Consent Order remains in effect.

•

The Bank is required to file periodic 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:

•

Maintenance of a Tier 1 Leverage Ratio of 8%;

•

Scheduled reduction by October 31, 2011 of 60% of loans classified as substandard and doubtful in the 2009 FDIC Examination;

•

Retention of a qualified chief executive officer; and

•

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

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.

Written Agreement with the Federal Reserve. On June 22, 2010, the Company was required to enter into a Written Agreement with the Federal Reserve Bank of Atlanta. The Written Agreement between the Company and the Federal Reserve requires the Company to serve as a source of strength to certain aspects of the capitalization, operation and management of the Bank. The Company also agreed that while the Written Agreement remains in effect, without prior approval of the Federal Reserve, it will not:

•

declare or pay dividends,

•

directly or indirectly take dividends or any other form of payment representing a reduction in capital from OptimumBank.

•

make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities,

•

incur, increase, or guarantee any debt or purchase or redeem any shares of its stock, or

•

appoint any new director or senior executive officer, or change the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position.

Management believes that the Company is in substantial compliance with all the provisions of the Written Agreement with the Federal Reserve.

Dodd-Frank Act. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, into law. The Dodd-Frank Act will have a broad impact on the financial services industry, including potentially significant regulatory and compliance changes including, among other things, (1) enhanced resolution authority of troubled and failing banks and their holding companies; (2) potential changes to capital and liquidity requirements; (3) changes to regulatory examination fees; (4) changes to assessments to be paid to the FDIC for federal deposit insurance; and (5) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Additionally, the Dodd-Frank Act establishes a new framework for systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, the Board of Governors of the Federal Reserve System, or the Federal Reserve, the Office of the Comptroller of the Currency, or the OCC, and the Federal Deposit Insurance Corporation, or the FDIC. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements. Failure to comply with any such laws, regulations, or principles or changes thereto, may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors and shareholders.

The following items provide a brief description of the impact of the Dodd-Frank Act on our operations and activities, both currently and prospectively.

•

Increased Capital Standards and Enhanced Supervision. The federal banking agencies are required to establish minimum leverage and risk-based capital requirements for banks and bank holding companies. These new standards will be no lower than existing regulatory capital and leverage standards applicable to insured depository institutions and may, in fact, be higher when established by the agencies. Compliance with heightened capital standards may reduce our ability to generate or originate revenue-producing assets and thereby restrict revenue generation from banking and non-banking operations. The Dodd-Frank Act also increases regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency. Compliance with new regulatory requirements and expanded examination processes could increase the Company’s cost of operations.

•

The Consumer Financial Protection Bureau. The Dodd-Frank Act creates a new, independent Consumer Financial Protection Bureau, or the Bureau, within the Federal Reserve. The Bureau is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The Bureau has rulemaking authority over many of the statutes governing products and services offered to bank consumers. Generally, we will not be directly subject to the rules and regulations of the Bureau. However, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the Bureau and state attorneys general are permitted to enforce consumer protection rules adopted by the Bureau against certain state-chartered institutions. Any such new regulations could increase our cost of operations and, as a result, could limit our ability to expand into these products and services.

•

Deposit Insurance. The Dodd-Frank Act makes permanent the $250,000 deposit insurance limit for insured deposits. Amendments to the Federal Deposit Insurance Act also revise the assessment base against which an insured depository institution’s deposit insurance premiums paid to the FDIC’s Deposit Insurance Fund, or the DIF, will be calculated. Under the amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15 percent to 1.35 percent of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. Several of these provisions could increase the FDIC deposit insurance premiums paid by us. The Dodd-Frank Act also provides that, effective one year after the date of enactment, depository institutions may pay interest on demand deposits.

•

Transactions with Affiliates. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.

•

Transactions with Insiders. Insider transaction limitations are expanded through the strengthening on loan restrictions to insiders and the expansion of the types of transactions subject to the various limits.

•

Enhanced Lending Limits. The Dodd-Frank Act strengthens the existing limits on a depository institution’s credit exposure to one borrower. Current banking law limits a depository institution’s ability to extend credit to one person (or group of related persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expands the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions.

Company Regulation

General. As a bank holding company registered under the Bank Holding Company Act of 1956 (the “BHCA”), OptimumBank Holdings is subject to the regulation and supervision of, and inspection by, the Federal Reserve. OptimumBank Holdings also is required to file with the Federal Reserve annual reports and other information regarding its business operations, and those of its subsidiaries. In the past, the BHCA limited the activities of bank holding companies and their subsidiaries to activities which were limited to banking, managing or controlling banks, furnishing services to or performing services for their subsidiaries or engaging in any other activity which the Federal Reserve determined to be so closely related to banking or managing or controlling banks as to be properly incident thereto. Under the Gramm-Leach-Bliley Financial Modernization Act of 1999 which is discussed below, bank holding companies now have the opportunity to seek broadened authority, subject to limitations on investment, to engage in activities that are “financial in nature” if all of their subsidiary depository institutions are well capitalized, well managed, and have at least a satisfactory rating under the Community Reinvestment Act, which is also discussed below.

In this regard, the BHCA prohibits a bank holding company, with certain limited exceptions, from (i) acquiring or retaining direct or indirect ownership or control of more than 5% of the outstanding voting stock of any company which is not a bank or bank holding company, or (ii) engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or performing services for its subsidiaries, unless such non-banking business is determined by the FRB to be so closely related to banking or managing or controlling banks as to be properly incident thereto. In making such determinations, the FRB is required to weigh the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. Generally, bank holding companies, such as OptimumBank Holdings, are required to obtain prior approval of the Federal Reserve to engage in any new activity not previously approved by the Federal Reserve.

Change of Holding Company Control. The BHCA also requires that every bank holding company obtain the prior approval of the Federal Reserve before it may acquire all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank. In approving bank acquisitions by bank holding companies, the Federal Reserve is required to consider the financial and managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the communities to be served, including the parties’ performance under the Community Reinvestment Act (discussed below) and various competitive factors. As described in greater detail below, pursuant to the Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994 (the “Interstate Banking and Branching Act”), a bank holding company is permitted to acquire banks in states other than its home state.

The BHCA further prohibits a person or group of persons from acquiring “control” of a bank holding company unless the Federal Reserve Bank has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company. In addition, any person or group of persons must obtain the approval of the Federal Reserve under the BHCA before acquiring 25% (5% in the case of an acquirer that is already a bank holding company) or more of the outstanding common stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over the bank holding company.

Interstate Banking and Branching. The Interstate Banking and Branching Act provides for nationwide interstate banking and branching. Under the law, interstate acquisitions of banks or bank holding companies in any state by bank holding companies in any other state are permissible subject to certain limitations. Florida also has a law that allows out-of-state bank holding companies (located in states that allow Florida bank holding companies to acquire banks and bank holding companies in that state) to acquire Florida banks and Florida bank holding companies. The law essentially provides for out-of-state entry by acquisition only (and not by interstate branching) and requires the acquired Florida bank to have been in existence for at least three years. Interstate branching and consolidation of existing bank subsidiaries in different states is permissible. A Florida bank also may establish, maintain, and operate one or more branches in a state other than Florida pursuant to an interstate merger transaction in which the Florida bank is the resulting bank.

Financial Modernization. The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) sought to achieve significant modernization of the federal bank regulatory framework by allowing the consolidation of banking institutions with other types of financial services firms, subject to various restrictions and requirements. In general, the GLB Act repealed most of the federal statutory barriers which separated commercial banking firms from insurance and securities firms and authorized the consolidation of such firms in a “financial services holding company.” We have no current plans to utilize the structural options created by the GLB Act.

Securities Regulation and Corporate Governance. OptimumBank Holdings’ common stock is registered with the Securities and Exchange Commission (the “SEC”) under Section 12(g) of the Securities Exchange Act of 1934, and we are subject to restrictions, reporting requirements and review procedures under federal securities laws and regulations. We are also subject to the rules and reporting requirements of the NASDAQ Global Market, on which our common stock is traded. Like other issuers of publicly traded securities, we must also comply with the corporate governance reforms enacted under the Sarbanes-Oxley Act of 2002 (“The Sarbanes-Oxley Act”) and the rules of the SEC and NASDAQ Stock Market adopted pursuant to the Sarbanes Oxley Act. Among other things, these reforms, effective as of various dates, require certification of financial statements by the chief executive officer and chief financial officer, prohibit the provision of specified services by independent auditors, require pre-approval of independent auditor services, define director independence and require certain committees, and a majority of a subject company’s board of directors, to consist of independent directors, establish additional disclosure requirements in reports filed with the SEC, require expedited filing of reports, require management evaluation and auditor attestation of internal controls, prohibit loans by the issuer (but not by certain depository institutions) to directors and officers, set record-keeping requirements, mandate complaint procedures for the reporting of accounting and audit concerns by employees, and establish penalties for non-compliance.

Bank Regulation

General. OptimumBank is chartered under the laws of the State of Florida, and its deposits are insured by the FDIC to the extent provided by law. OptimumBank is subject to comprehensive regulation, examination and supervision by the FDIC and the Florida Office of Financial Regulation, or Florida OFR, and to other laws and regulations applicable to banks. Such regulations include limitations on loans to a single borrower and to its directors, officers and employees; limitations on the types of activities a state bank can conduct, restrictions on the opening and closing of branch offices; the maintenance of required capital ratios; the granting of credit under equal and fair conditions; and the disclosure of the costs and terms of such credit. OptimumBank is examined periodically by the FDIC and the Florida OFR, to whom it submits periodic reports regarding its financial condition and other matters. The FDIC and the Florida OFR have a broad range of powers to enforce regulations under their jurisdiction, and to take discretionary actions determined to be for the protection and safety and soundness of banks, including the institution of cease and desist orders and the removal of directors and officers. The FDIC and the Florida OFR also have the authority to approve or disapprove mergers, consolidations, and similar corporate actions.

Capital Adequacy Requirements. Banks are required to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital consists of common shareholders’ equity (excluding the unrealized gain (loss) on available-for-sale securities), trust preferred securities subject to certain limitations, and minus certain intangible assets. Tier 2 capital consists of the general allowance for credit losses except for certain limitations. An institution’s qualifying capital base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital. At December 31, 2011, our Tier 1 and total risk-based capital ratios were 11.22% and 12.48%, respectively.

Banks are also required to maintain capital at a minimum level based on total assets, which is known as the leverage ratio. The minimum requirement for the leverage ratio is 4%, but all but the highest rated institutions are required to maintain ratios 100 to 200 basis points above the minimum. At December 31, 2011, our leverage ratio was 7.76%.

The Consent Order imposes higher capital requirements on OptimumBank. Under the Consent Order, OptimumBank must maintain a Tier 1 Leverage Ratio of 8.0%, and a total risk based capital ratio of 12.0%. With a Tier 1 Leverage ratio of 7.76% and a Total Risk Based Capital Ratio of 12.48% at December 31, 2011, the Bank did not meet the Tier 1 Leverage ratio as required by the Consent Order.

The FDIC Improvement Act of 1993 (“FDICIA”) contains “prompt corrective action” provisions pursuant to which banks are to be classified into one of five categories based upon capital adequacy, ranging from “well capitalized” to “critically undercapitalized” and which require (subject to certain exceptions) the appropriate federal banking agency to take prompt corrective action with respect to an institution which becomes “significantly undercapitalized” or “critically undercapitalized.”

The FDIC has issued regulations to implement the “prompt corrective action” provisions of FDICIA. In general, the regulations define the five capital categories as follows:

•

an institution is “well capitalized” if it has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not subject to any written capital order or directive to meet and maintain a specific capital level for any capital measures;

•

an institution is “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a leverage ratio of 4% or greater;

•

an institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based capital ratio that is less than 4% or has a leverage ratio that is less than 4%;

•

an institution is “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3% or a leverage ratio that is less than 3%; and

•

an institution is “critically undercapitalized” if its “tangible equity” is equal to or less than 2% of its total assets.

The FDIC, after an opportunity for a hearing, has authority to downgrade an institution from “well capitalized” to “adequately capitalized” or to subject an “adequately capitalized” or “undercapitalized” institution to the supervisory actions applicable to the next lower category, for supervisory concerns.

Generally, FDICIA requires that an “undercapitalized” institution must submit an acceptable capital restoration plan to the appropriate federal banking agency within 45 days after the institution becomes “undercapitalized” and the agency must take action on the plan within 60 days. The appropriate federal banking agency may not accept a capital restoration plan unless, among other requirements, each company having control of the institution has guaranteed that the institution will comply with the plan until the institution has been adequately capitalized on average during each of the three consecutive calendar quarters and has provided adequate assurances of performance. The aggregate liability under this provision of all companies having control of an institution is limited to the lesser of:

•

5% of the institution’s total assets at the time the institution becomes “undercapitalized” or

•

the amount which is necessary, or would have been necessary, to bring the institution into compliance with all capital standards applicable to the institution as of the time the institution fails to comply with the plan filed pursuant to FDICIA

An “undercapitalized” institution may not acquire an interest in any company or any other insured depository institution, establish or acquire additional branch offices or engage in any new business unless the appropriate federal banking agency has accepted its capital restoration plan, the institution is implementing the plan, and the agency determines that the proposed action is consistent with and will further the achievement of the plan, or the appropriate Federal banking agency determines the proposed action will further the purpose of the “prompt corrective action” sections of FDICIA.

If an institution is “critically undercapitalized,” it must comply with the restrictions described above. In addition, the appropriate Federal banking agency is authorized to restrict the activities of any “critically undercapitalized” institution and to prohibit such an institution, without the appropriate Federal banking agency’s prior written approval, from:

•

entering into any material transaction other than in the usual course of business;

•

engaging in any covered transaction with affiliates (as defined in Section 23A(b) of the Federal Reserve Act);

•

paying excessive compensation or bonuses; and

•

paying interest on new or renewed liabilities at a rate that would increase the institution’s weighted average costs of funds to a level significantly exceeding the prevailing rates of interest on insured deposits in the institution’s normal market areas.

The “prompt corrective action” provisions of FDICIA also provide that in general no institution may make a capital distribution if it would cause the institution to become “undercapitalized.” Capital distributions include cash (but not stock) dividends, stock purchases, redemptions, and other distributions of capital to the owners of an institution.

Additionally, FDICIA requires, among other things, that:

•

only a “well capitalized” depository institution may accept brokered deposits without prior regulatory approval and

•

the appropriate federal banking agency annually examine all insured depository institutions, with some exceptions for small, “well capitalized” institutions and state-chartered institutions examined by state regulators.

As of December 31, 2011, OptimumBank met the FDIC definition of an “adequately capitalized institution.” For additional information regarding OptimumBank’s capital ratios and requirements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Capital Adequacy.”

Dividends. OptimumBank Holdings’ ability to pay dividends is substantially dependent on the ability of OptimumBank to pay dividends to OptimumBank Holdings. As a state chartered bank, OptimumBank is subject to dividend restrictions set by Florida law and the FDIC. Except with the prior approval of the Florida OFR, all dividends of any Florida bank must be paid out of retained net profits from the current period and the previous two years, after deducting expenses, including losses and bad debts. Under the Federal Deposit Insurance Act, an FDIC-insured institution may not pay any dividend if payment would cause it to become undercapitalized or while it is undercapitalized. The FDIC and the Florida OFR also have the general authority to limit the dividend payment by banks if such payment may be deemed to constitute an unsafe and unsound practice. The Bank’s ability to pay dividends is further restricted under the Consent Order and the Company’s ability to pay dividends is also restricted under its Written Agreement with the Federal Reserve. At December 31, 2011, the Bank and Company could not pay cash dividends.

Loans to One Borrower. Florida law generally allows a state bank such as OptimumBank to extend credit to any one borrower (and certain related entities of such borrower) in an amount up to 25% of its capital accounts, provided that the unsecured portion may not exceed 15% of the capital accounts of the bank. Based upon OptimumBank’s capital, the maximum loan OptimumBank is currently permitted to make is approximately $3.0 million, provided the unsecured portion does not exceed approximately $1.8 million.

Transactions with Affiliates. Under federal law, federally insured banks are subject, with certain exceptions, to certain restrictions on any extension of credit to their parent holding companies or other affiliates, on investment in the stock or other securities of affiliates, and on the taking of such stock or securities as collateral from any borrower. In addition, banks are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or the providing of any property or service.

Change of Bank Control. Florida law restricts the amount of voting stock of a bank that a person may acquire without the prior approval of banking regulators. The overall effect of such laws is to make it more difficult to acquire a bank by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently, shareholders of financial institutions are less likely to benefit from the rapid increases in stock prices that often result from tender offers or similar efforts to acquire control of other companies.

Under Florida law, no person or group of persons may, directly or indirectly or acting by or through one or more persons, purchase or acquire a controlling interest in any bank which would result in the change in control of that bank unless the Florida OFR first shall have approved such proposed acquisition. A person or group will be deemed to have acquired “control” of a bank (i) if the person or group, directly or indirectly or acting by or through one, or more other persons, owns, controls, or has power to vote 25% or more of any class of voting securities of the bank, or controls in any manner the election of a majority of the directors of the bank, or (ii) if the Florida OFR determines that such person exercises a controlling influence over the management or policies of the bank. In any case where a proposed purchase of voting securities would give rise to a presumption of control, the person or group who proposes to purchase the securities must first file written notice of the proposal to the Florida OFR for its review and approval. Subsections 658.27(2) and 658.28(3), Florida Statutes, refer to a potential change of control of a financial institution at a 10% or more threshold and rebuttable presumption of control. Accordingly, the name of any subscriber acquiring more than 10% of the voting securities of OptimumBank must be submitted to the Florida OFR for prior approval.

USA Patriot Act. The USA Patriot Act was enacted after September 11, 2001 to provide the federal government with powers to prevent, detect, and prosecute terrorism and international money laundering, and has resulted in promulgation of several regulations that have a direct impact on banks. There are a number of programs that financial institutions must have in place such as: (i) Bank Secrecy Act/Anti-Money Laundering programs to manage risk; (ii) Customer Identification Programs to determine the true identity of customers, document and verify the information, and determine whether the customer appears on any federal government list of known or suspected terrorist or terrorist organizations; and (iii) monitoring for the timely detection and reporting of suspicious activity and reportable transactions. Over the past few years, enforcement, and compliance monitoring, of these anti-money laundering laws has dramatically increased. As a result, we have increased the attention and resources we dedicate to compliance with these laws.

Other Consumer Laws. Florida usury laws and federal laws concerning interest rates limit the amount of interest and various other charges collected or contracted by a bank. OptimumBank’s loans are also subject to federal laws applicable to consumer credit transactions, such as the:

•

Federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers;

•

Community Reinvestment Act requiring financial institutions to meet their obligations to provide for the total credit needs of the communities they serve, including investing their assets in loans to low and moderate-income borrowers;

•

Home Mortgage Disclosure Act requiring financial institutions to provide information to enable public officials to determine whether a financial institution is fulfilling its obligations to meet the housing needs of the community it serves;

•

Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibitive factors in extending credit;

•

Real Estate Settlement Procedures Act which requires lenders to disclose certain information regarding the nature and cost of real estate settlements, and prohibits certain lending practices, as well as limits escrow account amounts in real estate transactions;

•

Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies;

•

Fair and Accurate Credit Transactions Act which establishes additional rights for consumers to obtain and correct credit reports, addresses identity theft, and establishes additional requirements for consumer reporting agencies and financial institutions that provide adverse credit information to a consumer reporting agency; and

•

The rules and regulations of various federal agencies charged with the responsibility of implementing such federal laws.

OptimumBank’s deposit and loan operations are also subject to the:

•

The Gramm-Leach-Bliley Act of 1999 privacy provisions, which require us to maintain privacy policies intended to safeguard consumer financial information, to disclose these policies to our customers, and allow customers to “opt-out” of having their financial service providers disclose their confidential financial information to non-affiliated third parties, subject to certain exceptions;

•

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and

•

Electronic Funds Transfer Act and Regulation E, which govern automatic deposits to, and withdrawals from, deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Other Regulation

Enforcement Powers. Congress has provided the federal bank regulatory agencies with an array of powers to enforce laws, rules, regulations and orders. Among other things, the agencies may require that institutions cease and desist from certain activities, may preclude persons from participating in the affairs of insured depository institutions, may suspend or remove deposit insurance, and may impose civil money penalties against institution-affiliated parties for certain violations.

Community Redevelopment Act. Bank holding companies and their subsidiary banks are subject to the provisions of the Community Reinvestment Act of 1977 (“CRA”) and the regulations promulgated thereunder by the appropriate bank regulatory agency. Under the terms of the CRA, the appropriate federal bank regulatory agency is required, in connection with its examination of a bank, to assess such bank’s record in meeting the credit needs of the community served by that bank, including low-and moderate-income neighborhoods. The regulatory agency’s assessment of the Bank’s record is made available to the public. Further, such assessment is required of any bank which has applied to charter a bank, obtain deposit insurance coverage for a newly chartered institution, establish a new branch office that will accept deposits, relocate an office, or merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the record of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application.

Effect of Governmental Monetary Policies. Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve monetary policies have had, and will likely continue to have, an important impact on the operating results of financial institutions through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve have major effects upon the levels of loans, investments and deposits through its open market operations in United States Government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirement against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.

Statistical Profile and Other Financial Data

Reference is hereby made to the statistical and financial data contained in the sections captioned “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for statistical and financial data providing a review of our business activities.

Item 2.

Properties

The following table sets forth information with respect to our main office and branch offices as of December 31, 2011.


Location	Year Facility Opened	Facility Status

Executive Office
2477 East Commercial Boulevard Fort Lauderdale, Florida 33308	2004		Owned

Branch Offices
10197 Cleary Boulevard Plantation, Florida 33324	2000		Owned

3524 North Ocean Boulevard Fort Lauderdale, Florida 33308	2003		Leased	(1)

2215 West Hillsboro Boulevard Deerfield Beach, Florida 22442	2004		Leased	(2)

(1)

On February 1, 2007, OptimumBank entered into a sale/leaseback transaction for this facility. No gain or loss was recognized on this transaction. The lease is for a seven-year term. The monthly lease payment at December 31, 2011 was $4,444. The tenant is responsible for maintenance and real estate taxes.

(2)	Lease is for a ten-year term, with two five-year options to renew, for 2,500 square feet. The monthly lease payment at December 31, 2011 was $6,642.

Item 3.

Legal Proceedings

From time-to-time, we are involved in litigation arising in the ordinary course of our business. As of the date of the filing of this Form 10-K, we are of the opinion that the ultimate aggregate liability represented thereby, if any, will not have a material adverse effect on our consolidated financial condition or results of operations.

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchase of Equity Securities

Our common stock currently trades on the NASDAQ Capital Market, under the symbol “OPHC.” The table below presents the high and low sales prices for the periods indicated. Sales prices have been adjusted to reflect the 4-for-1 reverse stock split effective November 5, 2010.


Year	Quarter	High		Low

2010	First	$	11.00	$	3.36
	Second	$	7.28	$	1.40
	Third	$	3.92	$	1.32
	Fourth	$	6.49	$	1.75

2011	First	$	5.10	$	2.03
	Second	$	4.64	$	.52
	Third	$	1.63	$	.63
	Fourth	$	.80	$	.41

We had approximately 472 holders registered or in street name as of December 31, 2011.

On January 13, 2012, The Nasdaq Stock Market notified us that we failed to comply with the NASDAQ Listing Rule requiring the board of directors to have a majority of members who are independent because only three of the directors on our six-member board were independent. We have been provided until (a) the earlier of the Company’s next annual shareholders’ meeting or January 1, 2013 or (b) if the next annual shareholders’ meeting is held before June 29, 2012, no later than June 29, 2012, to comply with the independent director requirement. If we are unable to comply with the independent director requirement by the deadline, our common stock will be delisted from The NASDAQ Capital Market.

At December 31, 2011, the Bank and Company could not pay cash dividends and the Company does not anticipate that it will pay dividends on its common stock in the foreseeable future. Banking regulations place certain restrictions on dividends and loans or advances made by the Bank to the Company. The amount of cash dividends that may be paid by the Bank to the 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. Furthermore, the Bank’s ability to pay dividends is restricted under the Consent Order issued by the FDIC and Florida Office of Financial Regulation and banking laws. The Company’s ability to pay dividends is also restricted under its Written Agreement with the Federal Reserve.

Recent Sales of Unregistered Securities

During the summer of 2011, the Company undertook an offering of 37,500,000 shares of its common stock, $.01 par value, at a price of $.40 per share (the “Private Offering”). The shares were offered on behalf of the Company by its officers and directors, none of whom received any compensation in connection with the offering of the shares.

As a result of these efforts, during the fourth quarter of 2011, the Company sold a total of 21,591,750 shares in the Private Offering. The Company received net proceeds of $8,597,000, after the deduction of $40,000 in offering expenses. The Private Offering involved two closings. At the first closing, which occurred on October 27, 2011, the Company sold 21,002,250 shares to 36 accredited investors and four employees of the Company who were not accredited investors. Directors and executive officers of the Company purchased 4,965,000 of the shares sold. At the second closing, which occurred on December 29, 2011, the Company sold 589,500 shares to 10 accredited investors. The shares sold in the Private Placement were not registered under the Securities Act of 1933, in reliance on the exemption provided by Rule 506 of Regulation D promulgated thereunder.

Item 6.

Selected Financial Data

SELECTED FINANCIAL DATA

At December 31, or for the Year Then Ended

(Dollars in thousands, except per share figures)


	2011			2010			2009			2008			2007
At Year End:

Cash and cash equivalents	$	22,776			14,367			36,784			3,220			701
Securities held to maturity		100			51,057			81,141			82,208			58,471
Security available for sale		28,907			0			0			244			244
Loans, net		89,217			113,542			134,126			160,699			173,323
All other assets		13,472			11,339			17,906			9,369			8,808


Total assets	$	154,472			190,305			269,957			255,740			241,547


Deposit accounts		107,895			148,238			151,682			114,925			125,034
Federal Home Loan Bank advances		31,700			31,700			57,700			68,700			56,850
Other borrowings		0			0			41,800			41,800			28,900
Junior subordinated debenture		5,155			5,155			5,155			5,155			5,155
All other liabilities		2,936			2,377			2,332			2,395			3,361
Stockholders’ equity		6,786			2,835			11,288			22,765			22,247


Total liabilities and stockholders’ equity	$	154,472			190,305			269,957			255,740			241,547


For the Year:

Total interest income		6,422			8,787			14,006			15,570			16,137
Total interest expense		3,427			4,867			8,351			9,211			9,700


Net interest income		2,995			3,920			5,655			6,359			6,437
(Credit) provision for loan losses		(149	)		3,645			15,794			1,374			476


Net interest income (expense) after (credit) provision for loan losses		3,144			275			(10,139	)		4,985			5,961

Noninterest income (expense)		379			1,394			(145	)		393			533
Noninterest expenses		7,229			9,773			4,698			4,545			3,749


(Loss) earnings before income taxes (benefit)		(3,706	)		(8,104	)		(14,982	)		833			2,745
Income taxes (benefit)		41			349			(3,501	)		313			1,003


Net (loss) earnings	$	(3,747	)		(8,453	)		(11,481	)		520			1,742


Net (loss) earnings per share, basic (1)	$	(.82	)		(10.32	)		(14.01	)		.63			2.13


Net (loss) earnings per share, diluted (1)	$	(.82	)		(10.32	)		(14.01	)		.63			2.08


Weighted-average number of shares outstanding, basic (1)		4,576,304			819,358			819,358			819,261			816,960


Weighted-average number of shares outstanding, diluted (1)		4,576,304			819,358			819,358			830,608			835,995


Ratios and Other Data:

Return on average assets		(2.11	)%		(3.84	)%		(4.23	)%		.21	%		.73	%
Return on average equity		(203.97	)%		(127.59	)%		(55.55	)%		2.26	%		8.16	%
Average equity to average assets		1.04	%		3.01	%		7.62	%		9.15	%		8.96	%
Net interest margin during the year		1.77	%		1.88	%		2.14	%		2.61	%		2.78	%
Interest-rate differential during the year		1.82	%		1.87	%		1.91	%		2.26	%		2.34	%
Net yield on average interest-earning assets		3.80	%		4.21	%		5.30	%		6.38	%		6.96	%
Noninterest expenses to average assets		4.08	%		4.44	%		1.73	%		1.81	%		1.57	%
Ratio of average interest-earning assets to average interest-bearing liabilities		0.98			1.00			1.07			1.09			1.10
Nonperforming loans and foreclosed assets as a percentage of total assets at end of year		22.96	%		19.82	%		10.87	%		2.03	%		0.13	%
Allowance for loan losses as a percentage of total loans at end of year		2.57	%		3.16	%		6.54	%		1.18	%		.40	%
Total number of banking offices		3			3			3			3			3
Total shares outstanding at end of year (1)		22,411,108			819,358			819,358			780,248			780,283
Book value per share at end of year (1)	$	.30			3.46			13.78			29.17			28.52

(1)	All share and per share amounts have been adjusted to reflect the 1-for-4 reverse stock split declared in October 2010 and 5% stock dividends declared in May 2009, 2008 and 2007.

Item 6.

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

General

The Company is a Florida corporation formed in 2004 as a one bank holding company for OptimumBank. The Bank is a Florida chartered bank established in 2000, with deposits insured by the Federal Deposit Insurance Corporation. The Bank is headquartered and has its corporate office in Fort Lauderdale, Florida, and operates three full service branch offices located in Broward County, Florida.

At December 31, 2011, the Company had total assets of $154.5 million, net loans of $89.2 million, total deposits of $107.9 million and stockholders’ equity of $6.8 million. During 2011, the Company had a net loss of $3.7 million. In the fourth quarter of 2011, the Company received net proceeds of $8.6 million from the sale of its common stock.

Critical Accounting Policies

Our financial condition and results of operations are sensitive to accounting measurements and estimates of matters that are inherently uncertain. When applying accounting policies in areas that are subjective in nature, we must use our best judgment to arrive at the carrying value of certain assets. One of the most critical accounting policies applied by us is related to the valuation of our loan portfolio.

A variety of estimates impact the carrying value of our loan portfolio including the calculation of the allowance for loan losses, valuation of underlying collateral, the timing of loan charge-offs and the amount and amortization of loan fees and deferred origination costs.

The calculation of the allowance for loan losses is a complex process containing estimates which are inherently subjective and susceptible to significant revision as current information becomes available. The allowance is established and maintained at a level we believe is adequate to cover losses resulting from the inability of borrowers to make required payments on loans. Estimates for loan losses are determined by analyzing risks associated with specific loans and the loan portfolio, current trends in delinquencies and charge-offs, the views of our regulators, changes in the size and composition of the loan portfolio and peer comparisons. The analysis also requires consideration of the economic climate and direction, changes in the economic and interest rate environment which may impact a borrower’s ability to pay, legislation impacting the banking industry and economic conditions specific to the tri-county region we serve in Southeast Florida. Because the calculation of the allowance for loan losses relies on our estimates and judgments relating to inherently uncertain events, results may differ from management’s estimates.

The allowance for loan losses is also discussed as part of “Loan Portfolio, Asset Quality and Allowance for Loan Losses” and in Note 3 of Notes to the Consolidated Financial Statements. Our significant accounting policies are discussed in Note 1 of Notes to the Consolidated Financial Statements.

Regulation and Legislation

As a state-chartered commercial bank, the Bank is subject to extensive regulation by the Florida Office of Financial Regulation, or OFR, and the FDIC. We file reports with the Florida OFR and the FDIC concerning our activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. Periodic examinations are performed by the OFR and the FDIC to monitor our compliance with the various regulatory requirements. The Company is also subject to regulation and examination by the Federal Reserve Board of Governors.

Loan Portfolio, Asset Quality and Allowance for Loan Losses

Our primary business is making real estate loans. This activity may subject us to potential loan losses, the magnitude of which depends on a variety of economic factors affecting borrowers which are beyond our control. For the past several years, there has been a dramatic decrease in housing and real estate values in south Florida, coupled with a significant increase in the rate of unemployment. With most of our loans concentrated in south Florida, the decline in local economic conditions has adversely affected the values of our real estate collateral. These trends have contributed to an increase in our impaired loans and reduced asset quality. As of December 31, 2011, our impaired loans were approximately $31.9 million, or 35.76% of the net loan portfolio. Impaired loans and real estate owned were approximately $39.6 million as of this same date, or 25.6% of total assets. If market conditions continue to deteriorate, they may lead to additional valuation adjustments on our loan portfolio and real estate owned as we continue to reassess the market value of our loan portfolio, the losses associated with impaired loans, and the net realizable value of real estate owned.

The following table sets forth the composition of our loan portfolio:


	At December 31,
	2011						2010						2009
	Amount			% of Total			Amount			% of Total			Amount			% of Total
	(dollars in thousands)

Residential real estate	$	31,142			34.03	%	$	40,130			34.27	%	$	55,915			39.06	%
Multi-family real estate		4,109			4.49			4,213			3.60			5,162			3.61
Commercial real estate		44,312			48.42			55,119			47.07			58,901			41.14
Land and construction		11,783			12.87			17,292			14.77			22,355			15.61
Consumer		175			.19			358			.29			836			.58


Total loans		91,521			100.00	%		117,112			100.00	%		143,169			100.00	%


Add (deduct):
Allowance for loan losses		(2,349	)					(3,703	)					(9,363	)
Net deferred loan costs and discounts		45						133						320


Loans, net	$	89,217					$	113,542					$	134,126


	At December 31,
	2008						2007
	Amount			% of Total			Amount			% of Total
	(dollars in thousands)

Residential real estate	$	58,693			36.25	%	$	65,908			38.08	%
Multi-family real estate		9,588			5.92			10,275			5.94
Commercial real estate		73,541			45.42			75,777			43.78
Land and construction		19,223			11.87			21,093			12.19
Consumer		878			.54			15			.01


Total loans		161,923			100.00	%		173,068			100.00	%


Add (deduct):
Allowance for loan losses		(1,906	)					(692	)
Net deferred loan costs and discounts		682						947


Loans, net	$	160,699					$	173,323

The following table sets forth the activity in the allowance for loan losses (in thousands):


	Year Ended December 31,
	2011			2010			2009			2008			2007

Beginning balance	$	3,703		$	9,363		$	1,906		$	692		$	974
(Credit) provision for loan losses		(149	)		3,645			15,794			1,374			476
Loans charged off		(1,739	)		(9,424	)		(8,337	)		(160	)		(758	)
Recoveries		534			119			0			0			0


Ending balance	$	2,349		$	3,703		$	9,363		$	1,906		$	692

The allowance for loan losses represents our estimate of probable incurred losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. The allowance for loan losses represented 2.57% and 3.16% of the total loans outstanding at December 31, 2011 and 2010, respectively.

We evaluate the allowance for loan losses on a regular basis. The allowance for loan losses is determined based on our periodic review of several factors: reviews and evaluation of individual loans, historical loan loss 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 current 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 two components. The first component consists of amounts specifically reserved (“specific allowance”) for specific loans identified as impaired, as defined by FASB Accounting Standards Codification No. 310 (“ASC 310”). Impaired loans are those loans that management has estimated will not repay as agreed upon. We measure impairment on a loan by loan basis for all our 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. A loan may be impaired (i.e. not expected to repay as agreed), but may be sufficiently collateralized such that we expect to recover all principal and interest eventually, and therefore no specific reserve is warranted.

The second component is a general reserve (“general allowance”) on all of our loans other than those identified as impaired. We group these loans into categories with similar characteristics and then apply a loss factor to each group which is derived from our historical loss experience for that category adjusted for qualitative factors such as economic conditions and other trends or uncertainties that could affect management’s estimate of probable loss. The aggregate of these two components results in our total allowance for loan losses.

The following table sets forth our allowance for loan losses by loan type (dollars in thousands):


	At December 31,
	2011						2010						2009
	Amount			% of Total Loans			Amount			% of Total Loans			Amount			% of Total Loans

Residential real estate	$	566			34.03	%	$	1,285			34.27	%	$	2,049			39.06	%
Multi-family real estate		247			4.49			282			3.60			489			3.61
Commercial real estate		1,334			48.42			1,542			47.07			1,466			41.14
Land and construction		187			12.87			514			14.77			5,227			15.61
Consumer		15			.19			80			.29			132			.58


Total allowance for loan losses	$	2,349			100.00	%	$	3,703			100.00	%	$	9,363			100.00	%


Allowance for loan losses as a percentage of total loans outstanding		2.57	%					3.16	%					6.54	%


	At December 31,
	2008						2007
	Amount			% of Total Loans			Amount			% of Total Loans

Residential real estate	$	928			36.25	%	$	187			38.08	%
Multi-family real estate		62			5.92			59			5.94
Commercial real estate		463			45.42			379			43.78
Land and construction		444			11.87			67			12.19
Consumer		9			.54			—			.01


Total allowance for loan losses	$	1,906			100.00	%	$	692			100.00	%


Allowance for loan losses as a percentage of total loans outstanding		1.18	%					0.40	%

The following summarizes impaired loans (in thousands):


	At December 31,
	2011			2010
Collateral-dependent loans identified as impaired:
Gross loans with no related allowance for losses	$	23,653		$	35,531


Gross loans with related allowance for losses recorded		0			669
Less allowances on these loans		0			(75	)


Net loans with related allowance		0			594


Net investment in collateral-dependent impaired loans		23,653			36,125


Noncollateral-dependent loans identified as impaired:
Gross loans with no related allowance for losses		7,152			7,347


Gross loans with related allowance for losses recorded		1,139			1,174
Less allowance on these loans		(11	)		(11	)


Net loans with related allowance		1,128			1,163


Net investment in noncollateral-dependent impaired loans		8,280			8,510


Net investment in impaired loans	$	31,933		$	44,635

During 2011, 2010 and 2009, the average net investment in impaired loans and interest income recognized and received on impaired loans is as follows (in thousands):


	Year Ended December 31,
	2011		2010		2009

Average investment in impaired loans	$	37,549	$	33,987	$	25,017


Interest income recognized on impaired loans	$	367	$	313	$	280


Interest income received on a cash basis on impaired loans	$	834	$	658	$	584

Nonaccrual and past due loans were as follows as of December 31, 2011, 2010, 2009 and 2008 (in thousands):


	At December 31,
	2011		2010		2009		2008

Nonaccrual loans	$	27,819	$	34,530	$	23,848	$	5,086


Past ninety days or more, but still accruing interest	$	0	$	0	$	0	$	0

Liquidity and Capital Resources

Liquidity represents an institution’s ability to meet current and future obligations through liquidation or maturity of existing assets or the acquisition of additional liabilities. Our ability to respond to the needs of depositors and borrowers and to benefit from investment opportunities is facilitated through liquidity management.

Our primary sources of cash during the year ended December 31, 2011 were from principal repayments of securities available for sale of $15.3 million, proceeds from the sale of securities of $11.0 million, net repayments of loans of $15.3 million and proceeds from sale of common stock of $8.6 million. Cash was used primarily to purchase securities totaling $5 million and repay $40.3 million of deposits. In order to increase our core deposits, we have priced our deposit rates competitively. We will adjust rates on our deposits to attract or retain deposits as needed. We obtain funds primarily from depositors in our market area.

In addition to obtaining funds from depositors, we may borrow funds from other financial institutions. We are a member of the Federal Home Loan Bank of Atlanta, which allows us to borrow funds under a pre-arranged line of credit equal to $31.7 million. As of December 31, 2011, we had $31.7 million in borrowings outstanding from the Federal Home Loan Bank of Atlanta to facilitate loan fundings and manage our asset and liability structure.

Securities

Our securities portfolio is comprised primarily of mortgage-backed securities. The securities portfolio is categorized as either “held to maturity” or “available for sale.” Securities held to maturity represent those securities which we have the positive intent and ability to hold to maturity. These securities are carried at amortized cost. Securities available for sale represent those investments which may be sold for various reasons including changes in interest rates and liquidity considerations. These securities are reported at fair market value and unrealized gains and losses are excluded from earnings and reported in other comprehensive income.

The following table sets forth the amortized cost and fair value of our securities portfolio (in thousands):


	Amortized Cost		Fair Value
*At December 31, 2011:*
Securities held to maturity-
Foreign bond	$	100	$	100


Securities available for sale-
Mortgage-backed securities	$	29,845	$	28,907


*At December 31, 2010:*
Securities held to maturity:
Mortgage-backed securities	$	50,957	$	48,739
Foreign bond		100		100


	$	51,057	$	48,839

*At December 31, 2009:*
Securities held to maturity:
Mortgage-backed securities	$	81,041	$	76,884
Foreign bond		100		100


	$	81,141	$	76,984

The following table sets forth, by maturity distribution, certain information pertaining to the securities portfolio (dollars in thousands):


	Within One Year		After One But Within Five Years		After Five Years Through Ten Years		After Ten Years		Total		Yield
*At December 31, 2011:*
Mortgage-backed securities	$	2,999	$	2,994	$	4,372	$	19,480	$	29,845		4.03	%


Foreign bond	$	0	$	0	$	100	$	0	$	100		5.95	%


*At December 31, 2010:*
Mortgage-backed securities	$	4,001	$	5,988	$	1,887	$	39,081	$	50,957		4.25	%


Foreign bond	$	0	$	0	$	100	$	0	$	100		5.95	%


*At December 31, 2009:*
Mortgage-backed securities	$	0	$	0	$	11,576	$	69,465	$	81,041		5.39	%


Foreign bond	$	0	$	0	$	100	$	0	$	100		5.95	%

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 loss. Due to this transfer, the Company will be prohibited from classifying securities as held to maturity for a period of two years. During the year ended December 31, 2011, the Company sold securities available for sale for gross proceeds of $11.0 million and recognized a gross gain of $0.2 million from the sale of these securities.

During the year ended December 31, 2010, the Company sold $44.9 million in held to maturity securities in order to downsize and deleverage its balance sheet, recognizing net gains of $1.3 million. This action was taken in an effort to comply with a significant increase in the regulatory capital requirements imposed on the Bank under the Consent Order issued by the FDIC and Florida Office of Financial Regulation.

At December 31, 2011, $11.7 million of the $28.9 million in mortgage-backed securities (“MBS”) were U.S. agency MBS and $17.2 million were private label MBS. Approximately $16.4 million of the private label MBS at December 31, 2011 were rated sub-investment grade securities by the securities rating agencies. In general, non-investment grade securities cannot be used to collateralize borrowings and are considered to be substandard assets by the Federal regulatory agencies.

Regulatory Capital Adequacy

Failure to meet minimum capital requirements can result in certain mandatory and, possibly, additional discretionary actions by federal and state regulators that, if undertaken, could have a direct material effect on our financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. In addition, the Consent Order imposes increased minimum capital requirements on the Bank.

Quantitative measures established by regulation and by the Consent Order to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. As of December 31, 2011, we did not meet the minimum Tier 1 capital to total assets ratio requirement. See “Supervision and Regulation - Consent Order” for a discussion of the required Tier 1 capital to total assets ratio of 8%.

Our actual and required minimum capital ratios were as follows (in thousands):

REGULATORY CAPITAL REQUIREMENTS


	Actual					For Capital Adequacy Purposes					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions					Requirements of Consent Order
	Amount		%			Amount		%			Amount		%			Amount		%
*As of December 31, 2011:*
Total Capital to Risk-Weighted Assets	$	14,382		12.48	%	$	9,221		8.00	%	$	11,526		10.00	%	$	13,832		12.00	%
Tier I Capital to Risk-Weighted Assets		12,930		11.22			4,611		4.00			6,916		6.00			N/A		N/A
Tier I Capital to Total Assets		12,930		7.76			6,668		4.00			8,335		5.00			13,335		8.00

*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

Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest-rate risk inherent in our lending and deposit-taking activities. We do not engage in securities trading or hedging activities and do not invest in interest-rate derivatives or enter into interest rate swaps.

We may utilize financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 9 of Notes to Consolidated Financial Statements.

Our primary objective in managing interest-rate risk is to minimize the potential adverse impact of changes in interest rates on our net interest income and capital, while adjusting our asset-liability structure to obtain the maximum yield-cost spread on that structure. We actively monitor and manage our interest-rate risk exposure by managing our asset and liability structure. However, a sudden and substantial increase in interest rates may adversely impact our earnings, to the extent that the interest-earning assets and interest-bearing liabilities do not change or reprice at the same speed, to the same extent, or on the same basis.

We use modeling techniques to simulate changes in net interest income under various rate scenarios. Important elements of these techniques include the mix of floating versus fixed-rate assets and liabilities, and the scheduled, as well as expected, repricing and maturing volumes and rates of the existing balance sheet.

Asset Liability Management

As part of our asset and liability management, we have emphasized establishing and implementing internal asset-liability decision processes, as well as control procedures to aid in managing our earnings. Management believes that these processes and procedures provide us with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines, which should result in tighter controls and less exposure to interest-rate risk.

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. The gap ratio is computed as the amount of rate sensitive assets less the amount of rate sensitive liabilities divided by total assets. A gap is considered positive when the amount of interest-rate sensitive assets exceeds interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income. During a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would adversely affect net interest income.

In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the results of operations, our management continues to monitor our assets and liabilities to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. Our policies emphasize the origination of adjustable-rate loans, building a stable core deposit base and, to the extent possible, matching deposit maturities with loan repricing timeframes or maturities.

The following table sets forth certain information relating to our interest-earning assets and interest-bearing liabilities at December 31, 2011, that are estimated to mature or are scheduled to reprice within the period shown (dollars in thousands):

GAP MATURITY / REPRICING SCHEDULE


	One Year or Less			More than One Year and Less than Five Years			More than Five Years and Less than Fifteen Years			Over Fifteen Years			Total
Loans (1):
Residential real estate loans	$	21,969		$	7,228		$	1,945		$	0		$	31,142
Multi-family real estate loans		4,009			22			25			53			4,109
Commercial real estate loans		31,744			12,433			135			0			44,312
Land and construction		7,496			3,999			288			0			11,783
Consumer loans		68			107			0			0			175


Total loans		65,286			23,789			2,393			53			91,521

Federal funds sold		16,552			0			0			0			16,552
Securities (2)		2,999			2,993			10,366			13,487			29,845
Federal Home Loan Bank stock		2,159			0			0			0			2,159


Total rate-sensitive assets		86,996			26,782			12,759			13,540			140,077


Deposit accounts (3):
Money-market deposits		33,265			0			0			0			33,265
Interest-bearing checking deposits		1,213			0			0			0			1,213
Savings deposits		1,060			0			0			0			1,060
Time deposits		58,025			13,817			0			0			71,842


Total deposits		93,563			13,817			0			0			107,380

Federal Home Loan Bank advances		4,000			26,100			1,600			0			31,700
Junior subordinated debenture		0			0			0			5,155			5,155


Total rate-sensitive liabilities		97,563			39,917			1,600			5,155			144,235


GAP (repricing differences)	$	(10,567	)	$	(13,135	)	$	11,159		$	8,385		$	(4,158	)


Cumulative GAP	$	(10,567	)	$	(23,702	)	$	(12,543	)	$	(4,158	)	$	(4,158	)


Cumulative GAP/total assets		(6.84	)%		(15.34	)%		(8.12	)%		(2.69	)%

(1)	In preparing the table above, adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature. Fixed-rate loans are scheduled, including repayment, according to their maturities.

(2)	Securities are scheduled through the repricing date.

(3)	Money-market, interest-bearing checking and savings deposits are regarded as readily accessible withdrawable accounts. All other time deposits are scheduled through the maturity dates.

The following table sets forth loan maturities by type of loan at December 31, 2011 (in thousands):


	One Year or Less		After One But Within Five Years		After Five Years		Total

Residential real estate	$	0	$	2,919	$	28,223	$	31,142
Multi-family real estate		0		0		4,109		4,109
Commercial real estate		4,919		8,379		31,014		44,312
Land and construction		2,002		485		9,296		11,783
Consumer		0		175		0		175


Total	$	6,921	$	11,958	$	72,642	$	91,521

The following table sets forth the maturity or repricing of loans by interest type at December 31, 2011 (in thousands):


	One Year or Less		After One But Within Five Years		After Five Years		Total
Fixed interest rate	$	7,487	$	2,639	$	2,158	$	12,284
Variable interest rate		57,855		21,094		288		79,237


Total	$	65,342	$	23,733	$	2,446	$	91,521

Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of loans is substantially less than their average contractual terms due to prepayments. In addition, due-on-sale clauses on loans generally give us the right to declare a conventional loan immediately due and payable in the event, among other things, that the borrower sells real property subject to a mortgage and the loan is not repaid. The average life of mortgage loans tends to increase, however, when current mortgage loan rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgages are substantially higher than current mortgage rates.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

We are party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit. At December 31, 2011, we had no outstanding commitments to originate real estate loans. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheet. The contractual amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

Our 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. We use the same credit policies in making commitments as we do for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed-expiration dates or other termination clauses and may require payment of a fee. Since certain commitments expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if we deem it necessary in order to extend credit, is based on management’s credit evaluation of the counterparty.

The following is a summary of the Bank’s contractual obligations, including certain on-balance sheet obligations, at December 31, 2011 (in thousands):


	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years

Federal Home Loan Bank advances	$	31,700	$	4,000	$	7,500	$	18,600	$	1,600
Junior subordinated debenture		5,155		0		0		0		5,155
Operating leases		598		84		168		176		170


Total	$	37,453	$	4,084	$	7,668	$	18,776	$	6,925

Deposits

Deposits traditionally are the primary source of funds for our use in lending, making investments and meeting liquidity demands. We have focused on raising time deposits primarily within our market area, which is the tri-county area of Broward, Miami-Dade and Palm Beach counties. However, we offer a variety of deposit products, which we promote within our market area. Net deposits decreased $40.3 million in 2011 and decreased $3.4 million in 2010.

We have used brokered deposits to facilitate mortgage loan fundings in circumstances when larger than anticipated loan volumes occur and there is limited time to fund the additional loan demand through traditional deposit solicitation. In general, brokered deposits can be obtained in one to three days. The rates paid on these deposits are typically equal to or slightly less than the high end of the interest rates in our market area. Brokered deposits amounted to $0.4 million and $1.7 million as of December 31, 2011 and December 31, 2010, respectively. We have reduced our reliance on brokered deposits which are considered a more volatile source of funding by no longer accepting or rolling over existing brokered deposits.

The following table displays the distribution of the Bank’s deposits at December 31, 2011, 2010 and 2009 (dollars in thousands):


	At December 31,
	2011					2010					2009
	Amount		% of Deposits			Amount		% of Deposits			Amount		% of Deposits

Noninterest-bearing demand deposits	$	515		.48	%	$	309		.21	%	$	199		.13	%
Interest-bearing demand deposits		1,213		1.12			986		.67			1,157		.76
Money-market deposits		33,265		30.83			33,854		22.83			41,204		27.16
Savings		1,060		.98			1,814		1.22			1,861		1.24


Subtotal		36,053		33.41			36,963		24.93			44,421		29.29


Time deposits:
0.00% – 0.99%	$	22,567		20.92	%	$	9,046		6.10	%	$	8,056		5.31	%
1.00% – 1.99%		38,290		35.49			83,601		56.40			35,524		23.42
2.00% – 2.99%		9,052		8.39			15,455		10.43			52,719		34.76
3.00% – 3.99%		592		.55			987		.67			2,568		1.69
4.00% – 4.99%		1,341		1.24			1,460		.98			7,562		4.99
5.00% – 5.99%		0		0			726		.49			810		.53
6.00% – 6.99%		0		0			0		0			22		.01


Total time deposits (1)		71,842		66.59			111,275		75.07			107,261		70.71


Total deposits	$	107,895		100.00	%	$	148,238		100.00	%	$	151,682		100.00	%

(1)	Included are Individual Retirement Accounts (IRA’s) totaling $7,074,000 and $8,745,000 at December 31, 2011 and 2010, respectively, all of which are in the form of time deposits.

Deposits of $100,000 or more, or Jumbo Time Deposits, are generally considered a more unpredictable source of funds. The following table sets forth our maturity distribution of deposits of $100,000 or more at December 31, 2011 and 2010 (in thousands):


	At December 31,
	2011		2010

Due three months or less	$	10,486	$	14,829
Due more than three months to six months		7,754		7,036
More than six months to one year		6,654		19,495
One to five years		5,261		9,949


Total	$	30,155	$	51,309

ANALYSIS OF RESULTS OF OPERATIONS

Our profitability depends to a large extent on net interest income, which is the difference between the interest received on earning assets, such as loans and securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings. Net interest income is determined by the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest-rate spread”) and the relative amounts of interest-earning assets and interest-bearing liabilities. Our interest-rate spread is affected by regulatory, economic, and competitive factors that influence interest rates, loan demand, and deposit flows. Our results of operations are also affected by the provision for loan losses, operating expenses such as salaries and employee benefits, occupancy and other operating expenses including income taxes, and noninterest income such as loan prepayment fees.

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. Average balances are based on average daily balances (dollars in thousands):


	Years Ended December 31,
	2011							2010							2009
	Average Balance		Interest and Dividends		Average Yield/ Rate			Average Balance		Interest and Dividends		Average Yield/ Rate			Average Balance		Interest and Dividends		Average Yield/ Rate
Interest-earning assets:
Loans	$	104,227		4,625		4.44	%	$	129,947	$	6,301		4.85	%	$	158,157	$	8,986		5.68	%
Securities		43,575		1,729		3.97			45,027		2,409		5.35			89,129		4,985		5.59
Other interest-earning assets (1)		21,266		68		0.32			33,555		77		0.23			16,953		35		0.21


Total interest-earning assets/interest income		169,068		6,422		3.80			208,529		8,787		4.21			264,239		14,006		5.30


Cash and due from banks		290							1,164							2,176
Premises and equipment		2,744							2,872							3,017
Other assets		5,291							7,341							1,933


Total assets	$	177,393						$	219,906						$	271,365


Interest-bearing liabilities:
Savings, NOW and money- market deposits		35,261		271		0.77			41,555		486		1.17			38,616		713		1.85
Time deposits		100,583		1,611		1.60			114,817		2,297		2.00			94,838		2,913		3.07
Borrowings (4)		36,855		1,545		4.19			51,194		2,084		4.07			113,175		4,725		4.17


Total interest-bearing liabilities/interest expense		172,699		3,427		1.98			207,566		4,867		2.34			246,629		8,351		3.39


Noninterest-bearing demand deposits		527							507							449
Other liabilities		2,331							5,208							3,620
Stockholders’ equity		1,836							6,625							20,667


Total liabilities and stockholders’ equity	$	177,393						$	219,906						$	271,365


Net interest income			$	2,995						$	3,920						$	5,655


Interest rate spread (2)						1.82	%						1.87	%						1.91	%


Net interest margin (3)						1.77	%						1.88	%						2.14	%


Ratio of average interest-earning assets to average interest-bearing liabilities						0.98							1.00							1.07

(1)	Includes interest-earning deposits with banks, Federal funds sold and Federal Home Loan Bank stock dividends.

(2)	Interest rate spread represents the difference between average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(3)	Net interest margin is net interest income divided by average interest-earning assets.

(4)	Includes Federal Home Loan Bank advances, junior subordinated debenture and securities sold under an agreement to repurchase.

RATE/VOLUME ANALYSIS

The following tables set forth certain information regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume) (in thousands):


	Year Ended December 31, 2011 versus 2010 Increases (Decreases) Due to Change In:
	Rate			Volume			Rate/ Volume			Total
Interest-earning assets:
Loans	$	(532	)	$	(1,249	)	$	105		$	(1,676	)
Securities		(622	)		(78	)		20			(680	)
Other interest-earning assets		30			(28	)		(11	)		(9	)


Total interest-earning assets		(1,124	)		(1,355	)		114			(2,365	)


Interest-bearing liabilities:
Savings, NOW and money-market		(167	)		(74	)		25			(216	)
Time deposits		(459	)		(285	)		57			(687	)
Other		62			(583	)		(16	)		(537	)


Total interest-bearing liabilities		(564	)		(942	)		66			(1,440	)


Net interest income	$	(560	)	$	(413	)	$	48		$	(925	)


	Year Ended December 31, 2010 versus 2009 Increases (Decreases) Due to Change In:
	Rate			Volume			Rate/ Volume			Total
Interest-earning assets:
Loans	$	(1,317	)	$	(1,603	)	$	235		$	(2,685	)
Securities		(216	)		(2,467	)		107			(2,576	)
Other interest-earning assets		3			35			4			42


Total interest-earning assets		(1,530	)		(4,035	)		346			(5,219	)


Interest-bearing liabilities:
Savings, NOW and money-market		(261	)		54			(20	)		(227	)
Time deposits		(1,016	)		614			(214	)		(616	)
Other		(119	)		(2,588	)		66			(2,641	)


Total interest-bearing liabilities		(1,396	)		(1,920	)		(168	)		(3,484	)


Net interest income	$	(134	)	$	(2,115	)	$	514		$	(1,735	)

Financial Condition as of December 31, 2011 Compared to December 31, 2010

The Company’s total assets decreased by $35.8 million, to $155.5 million at December 31, 2011, from $190.3 million at December 31, 2010, due to the Company’s strategy of downsizing in order to preserve its capital ratios. The Company reduced its loans and securities as well as its interest bearing time deposits.

In the last quarter of 2011, the Company issued an additional 21.6 million shares of its common stock in a private placement offering, resulting in additional capital of $8.6 million.

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

General. Net loss for the year ended December 31, 2011, was $3.8 million or $(.82) per basic and diluted share compared to a net loss of $8.5 million or $(10.32) per basic and diluted share for the year ended December 31, 2010. This $4.7 million decrease in the Company’s net loss was primarily due to a $3.8 million decrease in the provision for loan losses.

Interest Income. Interest income decreased to $6.4 million for the year ended December 31, 2011 compared to $8.8 million for the year ended December 31, 2010. Interest income on loans decreased by $1.7 million due primarily to a decrease in the average loan portfolio balance and a decrease in the average yield earned in 2011. Interest on securities decreased by $0.7 million due primarily to a decrease in the average balance of the securities portfolio in 2011.

Interest Expense. Interest expense on deposit accounts decreased to $1.9 million for the year ended December 31, 2011, from $2.8 million for the year ended December 31, 2010. Interest expense on deposits decreased primarily because of a decrease in the average yield paid in 2011 and a decrease in the average balance of deposits. Interest expense on borrowings decreased to $1.5 million for the year ended December 31, 2011 from $2.1 million for the year ended December 31, 2010 due primarily to a decrease in the average balance of borrowings.

(Credit) Provision for Loan Losses. The (credit) provision for the year ended December 31, 2011, was $(149,000) compared to $3.6 million for the same period in 2010. 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 loan portfolio at December 31, 2011. 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 qualitative factors related to the estimated collectability of our loan portfolio. The allowance for loan losses totaled $2.3 million or 2.57% of loans outstanding at December 31, 2011, compared to $3.7 million or 3.16% of loans outstanding at December 31, 2010. 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 December 31, 2011 is adequate.

Noninterest Income. Total noninterest income decreased to $0.4 million for the year ended December 31, 2011, from $1.4 million for the year ended December 31, 2010 primarily due to gains recognized on the sale of securities as part of the downsizing of the Company in the first quarter of 2010.

Noninterest Expenses. Total noninterest expenses decreased by $2.6 million, to $7.2 million for the year ended December 31, 2011 from $9.8 million for the year ended December 31, 2010, primarily due to a $3.7 million loss on the early extinguishment of debt associated with the Company’s downsizing in 2010, offset in part by a $.9 million increase in foreclosed real estate expenses and a $.2 million increase in insurance expense in 2011.

Income Taxes. Income taxes for the years ended December 31, 2011 and 2010 were $41,000 and $349,000, respectively.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

General. Net loss for the year ended December 31, 2010, was $8.5 million or $(10.32) per basic and diluted share compared to a net loss of $11.5 million or $(14.01) per basic and diluted share for the year ended December 31, 2009. This $3.0 million decrease in the Company’s net loss was primarily due to a $12.2 million decrease in the provision for loan losses, partially offset by a net $2.3 million expense associated with downsizing the Company, a $3.9 million reduction in income tax benefit and a $1.1 million increase in professional fees associated with loan foreclosures, workouts, and regulatory matters.

Interest Income. Interest income decreased to $8.8 million for the year ended December 31, 2010 compared to $14.0 million for the year ended December 31, 2009. Interest income on loans decreased to $6.3 million due primarily to a decrease in the average loan portfolio balance and a decrease in the average yield earned in 2010 due to an increase in the average balance of non-performing loans in 2010. Interest on securities decreased by $2.6 million due primarily to a decrease in the average balance of the securities portfolio in 2010.

Interest Expense. Interest expense on deposit accounts decreased to $2.8 million for the year ended December 31, 2010, from $3.6 million for the year ended December 31, 2009. Interest expense on deposits decreased primarily because of a decrease in the average yield paid in 2010 partially offset by an increase in the average balance of deposits. Interest expense on borrowings decreased to $2.1 million for the year ended December 31, 2010 from $4.7 million for the year ended December 31, 2009 due primarily to a decrease in the average balance of borrowings.

Provision for Loan Losses. The provision for the year ended December 31, 2010, was $3.6 million compared to $15.8 million for the same period in 2009. 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 loan portfolio at December 31, 2010. 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 qualitative factors related to the estimated collectability of our loan portfolio. The allowance for loan losses totaled $3.7 million or 3.16% of loans outstanding at December 31, 2010, compared to $9.4 million, or 6.54% of loans outstanding at December 31, 2009. 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 December 31, 2010 is adequate.

Noninterest Income. Total noninterest income increased to $1.4 million for the year ended December 31, 2010, from $(145,000) for the year ended December 31, 2009 primarily due to gains recognized on the sale of securities as part of the downsizing of the Company in the first quarter of 2010 and an other-than-temporary impairment on securities recorded for $179,000 in 2009.

Noninterest Expenses. Total noninterest expenses increased to $9.8 million for the year ended December 31, 2010 from $4.7 million for the year ended December 31, 2009, primarily due to a loss on the early extinguishment of debt associated with the Company’s downsizing, and an increase in professional fees due to legal and consulting expenses associated with loan foreclosure, loan workouts, and regulatory matters, and write-downs on foreclosed real estate, all occurring in the 2010 period.

Income Taxes (Benefit). The income tax expense for the year ended December 31, 2010 was $349,000. The income tax benefit for the year ended December 31, 2009 was $3,501,000.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.

Item 8.

Financial Statements

The financial statements of OptimumBank Holding, Inc. as of and for the years ended December 31, 2011 and 2010 are set forth in this Form 10-K as Exhibit 13.1 and contain the following information:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets, December 31, 2011 and 2010

Consolidated Statements of Operations for the Years Ended December 31, 2011 and 2010

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2011 and 2010

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010

Notes to Consolidated Financial Statements, December 31, 2011 and 2010 and for the Years Then Ended

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon management’s evaluation of those controls and procedures performed within the 90 days preceding the filing of this Report, our Principal Executive Officer and Chief Financial Officer concluded that, subject to the limitations noted below, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms.

(b) Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Such internal controls over financial reporting were designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, the Company used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon our evaluation under the framework in Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2011.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

(c) Changes in Internal Controls

We have made no significant changes in our internal controls over financial reporting during the quarter ended December 31, 2011 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

(d) Limitations on the Effectiveness of Controls

Our management, including our Principal Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 9B.

Other Information

The Company did not fail to file any Form 8-K or to disclose any information required to be disclosed therein during the fourth quarter of 2011.

PART III

Item 10.

Directors, Executive Officers, and Corporate Governance

OptimumBank has a Code of Ethics that applies to its chief executive officer, chief operating officer, chief financial officer (who is also its chief accounting officer) and controller, a copy of which is incorporated by reference into this Form 10-K as Exhibit 14.1. This Code of Ethics is also posted on our website at www.optimumbank.com/corpgovernance.html.

The information contained under the sections captioned “Nominees” and “Executive Officers Who Are Not Directors” under “Proposal 1: Election of Directors and Management Information” and “The Board of Directors Meetings and Committees” under “Corporate Governance,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 24, 2012, to be filed with the SEC pursuant to Regulation 14A within 120 days of the registrant's fiscal year end (the “Proxy Statement”), is incorporated herein by reference.

Item 11.

Executive Compensation

The information contained under the sections captioned “Director Compensation,” “Executive Officer Compensation,” and “Certain Relationships and Related Transactions,” in the Proxy Statement, is incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management

The information contained under the section captioned “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference.

We had two compensation plans under which shares of our common stock were issuable at December 31, 2011- our Stock Option Plan which terminated in February 2011 - and our 2011 Equity Compensation Plan, each previously approved by our stockholders. The following table sets forth information as of December 31, 2011 with respect to the number of shares of our common stock issuable pursuant to these plans.

EQUITY COMPENSATION PLAN INFORMATION


	(a)		(b)		(c)
Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding Securities Reflected in Column (a)

Stock Option Plan		50,900	$	34.31		0

2011 Equity Incentive Plan		—		—		2,200,000


Equity compensation plans approved by security holders		50,900	$	34.31		2,200,000

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information contained under the section captioned “Certain Relationships and Related Transactions,” and sections captioned “Director Independence” and “The Board of Directors Meetings and Committees” under “Corporate Governance” in the Proxy Statement is incorporated herein by reference.

Item 14.

Principal Accounting Fees and Services

The information contained under the section captioned “Independent Accountants” in the Proxy Statement is incorporated herein by reference.

PART IV

Item 15.

Exhibits and Financial Statement Schedules

The financial statements of OptimumBank Holding, Inc. as of and for the years ended December 31, 2011 and 2010 are set forth in this Form 10-K as Exhibit 13.1 and contain the following information:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets, December 31, 2011 and 2010

Consolidated Statements of Operations for the Years Ended December 31, 2011 and 2010

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2011 and 2010

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010

Notes to Consolidated Financial Statements, December 31, 2011 and 2010 and for the Years Then Ended

(2)	See Exhibit Index.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this 10-K report to be duly signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fort Lauderdale, State of Florida, on the 30th day of March 2012.

OPTIMUMBANK HOLDINGS, INC.

/s/ Richard L. Browdy

Richard L. Browdy

President and Chief Financial Officer

(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 30, 2012.


Signature				Title

/s/ Richard L. Browdy				Director
Richard L. Browdy

/s/ Moishe Gubin				Director and Chairman of the Board
Moishe Gubin

/s/ Sam Borek				Director and Vice Chairman of the Board
Sam Borek

/s/ Wendy Mitchler				Director
Wendy Mitchler

/s/ Seth Gillman				Director
Seth Gillman

/s/ Robert Acri				Director
Robert Acri

EXHIBIT INDEX


Exhibit No.		Description of Exhibit

3.1		Amended and Restated Articles of Incorporation

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)

10.1(a)		OptimumBank Holdings, inc. Amended and Restated Stock Option Plan (incorporated by reference from Annual Report on Form 10-KSB filed with the SEC on March 31, 2006)

10.2(a)		OptimumBank Holdings, Inc. 2011 Equity Incentive Plan (incorporated by reference from Current Report on Form 8-K filed with the SEC on January 3, 2012)

10.3(a)		OptimumBank Holdings, Inc. Non-Employee Director Compensation Plan

10.4		Stipulation to Entry of Consent Order and Consent Order between OptimumBank, Federal Deposit Insurance Corporation and State of Florida Office of Financial Regulation dated April 16, 2010 (incorporated by reference from current report on Form 8-K filed with the SEC on April 26, 2010)

10.5		Written Agreement by and between OptimumBank Holdings, Inc. and Federal Reserve Bank of Atlanta dated June 22, 2010 (incorporated by reference from Quarterly Report on Form 10-Q filed with the SEC on November 15, 2010)

10.6		Amended and Restated Stock Purchase Agreement, dated as of December 5 2011, between OptimumBank Holdings, Inc. and Moishe Gubin

10.7		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)

10.8		Form of Subscription Agreement between OptimumBank Holdings, Inc. and Related Parties (incorporated by reference from Current Report on Form 8-K/A filed with the SEC on November 2, 2011)

13.1		Consolidated Financial Statements of OptimumBank Holdings, Inc. and Report of Independent Registered Public Accounting Firm

(a)	Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit.

EXHIBIT INDEX


Exhibit No.		Description

14.1		Code of Ethics for Chief Executive Officer and Senior Financial Officers (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 31, 2010)

21.1		Subsidiaries of the Registrant

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

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company