OptimumBank Holdings, Inc. Annual Report 2008

FY2008 Annual Report · OptimumBank Holdings, Inc.

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PROFILE

OptimumBank Holdings, Inc. (the “Company”) is a bank holding company and

the parent company of OptimumBank (the “Bank”), a Florida state chartered commercial
bank. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation. At
December 31, 2007, the Company had total assets of $255.3 million, net loans of $160.7
million, total deposits of $114.9 million and stockholder’s equity of $22.8 million.
During 2008, the Company had net earnings of $520,000 or $.17 and $.16 per basic and
diluted share, respectively.

OptimumBank offers real estate lending and retail banking products and services

to individuals and businesses in Broward, Miami-Dade and Palm Beach Counties. The
Bank also offers internet banking services through its “OptiNet” internet banking
website, located at www.optimumbank.com.

OptimumBank Holdings Common Stock is quoted on the NASDAQ Global

Market System under the symbol “OPHC.”

To Our Shareholders,

In 2008, banks and financial services companies faced unprecedented weakness in both local

and national real estate markets. During this time, Congress and the various regulatory authorities
have taken extraordinary steps to restore liquidity and stability to the United States financial system,
stem the tide of home foreclosures and restore investors’ trust in markets shaken by the mortgage,
liquidity and credit crises. Some experts have said that this country is encountering some of the
worst economic times since the Great Depression.

In the midst of all of this turmoil, OptimumBank Holdings, Inc. still reported positive net
income for the year ended December 31, 2008 of $520,000, or $.17 per basic and $.16 per diluted
share, compared to net income of $1,742,000, or $.56 per basic and $.55 per diluted share, reported
for the prior year ended December 31, 2007. In a January 2009 article in the Florida Trend
magazine, we were included as one of six out of 17 of the largest publicly-traded bank holding
companies in the State of Florida to report positive earnings for the first half of 2008.

Assets as of December 31, 2008 increased to $255.7 million compared to $241.5 million at

December 31, 2007. Our securities portfolio increased to $82.2 million at December 31, 2008
compared to $58.5 million at December 31, 2007 and our net loan portfolio decreased to $160.7
million at December 31, 2008 from $173.3 million at December 31, 2007. We reduced our deposit
base from $125.0 million at December 31, 2007 to $114.9 million at December 31, 2008, because of
decreased lending activity caused by the weak real estate market.

We increased our allowance for loan losses during 2008 as a result of declining real estate
values in Florida and a worsening economic climate. The allowance for loan losses as a percentage
of total loans increased to 1.18% at the end of 2008 compared to .40% at the end of 2007. Our non-
performing loans and foreclosed assets grew during 2008 to 2.03% of total assets at the end of the
year, which is still better than most of our peers.

Stockholder’s equity continued to strengthen in 2008 as a result of our positive earnings,
increasing to $22.8 million at December 31, 2008 from $22.2 million at December 31, 2007. At
December 31, 2008, OptimumBank continued to be a classified as “well-capitalized” under the
regulatory definitions with a capital base almost double the regulatory capital requirements
necessary to remain in that category. Our book value per share at December 31, 2008 was $7.29
compared to $7.13 at December 31, 2007.

Many negative forces converged on banks and their customers during 2008 and few will

remain unaffected by this difficult economic environment as we enter 2009. Our ability to remain in
positive territory during these challenging times is a strong statement regarding our conservative
business philosophy and diligent business practices. Your continued confidence and support is
sincerely appreciated.

Yours truly,

Albert J. Finch
Chairman of the Board

Richard L. Browdy
President

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

SELECTED FINANCIAL DATA

At December 31, or for the Year Then Ended
(Dollars in thousands, except per share figures)

At Year End:

2008

2007

2006

2005

2004

Cash and cash equivalents......................................... $ 3,220
82,208
Securities held to maturity.........................................
Security available for sale .........................................
244
160,699
Loans, net...................................................................
-
Loans held for sale ....................................................
9,369
All other assets ..........................................................

701
58,471
244
173,323
-
8,808

1,604
33,399
241
181,878
-
8,581

1,154
25,618
243
170,226
-
8,803

3,223
24,134
247
128,810
509
7,635

Total assets ......................................................... $ 255,740

241,547

225,703

206,044

164,558

Deposit accounts........................................................
Federal Home Loan Bank advances .........................
Other borrowings.......................................................
Junior subordinated debenture ..................................
All other liabilities.....................................................
Stockholders' equity ..................................................

114,925
68,700
41,800
5,155
2,395
22,765

125,034
56,850
28,900
5,155
3,361
22,247

129,502
56,550
10,950
5,155
3,123
20,423

114,064
52,950
12,950
5,155
2,515
18,410

97,994
37,650
5,000
5,155
2,036
16,723

Total liabilities and stockholders' equity ........... $ 255,740

241,547

225,703

206,044

164,558

For the Year:

Total interest income .................................................
Total interest expense................................................

15,570
9,211

16,137
9,700

14,191
8,063

11,334
5,841

8,815
4,032

Net interest income....................................................
Provision for loan losses ...........................................

6,359
1,374

6,437
476

6,128
265

5,493
149

4,783
136

Net interest income after provision for loan losses ..

4,985

5,961

5,863

5,344

4,647

Noninterest income....................................................
Noninterest expenses.................................................

393
4,545

533
3,749

628
3,574

635
3,396

690
2,801

Earnings before income taxes ...................................
Income taxes..............................................................

833
313

2,745
1,003

2,917
1,083

2,583
982

2,536
966

Net earnings............................................................... $ 520

1,742

1,834

1,601

1,570

Net earnings per share, basic (1)............................... $ .17

.56

.59

.52

.51

Net earnings per share, diluted (1) ............................ $ .16

.55

.57

.50

Weighted-average number of shares

outstanding, basic (1) .........................................

Weighted-average number of shares

outstanding, diluted (1) ......................................

3,120,992

3,112,227

3,101,357

3,077,949

3,051,874

3,164,219

3,184,744

3,233,617

3,197,124

3,147,249

Ratios and Other Data:
Return on average assets ...........................................
Return on average equity...........................................
Average equity to average assets ..............................
Net interest margin during the year...........................
Interest-rate differential during the year ...................
Net yield on average interest-earning assets.............
Noninterest expenses to average assets.....................
Ratio of average interest-earning assets to

average interest-bearing liabilities.....................

Nonperforming loans and foreclosed assets as

a percentage of total assets at end of year .........

Allowance for loan losses as a percentage of

.21%
2.26%
9.15%
2.61%
2.26%
6.38%
1.81%

1.09

.73%
8.16%
8.96%
2.78%
2.34%
6.96%
1.57%

1.10

2.03%

0.13%

.85%
9.37%
9.12%
2.96%
2.63%
6.85%
1.67%

1.08

.86%
9.09%
9.42%
3.08%
2.84%
6.36%
1.82%

1.08

1.06%
10.05%
10.53%
3.35%
3.05%
6.18%
1.89%

1.11

2.54%

1.18%
total loans at end of year ....................................
3
Total number of banking offices...............................
Total shares outstanding at end of year (1)...............
3,120,992
Book value per share at end of year (1) .................... $ 7.29

.40%
3
3,121,132
7.13

.54%
3
3,109,359
6.57

.46%
3
3,083,653
5.97

.49%
3
3,067,824
5.45

(1) All share and per share amounts have been adjusted to reflect the 5% stock dividends declared in May 2008, 2007 and

2006.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

OptimumBank Holdings, Inc. is a one-bank holding company formed in 2004. Our only business is the
ownership and operation of OptimumBank. OptimumBank is a Florida chartered bank which opened in November
2000, and its deposits are insured by the FDIC. OptimumBank provides community banking services to individuals
and businesses in Broward, Miami-Dade and Palm Beach counties. OptimumBank conducts operations from its
Fort Lauderdale headquarters and three branch offices in Fort Lauderdale, Plantation and Deerfield Beach.

At December 31, 2008, our company had total assets of $255.7 million, net loans of $160.7 million, total
deposits of $114.9 million and stockholders' equity of $22.8 million. During 2008, our company had net earnings of
$520,000.

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 allowance for loan losses is one of our most difficult and subjective judgments. 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 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 "Results of Operations" 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
Department of Financial Services and the FDIC. We file reports with the Florida Department 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 Florida Department 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, Allowance for Loan Losses, Asset Quality and Credit Risk

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.
We have instituted detailed loan policies and procedures which include underwriting guidelines to minimize loss
exposure. We also have credit review procedures to protect us from avoidable credit losses. We believe our
procedures are adequate to insure asset quality and protect against credit risk, but some losses beyond our control
will inevitably occur.

We grant the majority of our loans to borrowers throughout Broward and portions of Palm Beach and
Miami-Dade Counties, Florida. Although we have a diversified loan portfolio, a significant portion of our
borrowers’ ability to honor their contracts is dependent on the economy in Broward, Palm Beach and Miami-Dade
County, Florida, and to a lesser extent, other regions in Florida.

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

At December 31,
2008
% of
Total Amount

2007
% of
Total Amount

Amount

2006

% of
Total

(dollars in thousands)

Residential real estate...........
Multi-family real estate........
Commercial real estate.........
Land and construction..........
Commercial ..........................
Consumer .............................

$ 58,693
9,588
73,541
19,223
-
878

36.25% $ 65,908
10,275
5.92
75,777
45.42
21,093
11.87
-
-
15
.54

38.08% $ 70,868
10,769
5.94
68,852
43.78
31,022
12.19
-
-
227
.01

38.99%
5.93
37.89
17.07
-
.12

Total loans ......................

161,923 100.00% 173,068 100.00% 181,738 100.00%

Add (deduct):
Allowance for loan losses ..
Net deferred loan costs
discounts .........................

(1,906)

(692)

(974)

682

947

1,114

Loans, net .............................

$ 160,699

$ 173,323

$ 181,878

At December 31,
2005
% of
Total Amount
(dollars in thousands)

Amount

2004

% of
Total

$ 65,016
15,135
54,286
34,760
570
43

38.29% $ 61,070
10,853
8.91
38,064
31.97
18,169
20.47
.33
581
162
.03

47.38%
8.42
29.53
14.09
.45
.13

Total loans ......................

169,810 100.00% 128,899 100.00%

Add (deduct):
Allowance for loan losses ..
Net deferred loan costs
discounts .........................

(777)

(628)

1,193

539

Loans, net .............................

$ 170,226

$ 128,810

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

Year Ended December 31,
2008

2006

2005

2007

Beginning balance.................................... $ 692
Provision for loan losses ..........................
1,374
Loans charged off:
Residential real estate...........
Commercial real estate ........
Total Loans Charged Off ....

(112) (758) (68) - -
-
(48) - - -
(160) (758) (68) - -

$ 974
476

$ 777
265

$ 628
149

2004

$ 492
136

Ending balance ......................................... $ 1,906

$ 692

$ 974

$ 777

$ 628

The allowance for loan losses is established as losses are estimated to have occurred through a provision for
loan losses charged to earnings. Loan losses are charged against the allowance when we believe the uncollectibility of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. In 2008, the charge-offs related
to single-family residential loans and a commercial real estate loan. In 2007, the charge-offs related to a single-family
residential loan. The allowance for loan losses represented 1.18% and .40% of the total loans outstanding at December
31, 2008 and 2007, respectively.

We evaluate the allowance for loan losses on a regular basis. It is based on our periodic review of the
collectibility of the existing loan portfolio in light of historical loss experience, the nature and volume of the loan
portfolio, adverse situations, including economic conditions, that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more information becomes available.

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

We consider a loan impaired when, based on current information and events, it is probable that we will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan
agreement. Factors we consider in determining impairment include payment status, collateral value, and the probability
of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays
and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and
the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.

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. For loans that are collateral dependent, our estimates of the fair value of
collateral are based on a variety of information, including the use of available appraisals, estimates of market value by
licensed appraisers or local real estate brokers, and the knowledge and experience of our management related to property
values in our market areas. Our management takes into consideration the type, location and occupancy of the property as
well as current economic conditions in the area the property is located in assessing estimates of fair value.

In the table below, we have shown the two components, as discussed above, of our allowance for loan losses at

December 31, 2008 and 2007 (dollars in thousands):

Impaired loans
Specific Allowance on Impaired Loans
Specific allowance as percentage of impaired loans

Total loans other than impaired loans
General Allowance
General allowance as percentage of non impaired loans

Total loans
Total allowance for loan losses
Allowance for loan losses as percentage of total loans

At December 31,
2008 2007

10,938 $
1,120
10.24%

-
-
-

150,985
786
.52%

161,923
1,906
1.18%

173,068
692
.40%

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

At December 31,
2008
% of
Total

2007
% of
Total

% of
Total
Amount Loans Amount Loans Amount Loans

2006

Residential real estate...............
Multi-family real estate............
Commercial real estate.............
Land and construction..............
Commercial ..............................
Consumer .................................

$ 928
62
463
444
-
9

36.25%
5.92
45.42
11.87
-
.54

$ 187
59
379
67
-
-

38.08%
5.94
43.78
12.19
-
.01

$ 400
54
406
114
-
-

38.99%
5.93
37.89
17.07
-
.12

Total allowance for loan losses

$ 1,906 100.00%

$ 692 100.00%

$ 974 100.00%

Allowance for loan losses as
a percentage of total
loans outstanding................

1.18%

0.40%

0.54%

At December 31,
2005
% of
Total

% of
Total
Amount Loans Amount Loans

2004

$ 206
81
347
140
3
-

38.29%
8.91
31.97
20.47
.33
.03

$ 218
52
240
115
3
-

47.38%
8.42
29.53
14.09
.45
.13

Total allowance for loan losses

$ 777 100.00%

$ 628 100.00%

Allowance for loan losses as
a percentage of total
loans outstanding................

0.46%

0.49%

Information about impaired loans, all of which are collateral dependent, is as follows (in thousands):

Loans identified as impaired:

Gross loans with no related allowance for losses................................
Gross loans with related allowance for loan losses recorded ..............
Less: Allowance on these loans .........................................................

$ 4,001
6,937
(1,120)

$ -
-
-

Net investment in impaired loans........................................................

$ 9,818

$ -

At December 31,
2007
2008

There were no impaired loans during 2006. During 2008 and 2007, 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,

2008

2007

Average investment in impaired loans ........................

$ 3,240

$ 1,581

Interest income recognized on impaired loans ............

$ -

$ 39

Interest income received on a cash basis

on impaired loans .................................................

$ -

$ 39

The increase in impaired loans in 2008 is reflective of the current real estate market in Florida and the economy
in general. The net investment in impaired loans at December 31, 2008 consists of 10 land loans with a carrying value of
$7.41 million, net of related allowance for loan losses of $420,000, and one residential loan in the amount of $2.408
million, net of related allowance for loan losses of $700,000, secured by a single-family residence in Naples, Florida.
The largest impaired land loans consist of two loans in the aggregate amount of $4.299 million, net of related allowance
for loan losses of $5,033, secured by undeveloped waterfront land in North Fort Myers, Florida, and a $1.869 million
loan, net of related allowance for loan losses of $200,000, secured by waterfront lots in Bonita Springs, Florida.

At December 31, 2006 and 2005, the Company had no nonaccrual loans or loans over 90 days past due still
accruing interest. Nonaccrual and past due loans were as follows as of December 31, 2008, 2007 and 2004 (in
thousands):

At December 31,
2008

2007

2004

Nonaccrual loans...............................................................

$ 5,086

$ 245

$ 3,268

Past ninety days or more, but still accruing interest..........

$ -

All non-accrual loans at December 31, 2008 have been identified by management as impaired loans at that date.

At December 31, 2008 and 2007, the Company had $95,000 and $79,000, respectively, of foreclosed real estate

assets.

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, 2008 were from other borrowings of $12.9
million, principal repayments of securities held to maturity of $11.4 million, net repayments of loans of $10.0 million
and proceeds from Federal Home Loan Bank advances of $22.5 million. Cash was used primarily to purchase securities
held to maturity totaling $35.6 million, repayment of Federal Home Loan Bank advances of $10.7 million and to fund

deposit withdrawals of $10.1 million. We adjust rates on our deposits to attract or retain deposits as needed. In addition
to obtaining funds from depositors in our market area, from time to time we utilize brokers to obtain deposits outside 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 40% of the Bank's total assets. As of December 31, 2008, we had $68.7 million in borrowings outstanding from
the Federal Home Loan Bank of Atlanta to facilitate loan fundings and manage our asset and liability structure. In
addition, we have an unsecured "federal funds" line of credit with Independent Bankers Bank of Florida totaling $6
million, none of which was outstanding at December 31, 2008. This credit line is normally used to meet short-term
funding demands. At December 31, 2008, we sold securities under an agreement to repurchase totaling $41.8 million.
These borrowings are collateralized by securities held to maturity with a carrying value of $55.6 million at December 31,
2008. We believe our liquidity sources are adequate to meet our operating needs.

Securities

Our securities portfolio is comprised primarily of mortgage-backed securities and a mutual fund. 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):

At December 31, 2008:
Securities held to maturity:

Mortgage-backed securities ..........................
Foreign bond .................................................

$ 82,108
100

Amortized
Cost

$ 82,208

Fair
Value

$ 78,656
100

$ 78,756

Security available for sale-

Mutual fund...................................................

$ 250

$ 244

At December 31, 2007:
Securities held to maturity:

Mortgage-backed securities ..........................
Foreign bond .................................................

$ 58,371
100

$ 58,471

$ 58,017
100

$ 58,117

Security available for sale-

Mutual fund...................................................

$ 250

$ 244

At December 31, 2006:
Securities held to maturity:

Mortgage-backed securities ..........................
Foreign bond .................................................

$ 33,299
100

$ 33,399

$ 33,050
100

$ 33,150

Security available for sale-

Mutual fund...................................................

$ 250

$ 241

A decline in the market value of any security below cost that is deemed to be other-then-temporary results in a
reduction of carrying value to fair value. The impairment is charged to earnings and a new cost basis for the security is
established. To determine whether an impairment is other-than-temporary, we consider (1) the length of time and the
extent to which fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; and
(3) whether we have the intent and ability to retain the investment for a period of time sufficient to allow for any
anticipated recovery in fair value. Because the decline in fair value and the unrealized losses on the investment securities
at December 31, 2008, are attributable to market conditions and not credit quality, and because we have the ability and
intent to hold these investments until a market price recovery or maturity, we do not consider these investments other-
than-temporarily impaired.

The following table sets forth, by maturity distribution, certain information pertaining to the securities portfolio

(dollars in thousands):

After One After Five
But Within
Five
Years

Years

Through After Ten
Ten Years

Years

Within
One Year

Total

Yield

At December 31, 2008:
Mortgage-backed securities ..... $ -

$ -

$ 1,604

$ 80,504

$ 82,108

5.41%

Foreign bond ............................ $ -

$ -

$ 100

$ -

$ 100

5.95%

At December 31, 2007:
Mortgage-backed securities ..... $ -

$ -

$ 58,371

5.59%

Foreign bond ............................ $ -

$ -

$ 100

$ -

$ 100

5.95%

At December 31, 2006:
Mortgage-backed securities ..... $ -

$ -

$ 33,299

5.01%

Foreign bond ............................ $ -

$ -

$ 100

$ -

$ 100

5.95%

Regulatory Capital Adequacy

The Bank is subject to various regulatory capital requirements administered by the Federal and state banking
agencies. As of December 31, 2008, the most recent notification from the regulatory authorities categorized our Bank as
well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an
institution must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth in the
following tables. There are no conditions or events since that notification that management believes have changed our
category.

The following table sets forth for the Bank the amount and the percentage of our actual regulatory capital,
regulatory capital for capital adequacy purposes, and the minimum regulatory capital to be well capitalized under the
prompt corrective action provisions of the Federal regulations (dollars in thousands).

REGULATORY CAPITAL REQUIREMENTS

Actual
%

Amount

For Capital Adequacy
Purposes
%
Amount

Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
%
Amount

As of December 31, 2008:
Total Capital to Risk-
Weighted Assets............. $ 29,357
Tier I Capital to Risk-
Weighted Assets.............
Tier I Capital
to Total Assets................

27,451

18.91% $ 12,419

8.00%

$ 15,524

10.00%

17.68

6,210

4.00

9,314

10.71

10,254

4.00

12,818

6.00

5.00

As of December 31, 2007:
Total Capital to Risk-
Weighted Assets.............
Tier I Capital to Risk-
Weighted Assets.............
Tier I Capital
to Total Assets................

27,966

17.95

12,465

8.00

15,581

10.00

27,274

17.50

6,232

4.00

9,349

27,274

11.15

9,787

4.00

12,234

6.00

5.00

As of December 31, 2006:
Total Capital to Risk-
Weighted Assets............. $ 26,334
Tier I Capital to Risk-
Weighted Assets.............
Tier I Capital
to Total Assets................

25,360

16.72% $ 12,599

8.00%

$ 15,749

10.00%

16.10

6,299

4.00

9,449

11.24

9,026

4.00

11,282

6.00

5.00

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 8 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, 2008, that are estimated to mature or are scheduled to reprice within the period shown (dollars
in thousands):

GAP MATURITY / REPRICING SCHEDULE

More
than One
Year and
Less than
Five Years

More
than Five
Years and
Less than
Fifteen Years

One
Year or
Less

Over
Fifteen
Years

Total

Loans (1):

Residential real estate loans............ $ 37,274
5,946
45,238
13,937
518

Multi-family real estate loans.........
Commercial real estate loans..........
Land and construction ....................
Consumer loans ..............................

$ 20,179
3,642
27,091
5,286
257

$ 1,240
-
1,212
-
-

$ - $ 58,693
9,588
73,541
19,223
872

-
-
-
97

Total loans ......................................

102,913

56,455

2,452

97 161,917

Federal funds sold..................................
Securities (2)..........................................
Federal Home Loan Bank stock ............

2,143
3,903
3,526

-
-
-

-
32,812
-

-
45,737
-

2,143
82,452
3,526

Total rate-sensitive assets ............... 112,485

56,455

35,264

45,834

250,038

Deposit accounts (3):
Money-market deposits ..................
Interest-bearing checking deposits .
Savings deposits .............................
Time deposits .................................

28,009
1,464
1,195
72,989

-
-
-
11,178

-
-
-
-

28,009
1,464
1,195
84,167

Total deposits ................................. 103,657

11,178

114,835

Federal Home Loan Bank advances ......
Other borrowings...................................
Junior subordinated debenture...............

43,200
20,900
5,155

25,500
20,900
-

-
-
-

68,700
41,800
5,155

Total rate-sensitive liabilities................. 172,912

57,578

230,490

GAP (repricing differences) .................. $ (60,427)

$ (1,123)

$ 35,264

$ 45,834 $ 19,548

Cumulative GAP ................................... $ (60,427)

$(61,550)

$(26,286)

$ 19,548

Cumulative GAP/total assets .................

(23.63)%

(24.07)%

(10.28)%

7.64%

(1)

(2)
(3)

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.
Securities are scheduled through the repricing date.
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, 2008 (in thousands):

One Year
or Less

After One
But Within
Five Years

Residential real estate...................... $ 3,040
-
Multi-family real estate ...................
7,188
Commercial real estate....................
7,136
Land and construction.....................
518
Consumer ........................................

$ 3,200
-
5,345
303
257

After
Five Years

$ 52,453
9,588
61,008
11,784
97

Total

$ 58,693
9,588
73,541
19,223
872

Total ................................................ $ 17,882

$ 9,105

$ 134,930

$ 161,917

The following table sets forth the maturity or repricing of loans by interest type at December 31, 2008 (in

thousands):

One Year
or Less

After One
But Within
Five Years

After
Five Years

Total

Fixed interest rate............................ $ 15,269
87,643
Variable interest rate .......................

$ 2,524
47,327

$ 7,877
1,277

$ 25,670
136,247

Total ................................................ $ 102,912

$ 49,851

$ 9,154

$ 161,917

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,
2008, we had outstanding commitments to originate real estate loans totaling $2.0 million. 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, 2008 (in thousands):

Payments Due by Period

Contractual Obligations

Total

Less
Than 1
Year

1-3
Years

3-5
Years

Federal Home Loan Bank advances ........ $ 68,700
5,155
Junior subordinated debenture.................
41,800
Other borrowings.....................................
Operating leases.......................................
558
2,000
Loan commitments ..................................

$ 11,000
5,155
-
133
2,000

$ 10,000
-
-
266
-

$ 19,500
-
41,800
159
-

More
Than 5
Years

$ 28,200
-
-
-
-

Total ........................................................ $ 118,213

$ 18,288

$ 10,266

$ 61,459

$ 28,200

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 $10.1 million in 2008 and $4.5 million in 2007.

In years prior to 2008, we used brokered deposits to facilitate mortgage loan fundings in circumstances when
larger than anticipated loan volumes occur and there was limited time to fund the additional loan demand through
traditional deposit solicitation. In general, brokered deposits can be obtained in one to three days. Historically, 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. In
2008, local deposit rates were driven higher by troubled institutions in our market area, and we increased our use of
brokered deposits because the rates we paid on brokered deposits were significantly lower than the local rates we would
have been otherwise required to pay. Brokered deposits amounted to $13.7 million and $7.5 million as of December 31,
2008 and December 31, 2007, respectively.

The following table displays the distribution of the Bank's deposits at December 31, 2008, 2007 and 2006

(dollars in thousands):

At December 31,
2008
2007

% of

2006

% of

Amount Deposits Amount Deposits

Amount Deposits

Noninterest-bearing demand deposits ........... $ 90
1,464
Interest-bearing demand deposits..................
28,009
Money-market deposits.................................
1,195
Savings..........................................................

.08% $ 1,304
967
1.27
26,760
24.37
475
1.04

1.04%
.77
21.40
.39

$ 545
1,780
23,239
856

.42%

1.37
17.95
.66

Subtotal .................................................

30,758

26.76

29,506

23.60

26,420

20.40

Time deposits:

2.00% – 2.99%...................................... $ 7,696
39,678
3.00% – 3.99%......................................
35,627
4.00% – 4.99%......................................
1,146
5.00% – 5.99%......................................
20
6.00% – 6.99%......................................

6.70% $ -
11,721
44,680
37,801
1,326

34.53
31.00
1.00
.01

- %

9.37
35.73
30.23
1.07

$ 501
16,578
47,282
38,721
-

.39%

12.80
36.51
29.90
-

Total time deposits (1) ..........................

84,167

73.24

95,528

76.40

103,082

79.60

Total deposits ........................................ $ 114,925

100.00% $ 125,034

100.00%

$ 129,502

100.00%

(1)

Included are Individual Retirement Accounts (IRA's) totaling $6,618,000 and $7,522,000 at December

31, 2008 and 2007, 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, 2008
and 2007 (in thousands):

At December 31,
2007

2008

Due three months or less ........................................................................................
Due more than three months to six months ............................................................
More than six months to one year ..........................................................................
One to five years ....................................................................................................

$ 5,980
6,225
21,551
3,103

$ 8,033
16,616
8,680
5,543

Total .......................................................................................................................

$ 36,859

$ 38,872

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,
2007
2008
Interest Average
Interest Average
Average
Average
Yield/
Yield/
and
Balance Dividends Rate
Balance Dividends Rate

and

2006

Interest Average
Average
Yield/
Balance Dividends Rate

and

$ 162,157
76,975

$ 11,236
4,183

6.93% $ 176,679 $ 13,086
2,803
50,891
5.43

7.41% $ 175,225
28,129
5.51

$ 12,662
1,323

7.23%
4.70

Interest-earning assets:
Loans .....................................
Securities ...............................
Other interest-earning

assets (1) ............................

4,786

151

3.16

4,364

248

5.68

3,851

206

5.35

Total interest-earning

assets/interest income ....

243,918

15,570

6.38

231,934

16,137

6.96

207,205

14,191

6.85

Cash and due from banks ...........
Premises and equipment.............
Other assets ................................

538
3,181
3,234

Total assets ........................

$ 250,871

346
3,433
2,609

$ 238,322

311
4,034
3,019

$ 214,569

Interest-bearing liabilities:
Savings, NOW and money-

market deposits ..................
Time deposits.........................
Borrowings (4).......................

Total interest-bearing

liabilities/interest

32,291
81,461
109,961

1,024
3,497
4,690

3.17
4.29
4.27

26,648
97,269
86,089

1,196
4,640
3,864

4.49
4.77
4.49

11,974
108,448
70,614

390
4,758
2,915

3.26
4.39
4.13

expense ..........................

223,713

9,211

4.12

210,006

9,700

4.62

191,036

8,063

4.22

Noninterest-bearing demand
deposits ..................................
Other liabilities...........................
Stockholders' equity ...................

715
3,478
22,965

Total liabilities and

1,684
5,289
21,343

747
3,214
19,572

stockholders' equity .......

$ 250,871

$ 238,322

$ 214,569

Net interest income ....................

$ 6,359

$ 6,437

$ 6,128

Interest rate spread (2)................

Net interest margin (3) ...............

Ratio of average interest-earning
assets to average interest-
bearing liabilities....................

2.26%

2.61%

1.09

2.34%

2.78%

1.10

2.63%

2.96%

1.08

(1)
(2)

Includes interest-earning deposits with banks, Federal funds sold and Federal Home Loan Bank stock dividends.
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,
2008 versus 2007

Increases (Decreases) Due to Change In:

Interest-earning assets:
Loans.................................................................. $ (844)
(37)
Securities............................................................
(111)
Other interest-earning assets ..............................

$(1,076)
1,437
23

Rate

Volume

Rate/
Volume

$ 70
(20)
(9)

Total

$(1,850)
1,380
(97)

Total interest-earning assets ...............................

(992)

384

(567)

Interest-bearing liabilities:
Savings, NOW and money-market.....................
Time deposits .....................................................
Other ..................................................................

(351)
(464)
(192)

253
(754)
1,070

Total interest-bearing liabilities .........................

(1,007)

569

(74)
75
(52)

(51)

(172)
(1,143)
826

(489)

Net interest income ............................................ $ 15

$ (185)

$ 92

$ (78)

Interest income:
Loans..................................................................
Securities............................................................
Other interest-earning assets ..............................

Year Ended December 31,
2007 versus 2006
Increases (Decreases) Due to Change In:

Rate

Volume

$ 316
227
14

$ 105
1,071
26

Rate/
Volume

$ 3
182
2

Total

$ 424
1,480
42

Total interest income..........................................

557

1,202

187

1,946

Interest expense:
Savings, NOW and money-market.....................
Time deposits .....................................................
Borrowings.........................................................

Total interest expense.........................................

148
414
254

816

478
(491)
638

625

180
(41)
57

196

806
(118)
949

1,637

Net interest income ............................................

$(259)

$ 577

$ (9)

$ 309

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

General. Net earnings for 2008 were $520,000, or $.17 per basic and $.16 per diluted share, $1.2 million less than in
2007. The primary factors explaining the decline were a $796,000 increase in noninterest expenses coupled with a
$898,000 increase in the provision for loan losses, and a $78,000 decrease in net interest income, partially offset by a
$690,000 decrease in income tax expense.

Interest Income. Interest income decreased to $15.6 million for 2008 compared to $16.1 million for 2007. Interest
income on loans decreased to $11.2 million due primarily to a decrease in the average loan portfolio balance and a
decrease in the average yield earned in 2008. Interest on securities increased by $1.4 million due primarily to an increase
in the average balance of the securities portfolio in 2008.

Interest Expense. Interest expense on deposit accounts decreased to $4.5 million for 2008, from $5.8 million for 2007.
Interest expense on deposits decreased primarily because of a decrease in the average balance of deposits and rates paid
in 2008. Interest expense on borrowings increased to $4.7 million for 2008 from $3.9 million for 2007 due primarily to
an increase in the average balance of borrowings.

Provision for Loan Losses. The provision for 2008 was $1,374,000 compared to $476,000 for 2007. In 2008, the
provision was increased primarily to reflect the impairment in value of ten loans in the amount of $1.1 million. The
provision for loan losses is charged to earnings as losses are estimated to have occurred in order to bring the total
allowance for loan losses to a level deemed appropriate by management. Management's periodic evaluation of the
adequacy of the allowance is based upon historical loan loss experience, the volume and type of lending conducted by
us, adverse situations that may affect the borrower's ability to repay, estimated value of the underlying collateral, loans
identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors
related to the estimated collectibility of our loan portfolio. The allowance for loan losses totaled $1,906,000 or 1.18% of
loans outstanding at December 31, 2008, compared to $692,000, or .40% of loans outstanding at December 31, 2007.
Management believes the balance in the allowance for loan losses at December 31, 2008 is adequate.

Noninterest Income. Total noninterest income decreased to $393,000 for 2008, from $533,000 for 2007 primarily as a
result of a litigation settlement of $155,000 in 2007 and a decrease in loan prepayment fees in 2008.

Noninterest Expenses. Total noninterest expenses increased to $4.5 million for 2008 from $3.7 million for 2007,
primarily due to losses relating to foreclosed assets recorded in 2008 of $517,000 related to one residential property,
compared to no such losses in 2007.

Income Taxes. Income taxes for 2008, were $313,000 (an effective rate of 37.6%) compared to income taxes of
$1,003,000 (an effective rate of 36.5%) for 2007.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

General. Net earnings for 2007 were $1.7 million, or $.56 per basic and $.55 per diluted share, $92,000 less than in
2006. The primary factors explaining the decline were a $175,000 increase in noninterest expenses coupled with a
$211,000 increase in the provision for loan losses, partially offset by a $309,000 increase in net interest income.

Interest Income. Interest income totaled $16.1 million in 2007, an increase of $1.9 million, or 13.7%. This increase was
primarily due to a $22.8 million, or 80.9%, increase in the average securities portfolio balance coupled with an increase
in the average yield earned on securities, from 4.70% to 5.51%, resulting in a $1.5 million increase in interest on
securities. Interest income on loans increased by 3.4%, or $424,000, primarily due to an increase in the average yield
earned on loans, from 7.23% to 7.41%.

Interest Expense. Interest expense totaled $9.7 million in 2007, an increase of $1.6 million, or 20.3%, primarily as a
result of an increase in the overall cost of interest-bearing liabilities to 4.62% compared to 4.22% a year ago, coupled
with a $15.5 million or 21.9% increase in the average balance of borrowings used to fund the Company's growth.
Average balances in deposit accounts increased only marginally by $3.5 million, or 2.9%, and interest expense on
deposit accounts increased by $688,000, or 13.4%, to $5.8 million for 2007.

Provision for Loan Losses. The provision for loan losses in 2007 was $476,000 compared to $265,000 in 2006. The
provision for loan losses is charged to earnings as losses are estimated to have occurred in order to bring the total
allowance for loan losses to a level deemed appropriate by management. Management's periodic evaluation of the
adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse

situations that may affect the borrower's ability to repay, estimated value of the underlying collateral, loans identified as
impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the
estimated collectibility of our loan portfolio. The allowance for loan losses totaled $692,000 or .40% of loans
outstanding at December 31, 2007, compared to $974,000, or .54% of loans outstanding at December 31, 2006.
Management believes the balance in the allowance for loan losses at December 31, 2007 is adequate.

Noninterest Income. Total noninterest income decreased $95,000, to $533,000 in 2007, from $628,000 in 2006,
primarily due to a reduction of $202,000 due to no gains recognized on the payoff of Federal Home Loan Bank advances
in 2007, partially offset by a $62,000 increase in litigation settlements and a $44,000 increase in loan prepayment fees.

Noninterest Expenses. Noninterest expenses totaled $3.7 million in 2007, a $175,000 increase from 2006, due primarily
to a $59,000 increase in salaries and employee benefits, a $49,000 increase in the FDIC insurance premium, and a
$26,000 increase in professional fees, all due to general increases in the cost of services.

Income Taxes. Income taxes for 2007 were $1,003,000 (an effective rate of 36.5%) compared to income taxes of
$1,083,000 (an effective rate of 37.1%) for 2006.

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.

Selected Quarterly Results

Selected quarterly results of operations for the four quarters ended December 31, 2008 and 2007 are as follows

(in thousands, except share amounts):

2008
Fourth
Quarter Quarter Quarter Quarter

Second

Third

First

2007
Fourth Third
Quarter Quarter Quarter Quarter

Second

First

Interest income ..................... $ 3,665 $ 3,900
2,283
Interest expense ....................
Net interest income...............
1,617
Provision (credit) for

2,260
1,405

$ 3,980
2,319
1,661

$ 4,025
2,349
1,676

$ 4,175
2,531
1,644

$ 4,130 $ 4,005 $ 3,827
2,240
2,430
1,587
1,575

2,499
1,631

loan losses .........................

1,213

(7)

121

(60)

209

311

Net interest income after
provision for loan losses ...
Noninterest income...............
Noninterest expense..............
(Loss) earnings before

income taxes......................
Net (loss) earnings ................
Basic (loss) earnings per
common share ...................
Diluted (loss) earnings per
common share...................

192
235
1,228

1,570
78
1,325

1,668
38
1,083

1,555
42
909

1,704
93
993

1,615
47
959

1,366
159
905

1,276
234
892

(801)
(498)

(.16)

323
201

.06

623
388

.12

688
429

.13

804
501

.16

703
438

.14

.13

620
387

.12

.13

618
416

.14

.13

QUARTERLY STOCK PRICE INFORMATION

Our common stock currently trades on the NASDAQ Global Market, under the symbol "OPHC." The table

below presents the high and low sales prices for the periods indicated.

Year

2007

2008

Quarter

First
Second
Third
Fourth

High

$ 13.00
$ 10.50
$ 10.16
$ 9.00

$ 9.71
$ 9.45
$ 8.01
$ 6.00

Low

$ 8.12
$ 8.50
$ 6.39
$ 6.51

$ 5.16
$ 6.75
$ 3.84
$ 3.08

We had approximately 208 holders registered or in street name as of December 31, 2008.

We have not paid any cash dividends in the past. We intend that, for the foreseeable future, we will retain

earnings to finance continued growth rather than pay cash dividends on our common stock.

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 Department, 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.
In addition, a state-chartered bank in Florida is required to transfer at least 20% of its net income to surplus until its
surplus equals the amount of paid-in capital. 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.

Audited Consolidated Financial Statements

December 31, 2008 and 2007 and for the Years Then Ended

(Together with Report of Independent Registered Public Accounting Firm)

Index to Financial Statements

Independent Auditors' Report..................................................................................................... 22

Consolidated Balance Sheets, December 31, 2008 and 2007.....................................................

Consolidated Statements of Earnings

for the Years Ended December 31, 2008 and 2007 .......................................................

Consolidated Statements of Stockholders’ Equity

for the Years Ended December 31, 2008 and 2007........................................................

Consolidated Statements of Cash Flows

for the Years Ended December 31, 2008 and 2007 .......................................................

Notes to Financial Statements, December 31, 2008 and 2007

and for the Years Then Ended .......................................................................................

Report of Independent Registered Public Accounting Firm

OptimumBank Holdings, Inc.
Fort Lauderdale, Florida:

We have audited the accompanying consolidated balance sheets of OptimumBank Holdings, Inc.
and Subsidiary (the "Company") as of December 31, 2008 and 2007, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company at December 31, 2008 and 2007, and the results
of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted
accounting principles.

HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
March 13, 2009

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Balance Sheets
(Dollars in thousands, except share amounts)

Assets

December 31,

2008

2007

Cash and due from banks...................................................................
Interest-bearing deposits with banks..................................................
Federal funds sold ..............................................................................

$ 980
97
2,143

$ 368
107
226

Total cash and cash equivalents.......................................

3,220

701

Securities held to maturity (fair value of $78,756 and

$58,117)........................................................................................
Security available for sale..................................................................
Loans, net of allowance for loan losses of $1,906 and $692 .............
Federal Home Loan Bank stock.........................................................
Premises and equipment, net..............................................................
Foreclosed assets................................................................................
Accrued interest receivable................................................................
Deferred tax asset...............................................................................
Other assets ........................................................................................

82,208
244
160,699
3,526
3,094
95
1,277
570
807

58,471
244
173,323
2,965
3,249
79
1,448
-
1,067

Total assets.......................................................................

$ 255,740

$ 241,547

Liabilities and Stockholders' Equity

Liabilities:

Noninterest-bearing demand deposits ..........................................
Savings, NOW and money-market deposits.................................
Time deposits ...............................................................................

$ 90
30,668
84,167

$ 1,304
28,202
95,528

Total deposits...................................................................

114,925

125,034

Federal Home Loan Bank advances .............................................
Other borrowings..........................................................................
Junior subordinated debenture......................................................
Advanced payment by borrowers for taxes and insurance...........
Official checks..............................................................................
Other liabilities .............................................................................
Deferred tax liability ....................................................................

68,700
41,800
5,155
935
553
907
-

56,850
28,900
5,155
1,692
559
1,076
34

Total liabilities .................................................................

232,975

219,300

Commitments and contingencies (Notes 4, 8 and 15)

Stockholders' equity:

Common stock, $.01 par value; 6,000,000 shares authorized,

3,120,992 and 2,972,507 shares issued and outstanding .......
Additional paid-in capital.............................................................
Retained earnings .........................................................................
Accumulated other comprehensive loss .......................................

31
18,494
4,244
(4)

30
17,308
4,913
(4)

Total stockholders' equity ................................................

22,765

22,247

Total liabilities and stockholders' equity .........................

$ 255,740

$ 241,547

See Accompanying Notes to Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Earnings
(In thousands, except share amounts)

Interest income:

Loans ............................................................................................
Securities ......................................................................................
Other .............................................................................................

Year Ended December 31,

2008

2007

$ 11,236
4,183
151

$ 13,086
2,803
248

Total interest income .......................................................

15,570

16,137

Interest expense:
Deposits ........................................................................................
Borrowings ...................................................................................

Total interest expense ......................................................

Net interest income ............................................................................

Provision for loan losses..................................................

Net interest income after provision for loan losses............................

Noninterest income:

Service charges and fees...............................................................
Loan prepayment fees...................................................................
Litigation settlement.....................................................................
Other .............................................................................................

Total noninterest income .................................................

Noninterest expenses:

Salaries and employee benefits ....................................................
Occupancy and equipment ...........................................................
Data processing ............................................................................
Professional fees...........................................................................
Insurance ......................................................................................
Stationary and supplies.................................................................
Loss on sale of foreclosed assets..................................................
Provision for losses on foreclosed assets .....................................
Other .............................................................................................

Total noninterest expenses...............................................

Earnings before income taxes ............................................................

4,521
4,690

9,211

6,359

1,374

4,985

141
154
-
98

393

2,175
696
167
376
81
35
443
74
498

4,545

833

Income taxes.................................................................................

313

5,836
3,864

9,700

6,437

476

5,961

79
294
155
5

533

2,061
662
171
280
59
39
-
-
477

3,749

2,745

1,003

Net earnings .......................................................................................

$ 520

$ 1,742

Net earnings per share:
Basic .............................................................................................

$ .17

Diluted ..........................................................................................

$ .16

$ .56

$ .55

See Accompanying Notes to Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders' Equity

Years Ended December 31, 2008 and 2007

(Dollars in thousands)

Accumulated

Other
Compre-

Total

Additional

Common Stock Paid-In Retained hensive Stockholders'

Amount Capital Earnings

Loss

Equity

Balance at December 31, 2006 ...............

2,820,280

$ 28

$ 15,930 $ 4,474

$ (9)

$ 20,423

(1)

1,742

Proceeds from sale of common stock .....

4,172

Proceeds from exercise of common

stock options ....................................

7,166

5% stock dividend (fractional shares

paid in cash) .....................................

140,889

1,300

(1,303)

Comprehensive income:
Net earnings .....................................

Net change in unrealized loss on
security available for
sale, net of tax............................

Comprehensive income....................

1,742

1,747

Balance at December 31, 2007 ...............

2,972,507

$ 30

$ 17,308 $ 4,913

$ (4)

$ 22,247

5% stock dividend (fractional shares

paid in cash) .....................................

148,485

1,186

(1,189)

(2)

Comprehensive income-
Net earnings .....................................

520

Balance at December 31, 2008 ...............

3,120,992

$ 31

$ 18,494 $ 4,244

$ (4)

$ 22,765

See Accompanying Notes to Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows
(In thousands)

Cash flows from operating activities:

Net earnings.........................................................................................
Adjustments to reconcile net earnings to net cash provided by
operating activities:

Year Ended December 31,

2008

2007

$ 520

$ 1,742

Depreciation and amortization......................................................
Provision for loan losses ...............................................................
Deferred income tax benefit..........................................................
Net amortization of fees, premiums and discounts.......................
Decrease (increase) in accrued interest receivable .......................
Decrease (increase) in other assets ...............................................
Loss on sale of foreclosed assets ..................................................
Provision for losses on foreclosed assets......................................
Decrease in official checks and other liabilities ...........................

201
1,374
(604)
866
171
260
443
74
(175)

225
476
(13)
372
(194)
(686)
-
-
(16)

Net cash provided by operating activities.........................

3,130

1,906

Cash flows from investing activities:

Purchases of securities held to maturity ..............................................
Principal repayments and calls of securities held to maturity .............
Net decrease in loans...........................................................................
(Purchase) sale of premises and equipment, net..................................
Proceeds from sale of foreclosed assets, net .......................................
Purchase of Federal Home Loan Bank stock ......................................

(35,580)
11,399
10,038
(46)
257
(561)

(34,206)
9,193
7,569
516
-
(9)

Net cash used in investing activities .................................

(14,493)

(16,937)

Cash flows from financing activities:

Net decrease in deposits ......................................................................
Net increase in other borrowings.........................................................
Proceeds from Federal Home Loan Bank advances............................

(10,109)
12,900
22,500

Net (decrease) increase in advanced payment by borrowers

for taxes and insurance .................................................................
Repayments of Federal Home Loan Bank advances...........................
Proceeds from sale of common stock..................................................
Proceeds from exercise of common stock options ..............................
Fractional shares of stock dividend paid in cash.................................

(757)
(10,650)
-
-
(2)

(4,468)
17,950
11,300

269
(11,000)
37
41
(1)

Net cash provided by financing activities.........................

13,882

14,128

Net increase (decrease) in cash and cash equivalents...............................

2,519

(903)

Cash and cash equivalents at beginning of the year .................................

701

1,604

Cash and cash equivalents at end of the year............................................ $ 3,220

$ 701

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows, Continued
(In thousands)

Year Ended December 31,

2008

2007

Supplemental disclosure of cash flow information:

Cash paid during the year for:

Interest ..........................................................................................

$ 9,232

$ 9,697

Income taxes .................................................................................

$ 928

$ 1,014

Noncash transactions:

Change in accumulated other comprehensive loss, net

change in unrealized loss on security available for sale,
net of tax .................................................................................

$ -

$ 5

Common stock dividend ...............................................................

$ 1,187

$ 1,302

Loan reclassified to foreclosed assets...........................................

$ 2,390

$ 79

Loans made in connection with sale of foreclosed assets.............

$ 1,600

$ -

See Accompanying Notes to Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2008 and 2007 and the Years Then Ended

(1) Summary of Significant Accounting Policies

Organization. OptimumBank Holdings, Inc. (the "Holding Company") is a one-bank holding
company and owns 100% of OptimumBank (the "Bank"), a state (Florida)-chartered commercial
bank (collectively, the "Company"). The Holding Company's only business is the operation of
the Bank. The Bank's deposits are insured by the Federal Deposit Insurance Corporation. The
Bank offers a variety of community banking services to individual and corporate customers
through its three banking offices located in Broward County, Florida.

Basis of Presentation. The accompanying consolidated financial statements include the accounts of
the Holding Company and the Bank. All significant intercompany accounts and transactions
have been eliminated in consolidation. The accounting and reporting practices of the Company
conform to U.S. generally accepted accounting principles and to general practices within the
banking industry. The following summarizes the more significant of these policies and
practices:

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

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

The Company is required by law or regulation to maintain cash reserves in the form of vault cash
or in accounts with other banks. There were no reserve balances required at December 31, 2008
and 2007.

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

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

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

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

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

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

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

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

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

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

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

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

Foreclosed Assets. Assets repossessed or acquired by foreclosure or deed in lieu of foreclosure are
carried at the lower of estimated fair value or the balance of the loan on the assets at date of
acquisition. Costs relating to the development and improvement of assets are capitalized,
whereas those relating to holding the assets are charged to expense. Valuations are periodically
performed by management and losses are charged to earnings if the carrying value of the assets
exceeds its estimated fair value.

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

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

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

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

The debenture held by the Issuer Trust currently qualifies as Tier I capital for the Company
under Federal Reserve Board guidelines.

Transfer of Financial Assets. Transfers of financial assets are accounted for as sales, when control
over the assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains
the right (free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective control over
the transferred assets through an agreement to repurchase them before their maturity.

Income Taxes. Deferred income tax assets and liabilities are recorded to reflect the tax consequences
on future years of temporary differences between revenues and expenses reported for financial
statement and those reported for income tax purposes. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be realized or settled. Valuation allowances are
provided against assets which are not likely to be realized.

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

Advertising. The Company expenses all media advertising as incurred. Media advertising expense
included in other in the accompanying consolidated statements of earnings was approximately
$17,000 and $40,000 during the years ended December 31, 2008 and 2007, respectively.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

Stock Compensation Plans. The Company follows the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123(R), Share-Based Payment
("SFAS 123(R)"), using the modified-prospective-transition method. Under that transition
method, compensation cost recognized includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair
value calculated in accordance with the original provisions of SFAS 123, Accounting for Stock-
Based Compensation (as amended by SFAS No. 148, Accounting for Stock-Based Compensation
Transition and Disclosure) (collectively SFAS 123) and (b) compensation cost for all share-
based payments granted subsequent to December 31, 2005, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R). At December 31, 2005, all
outstanding options had vested.

Earnings Per Share. Basic earnings per share is computed on the basis of the weighted-average
number of common shares outstanding. Diluted earnings per share is computed based on the
weighted-average number of shares outstanding plus the effect of outstanding stock options,
computed using the treasury stock method. All amounts reflect the 5% stock dividends declared
in May 2008 and 2007. Earnings per common share have been computed based on the
following:

Year Ended December 31,

2008

2007

Weighted-average number of common shares outstanding

used to calculate basic earnings per common share .........

3,120,992

3,112,227

Effect of dilutive stock options................................................

43,227

72,517

Weighted-average number of common shares outstanding

used to calculate diluted earnings per common share ......

3,164,219

3,184,744

The following options were excluded from the calculation of EPS due to the exercise price being

above the average market price:

For the year ended December 31, 2008-
Options

For the year ended December 31, 2007-
Options

Number
Outstanding

Exercise
Price

Expire

278,987

$7.81-11.90 2014-2015

267,412

$9.52-11.90 2014-2015

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

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

Fair Value Measurements. Effective January 1, 2008, the Company adopted SFAS No. 157, Fair
Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for
measuring fair value and enhances disclosures about fair value measurements.

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. SFAS
157 also establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:

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

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

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

In October 2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff
Position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active. This FASB Staff Position clarifies the application of SFAS 157 in
determining the fair value of a financial asset when the market for that financial asset is not
active. This FASB Staff Position was effective upon issuance.

In February 2008, the FASB issued FASB Staff Position ("FSP") No. FAS 157-2, Effective Date
of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all non-financial
assets and non-financial liabilities, except those that are recognized or disclosed at fair value on
a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The
impact of adoption had no effect on the Company.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

Fair Value Measurements, Continued. The following describes valuation methodologies used for

assets and liabilities measured at fair value:

Securities Available for Sale. Where quoted prices are available in an active market, securities
are classified within level 1 of the valuation hierarchy. Level 1 securities include highly liquid
government bonds, certain mortgage products and exchange-traded equities. If quoted market
prices are not available, then fair values are estimated by using pricing models, quoted prices of
securities with similar characteristics, or discounted cash flows. Examples of such instruments,
which would generally be classified within level 2 of the valuation hierarchy, include certain
collateralized mortgage and debt obligations and certain high-yield debt securities. In certain
cases where there is limited activity or less transparency around inputs to the valuation,
securities are classified within level 3 of the valuation hierarchy. Securities classified within
level 3 include certain residual interests in securitizations and other less liquid securities.

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

Fair Values of Financial Instruments. The following methods and assumptions were used by the

Company in estimating fair values of financial instruments disclosed herein:

Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximate

their fair value.

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

established by SFAS 157.

Federal Home Loan Bank Stock. Fair value of the Company's investment in Federal Home

Loan Bank stock is based on its redemption value, which is its cost of $100 per share.

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

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

Fair Values of Financial Instruments, Continued.

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

Accrued Interest Receivable. The carrying amounts of accrued interest approximate their fair

values.

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

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

Comprehensive Income. Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net earnings. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available for sale securities, are reported as a
separate component of the equity section of the consolidated balance sheets, such items along
with net earnings, are components of comprehensive income. The only component of other
comprehensive income is the net change in unrealized loss on securities available for sale for the
year ended December 31, 2007.

Recent Accounting Pronouncements. In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations ("SFAS 141(R)"). SFAS 141(R) is effective for the Company's financial
statements for the year and interim periods within the year beginning January 1, 2009. SFAS
141(R) requires the acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair
value as the measurement objective for all assets acquired and liabilities assumed; and requires
the acquirer to disclose to investors and other users all of the information they need to evaluate
and understand the nature and financial effect of the business combination. Acquisition related
costs including finder's fees, advisory, legal, accounting valuation and other professional and
consulting fees are required to be expensed as incurred. The adoption of SFAS 141(R) had no
current effect on the Company's financial condition or results of operations.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

Recent Accounting Pronouncements, Continued. In December 2007, the FASB issued SFAS
No.160, Non-controlling Interests in Consolidated Financial Statements ("SFAS 160"). SFAS
160 requires the Company to establish accounting and reporting standards for the non-
controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is
effective for the Company's financial statements for the year and interim periods within the year
beginning January 1, 2009. The adoption of SFAS 160 had no effect on the Company.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities ("SFAS 161"). This standard requires enhanced disclosures regarding
derivative instruments and hedging activities so as to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash flows. SFAS 161 is
effective for the Company's financial statements for the year and interim periods within the year
beginning January 1, 2009. The Company does not engage in trading or hedging activities, nor
does it invest in interest rate derivatives or enter into interest rate swaps. Accordingly, the
adoption of SFAS 161 had no effect on its financial statements

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles ("SFAS 162"). This statement identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of
non-governmental entities that are presented in conformity with generally accepted accounting
principles ("GAAP") in the United States. This Statement was effective in December 2008. The
adoption of SFAS 162 had no effect on the Company.

In September 2008, the FASB issued FSP No. 133-1 and FIN 45-4, Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 ("FSP
133-1"). FSP 133-1 requires expanded disclosures about credit derivatives and guarantees. The
expanded disclosure requirements for FSP 133-1 were effective for the Company's financial
statements for the year ending December 31, 2008. The adoption of FSP 133-1 had no effect on
the Company.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities ("FSP 03-6-1"). FSP 03-6-1
defines unvested share-based payment awards that contain non-forfeitable rights to dividends as
participating securities that should be included in computing earnings per share (EPS) using the
two-class method under SFAS No. 128, Earnings per Share. FSP 03-6-1 is effective for the
Company's financial statements for the year and interim periods within the year beginning
January 1, 2009. Additionally, all prior-period EPS data shall be adjusted retrospectively. The
adoption of FSP 03-6-1 had no effect on the Company.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

Recent Accounting Pronouncements, Continued. In February 2008, the FASB issued FSP No. FAS
140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions
("FSP 140-3"). FSP 140-3 requires that an initial transfer of a financial asset and a repurchase
financing that was entered into contemporaneously with, or in contemplation of, the initial
transfer be evaluated together as a linked transaction under SFAS 140, unless certain criteria are
met. FSP 140-3 is effective for the Company's financial statements for the year and interim
periods within the year beginning January 1, 2009. The adoption of FSP 140-3 had no effect on
the Company.

Reclassifications. Certain amounts in the 2007 consolidated financial statements have been

reclassified to conform to the 2008 presentation.

(2) Securities

Securities have been classified according to management's intent. The carrying amount of securities

and approximate fair values are as follows (in thousands):

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

At December 31, 2008:

Securities Held to Maturity:

Mortgage-backed securities ......... $ 82,108
100
State of Israel bond ......................

$ 886
-

$(4,338)
-

$ 78,656
100

$ 82,208

$ 886

$(4,338)

$ 78,756

Security Available for Sale-

Mutual fund ................................. $ 250

$ -

$ (6)

$ 244

At December 31, 2007:

Securities Held to Maturity:

Mortgage-backed securities ......... $ 58,371
100
State of Israel bond ......................

$ 229
-

$ (583)
-

$ 58,017
100

$ 58,471

$ 229

$ (583)

$ 58,117

Security Available for Sale-

Mutual fund ................................. $ 250

$ -

$ (6)

$ 244

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(2) Securities, Continued

Available for sale securities at December 31, 2008 measured at fair value on a recurring basis are

summarized below (in thousands):

Fair Value Measurements Using

Fair
Value
As of
December 31,
2008

Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Available for sale
securities..........................

$ 244

244

There were no securities sold during the years ended December 31, 2008 or 2007.

Securities with gross unrealized losses at December 31, 2008, aggregated by investment category
and length of time that individual securities have been in a continuous loss position, is as follows
(in thousands):

Securities Held to Maturity-
Mortgage-backed securities ....

Security Available for Sale-
Mutual fund.............................

Less Than Twelve Months

Over Twelve Months

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

$(1,647)

$ 21,119

$(2,691) $ 26,814

$ -

$ (6) $ 244

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis,
and more frequently when economic or market concerns warrant such evaluation. Consideration
is given to (1) the length of time and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of
the Company to retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.

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

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3) Loans

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

At December 31,

2008

2007

Residential real estate ............................................................... $ 58,693
Multi-family real estate.............................................................
9,588
73,541
Commercial real estate .............................................................
19,223
Land and construction...............................................................
878
Consumer .................................................................................

$ 65,908
10,275
75,777
21,093
15

Total loans ................................................................................

161,923

173,068

Add (deduct):
Net deferred loan fees, costs and premiums .......................
Loan discounts ....................................................................
Allowance for loan losses ...................................................

689
(7)
(1,906)

970
(23)
(692)

Loans, net.................................................................................. $ 160,699

$ 173,323

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

Year Ended December 31,

2008

2007

Beginning balance ..................................................................
Charge-offs .............................................................................
Provision for loan losses.........................................................

$ 692
(160)
1,374

$ 974
(758)
476

Ending balance........................................................................

$ 1,906

$ 692

Information about impaired loans, all of which are collateral dependent, is as follows (in thousands):

Loans identified as impaired:
Gross loans with no related allowance for losses ...................
Gross loans with related allowance for loan losses

At December 31,
2007
2008

$ 4,001

$ -

recorded ............................................................................
Less: Allowance on these loans.............................................

6,937
(1,120)

-
-

Net investment in impaired loans ...........................................

$ 9,818

$ -

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

The average net investment in impaired loans and interest income recognized and received on

impaired loans is as follows (in thousands):

Year Ended December 31,

2008

2007

Average investment in impaired loans ........................................ $ 3,240

$ 1,581

Interest income recognized on impaired loans ............................ $ -

$ 39

Interest income received on impaired loans ................................ $ -

$ 39

Impaired collateral-dependent loans are carried at the lower of cost or fair value. At December 31,
2008, those impaired collateral-dependent loans which are measured at fair value or a
nonrecurring basis are as follows (in thousands):

Fair
Value (1)

Level 1

Level 2

Level 3

Total
Losses

Losses
Recorded in
Earnings
During
2008

Impaired loans ............... $ 5,817

5,817

(1,120)

(1) In addition, loans with a carrying value of $4.0 million were measured for impairment using
Level 3 inputs and had a fair value in excess of carrying value.

Nonaccrual and past due loans were as follows (in thousands):

At December 31,
2007
2008

Nonaccrual loans ......................................................................... $ 5,086

$ 245

Past due ninety days or more, but still accruing interest ............. $ -

$ -

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(4) Premises and Equipment

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

At December 31,
2007
2008

Land .............................................................................................
Buildings and improvements .......................................................
Furniture, fixtures and equipment................................................
Leasehold improvements .............................................................

$ 1,171
1,959
997
119

$ 1,171
1,940
987
114

Total, at cost...........................................................................

4,246

4,212

Less accumulated depreciation and amortization ..................

(1,152)

(963)

Premises and equipment, net..................................................

$ 3,094

$ 3,249

On February 1, 2007, the Company entered into a sale/leaseback transaction for its Galt Ocean Mile

branch facility. No gain or loss was recognized on this transaction.

The Company currently leases two branch facilities under operating leases. One lease contains
renewal options and requires the Company to pay an allowable share of common area
maintenance and real estate taxes. The other lease only requires the Company to pay real estate
taxes. Rent expense under operating leases during the years ended December 31, 2008 and 2007
was $128,000 and $119,000 respectively. At December 31, 2008, the future minimum lease
payments are approximately as follows (in thousands):

Year Ending

2009 ...........................................................................................
2010 ...........................................................................................
2011 ...........................................................................................
2012 ...........................................................................................
2013 ...........................................................................................

Amount

$ 133
133
133
84
75

$ 558

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(5) Deposits

The aggregate amount of time deposits with a minimum denomination of $100,000, was
approximately $36.9 million and $38.9 million at December 31, 2008 and 2007, respectively.

A schedule of maturities of time deposits at December 31, 2008 follows (in thousands):

Year Ending
December 31,

2009....................................................
2010....................................................
2011....................................................
2012....................................................
2013....................................................

Amount

$ 72,989
7,918
1,207
352
1,701

$ 84,167

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

The maturities and interest rates on the Federal Home Loan Bank ("FHLB") advances were as

follows (dollars in thousands):

Maturity
Year Ending
December 31,

Daily...........................
2009............................
2009............................
2009............................
2010............................
2010............................
2012............................
2013............................
2013............................
2013............................
2013............................
2013............................
2013............................
2013............................
2014............................
2016............................
2016............................
2016............................
2017............................

Call
Date

-
-
-
-
-
-
2009
2008
2008
2008
2008
-
2011
2011
2009
2009
2009
2009
2009

Interest
Rate

At December 31,
2007

2008

4.40%
4.92
4.99
4.95
3.16
3.12
4.75
3.42
3.09
2.80
2.56
3.44
3.00
3.64
3.64
4.51
4.65
4.44
4.38

$ -
1,000
5,000
5,000
5,000
5,000
4,000
-
-
-
-
3,000
5,000
7,500
8,000
5,000
8,000
5,600
1,600

$ 700
1,000
5,000
5,000
-
-
4,000
2,000
3,000
1,950
3,000
3,000
-
-
8,000
5,000
8,000
5,600
1,600

$ 68,700

$ 56,850
(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(6) Federal Home Loan Bank Advances and Junior Subordinated Debenture, Continued

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

At December 31, 2008 and 2007, the FHLB advances were collateralized by a blanket lien on
qualifying residential one-to-four family mortgage loans, commercial and multi-family real
estate loans, second mortgage loans and all of the Company's Federal Home Loan Bank stock.

On September 30, 2004, the Company issued a $5,155,000 junior subordinated debenture to an
unconsolidated subsidiary. The debenture has a term of thirty years. The interest rate is fixed at
6.4% for the first five years, and thereafter, the coupon rate will float quarterly at the three-
month LIBOR rate plus 2.45%. The junior subordinated debenture, due in 2034, is redeemable
in certain circumstances after October 2009.

(7) Other Borrowings

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

Year Ended December 31,

2008

2007

Balance at year end ....................................................................... $ 41,800
Average balance during the year................................................... $ 39,051
Average interest rate during the year ............................................
Maximum month-end balance during the year ............................. $ 41,800
Securities held to maturity pledged as collateral .......................... $ 55,636

4.35 %

$ 28,900
$ 26,971

4.72%

$ 31,900
$ 33,675

The maturities and interest rates on securities sold under an agreement to repurchase are as follows

(dollars in thousands):

Maturing

Year Ended
December 31,

Interest
Rate

At December 31,

2008

2007

2012 .........................................................
2012 .........................................................
2012 .........................................................
2012 .........................................................
2012 .........................................................
2013 .........................................................
2013 .........................................................

4.60%
4.63%
4.69%
4.71%
4.64%
3.19%
3.20%

$ 6,000
4,500
8,000
4,600
5,800
6,500
6,400

$ 6,000
4,500
8,000
4,600
5,800
-
-

$ 41,800

$ 28,900

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(7) Other Borrowings, Continued

At December 31, 2008, the Company also had $6 million available under a line of credit with its
correspondent bank. There were no amounts outstanding in connection with this agreement at
December 31, 2008 or 2007.

(8) Financial Instruments

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

At December 31, 2008
Fair
Value

Carrying
Amount

At December 31, 2007

Carrying
Amount

Fair
Value

Financial assets:

Cash and cash equivalents............................. $ 3,220
82,208
Securities held to maturity.............................
Security available for sale .............................
244
Loans ............................................................. 160,699
3,526
Federal Home Loan Bank stock ....................
1,277
Accrued interest receivable ...........................

$ 3,220
78,756
244
160,684
3,526
1,277

$ 701
58,471
244
173,323
2,965
1,448

$ 701
58,117
244
172,860
2,965
1,448

Financial liabilities:

Deposit liabilities........................................... 114,925
68,700
Federal Home Loan Bank advances..............
41,800
Other borrowings ..........................................
5,155
Junior subordinated debenture ......................
-
Off-balance sheet financial instruments ........

115,807
71,058
43,714
4,871
-

125,034
56,850
28,900
5,155
-

125,134
56,346
29,317
5,083
-

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

The Company's exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit is represented by the contractual amount
of those instruments. The Company uses the same credit policies in making commitments as it
does for on-balance-sheet instruments.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(8) Financial Instruments, Continued

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Because some of the commitments
are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company, upon extension of credit, is based on management's credit evaluation of the
counterparty.

Commitments to extend credit typically result in loans with a market interest rate when funded. A
summary of the amounts of the Company's financial instruments with off-balance-sheet risk at
December 31, 2008 follows (in thousands):

Contract
Amount

Commitments to extend credit.........................................

$ 2,000

(9) Credit Risk

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

(10) Income Taxes

Income taxes consisted of the following (in thousands):

Year Ended December 31,

2008

2007

Current:

Federal .......................................................................
State ...........................................................................

$ 784
133

$ 866
150

Total current...................................................

917

1,016

Deferred:

Federal .......................................................................
State ...........................................................................

(516)
(88)

(10)
(3)

Total deferred.................................................

(604)

(13)

Total ...............................................................

$ 313

$ 1,003

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(10) Income Taxes, Continued

The reasons for the differences between the statutory Federal income tax rate and the effective tax

rate are summarized as follows (dollars in thousands):

Year Ended December 31,
2007
2008
% of
% of
Pretax
Pretax
Amount Earnings

Amount Earnings

$ 283

34.0%

$ 933

34.0%

Income taxes at statutory rate ........................
Increase (decrease) resulting from:

State taxes, net of Federal tax benefit ......
Other ........................................................

30
-

3.6
-

97
(27)

3.5
(1.0)

$ 313

37.6%

$ 1,003

36.5%

The tax effects of temporary differences that give rise to significant portions of the deferred tax

assets and deferred tax liabilities are presented below (in thousands).

At December 31,
2007

2008

Deferred tax assets:

Allowance for loan losses ......................................................
Premises and equipment ........................................................
Unrealized loss on security available for sale........................

$ 638
22
2

$ 186
-
2

Deferred tax assets .....................................................

662

188

Deferred tax liabilities:

Loan costs ..............................................................................
Accrual to cash adjustment ....................................................
Premises and equipment ........................................................
Other ......................................................................................

(31)
-
-
(61)

(39)
(62)
(104)
(17)

Deferred tax liabilities ...............................................

(92)

(222)

Net deferred tax asset (liability).................................

$ 570

$ (34)

(11) Related Party Transactions

The Company has entered into transactions with its executive officers, directors and their affiliates in
the ordinary course of business. There were loans to related parties at December 31, 2008 and
2007 of approximately $8,292,000 and $3,810,000, respectively. At December 31, 2008 and
2007, these same related parties had approximately $1,488,000 and $1,436,000, respectively, on
deposit with the Company.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(12) Stock-Based Compensation

The Company established an Incentive Stock Option Plan (the "Plan") for officers, directors and
employees of the Company and reserved 600,686 (amended) shares of common stock for the
plan. Both incentive stock options and nonqualified stock options may be granted under the
plan. The exercise price of the stock options is determined by the board of directors at the time
of grant, but cannot be less than the fair market value of the common stock on the date of grant.
The options vest over three and five years. However, the Company's board of directors
authorized the immediate vesting of all stock options outstanding as of December 29, 2005 in
order to reduce noncash compensation expense that would have been recorded in its consolidated
statements of earnings in future years upon adoption of SFAS 123(R) in January 2006. The
options must be exercised within ten years from the date of grant. At December 31, 2008,
14,239 options were available for grant.

A summary of the activity in the Company's stock option plan is as follows. All option amounts
reflect the 5% stock dividends declared in May 2008 and 2007 (dollars in thousands, except
share amounts):

Weighted-
Weighted- Average
Average Remaining
Number of Exercise Contractual
Price

Options

Term

Aggregate
Intrinsic
Value

Outstanding at December 31, 2006 ......... 514,805
Exercised..................................................
(7,166)
Forfeited................................................... (4,052)

$ 7.66
5.67
10.00

Outstanding at December 31, 2007

and 2008............................................. 503,587

$ 7.68

Exercisable at December 31, 2008 .......... 503,587

$ 7.68

4.7 years

$ 35

The total intrinsic value of options exercised during the year ended December 31, 2007 was

$16,675. There was no tax benefit recognized in 2007.

Effective January 1, 2002, the Board of Directors adopted a nonemployee director compensation and
stock purchase plan under which each outside director was required to purchase Company stock
with compensation for board meetings at a price no less than fair market value. A total of 15,941
shares (as adjusted to reflect the 5% stock dividend declared in May 2007) were authorized for
issuance to outside directors under this plan. A total of 4,172 shares of common stock were
issued to outside directors under this plan during the year ended December 31, 2007. This plan
was terminated effective January 1, 2008.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(13) Regulatory Matters

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and percentages (set forth in the following table) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31, 2008, the
Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2008, the most recent notification from the regulatory authorities categorized
the Bank as well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage percentages as set forth in the following tables. There are no
conditions or events since that notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and percentages are also presented in the table
(dollars in thousands).

Actual
%
Amount

For Capital Adequacy
Purposes
%
Amount

Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
%
Amount

As of December 31, 2008:
Total Capital to Risk-
Weighted Assets.............
Tier I Capital to Risk-
Weighted Assets.............
Tier I Capital
to Total Assets................

As of December 31, 2007:
Total Capital to Risk-
Weighted Assets.............
Tier I Capital to Risk-
Weighted Assets.............
Tier I Capital
to Total Assets................

$ 29,357

18.91%

$ 12,419

8.00%

$ 15,524

10.00%

27,451

17.68

6,210

27,451

10.71

10,254

27,966

17.95

12,465

27,274

17.50

27,274

11.15

6,232

9,787

4.00

8.00

4.00

9,314

12,818

6.00

5.00

15,581

10.00

9,349

12,234

6.00

5.00

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(14) Dividends

The Company is limited in the amount of cash dividends that may be paid. Banking regulations place
certain restrictions on dividends and loans or advances made by the Bank to the Holding
Company. The amount of cash dividends that may be paid by the Bank to the Holding Company
is based on the Bank's net earnings of the current year combined with the Bank's retained
earnings of the preceding two years, as defined by state banking regulations. However, for any
dividend declaration, the Company must consider additional factors such as the amount of
current period net earnings, liquidity, asset quality, capital adequacy and economic conditions.
It is likely that these factors would further limit the amount of dividend which the Company
could declare. In addition, bank regulators have the authority to prohibit banks from paying
dividends if they deem such payment to be an unsafe or unsound practice.

(15) Contingencies

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

(16) Simple IRA
The Company has a Simple IRA Plan whereby substantially all employees participate in the Plan.
Employees may contribute up to 15 percent of their compensation subject to certain limits based
on federal tax laws. The Company makes matching contributions equal to the first 3% of an
employee's compensation contributed to the Plan. Matching contributions vest to the employee
immediately. For the years ended December 31, 2008 and 2007, expense attributable to the Plan
amounted to $45,525 and $42,333, respectively.

(17) Stock Purchase Plan

On September 25, 2008, the Company adopted a stock purchase plan (the "Plan"). The Plan allows
the Company to purchase up to 5% of the common stock outstanding (approximately 156,050
shares). As of December 31, 2008, no shares had been purchased.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(18) Holding Company Financial Information

The Holding Company's unconsolidated financial information as of December 31, 2008 and 2007

and for the years then ended follows (in thousands):

Condensed Balance Sheets

At December 31,

2008

2007

Assets

Cash ........................................................................................
Investment in subsidiary.........................................................
Other assets.............................................................................

$ 362
27,447
256

$ 13
27,270
218

Total assets........................................................................

$ 28,065

$ 27,501

Liabilities and Stockholders' Equity

Other liabilities .......................................................................
Junior subordinated debenture................................................
Stockholders' equity................................................................

$ 145
5,155
22,765

$ 99
5,155
22,247

Total liabilities and stockholders' equity ..........................

$ 28,065

$ 27,501

Condensed Statements of Earnings

Year Ended December 31,

2008

2007

Earnings of subsidiary ............................................................
Interest expense ......................................................................
Other expense .........................................................................

$ 852
(320)
(213)

$ 2,011
(320)
(111)

Earnings before income tax benefit ..................................

319

1,580

Income tax benefit ..................................................................

(201)

(162)

Net earnings ......................................................................

$ 520

$ 1,742

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(18) Holding Company Financial Information, Continued

Condensed Statements of Cash Flows

Year Ended December 31,

2008

2007

Cash flows from operating activities:

Net earnings ......................................................................... $ 520
Adjustments to reconcile net earnings to net cash
used in operating activities:

$ 1,742

Equity in undistributed earnings of subsidiary ..............
(Increase) decrease in other assets .................................
Increase (decrease) in accrued other liabilities ..............

(852)
(38)
46

(2,011)
37
(4)

Net cash used in operating activities..............................

(324)

(236)

Cash flow from investing activities:
Dividend from subsidiary ....................................................
Investment in subsidiary ......................................................

675
-

175
(78)

Net cash provided by investing activities ......................

675

Cash flows from financing activities:

Proceeds from sale of common stock ..................................
Proceeds from exercise of common stock options...............
Fractional shares of stock dividend paid in cash .................

-
-
(2)

37
41
(1)

Net cash provided by financing activities ......................

(2)

Net increase (decrease) in cash..................................................

349

(62)

Cash at beginning of the year ....................................................

Cash at end of year .................................................................... $ 362

$ 13

Noncash transactions:

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

$ 5

Common stock dividend ...................................................... $ 1,187

$ 1,302

Holding Company and Bank
Board of Directors

Albert J. Finch
Chairman of the Board*

Richard L. Browdy
President*

Michael Bedzow
President, Groupe Pacific

Sam Borek
Managing Partner, Law Offices
of Borek & Goldhirsh

Irving P. Cohen
Of Counsel, Thompson, Hine, LLP

Gordon Deckelbaum
President, Premier Developers

H. David Krinsky
President, Maxim Properties

Wendy Mitchler
Attorney at Law

Larry Willis
Vice President, Annette Willis Insurance
Agency

*Holding Company and Bank Officers

Offices

Executive, Lending and Administration
2477 E. Commercial Boulevard
Fort Lauderdale, FL 33308
954.776.2332

Main Office-Plantation
10197 Cleary Boulevard
Plantation, FL 33324
954.452.9501

Galt Ocean Mile
3524 N. Ocean Boulevard
Ft. Lauderdale, FL 33308
954.566.7316

Deerfield Beach
2215 W. Hillsboro Boulevard
Deerfield Beach, FL 33442
954.570.8525

OptimumBank Officers

Albert J. Finch
Chief Executive Officer

Richard L. Browdy
President, COO, CFO

Thomas A. Procelli
Executive Vice President, Administration

Jenny Brown
Vice President, Loan Servicing

Lisa Corr
Vice President, BSA Officer and Compliance

Cheryl L. Folino
Vice President ,Branch Manager-Plantation

Seth Goldstein
Vice President, Information Systems

Gary Newman
Vice President, Controller

Sally Reimer
Vice President, Branch Manager-Deerfield
Beach

Michel Vogel
Vice President, Lending

Corporate Information

Independent Accountants
Hacker, Johnson & Smith PA
500 North Westshore Blvd, Suite 1000
Tampa, FL 33609

Registrar and Transfer Agent
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, NY 10004

Form 10-K
Copies of the Bank’s 10-K Report may be
requested without charge by mail at the main
office, by e-mail at info@optimumbank.com or
by telephone 888.991.2265. It is also available at
www.optimumbank.com