Arthur Mueller Retires from Board of Directors; Board Appoints Greg Mueller as Director
OTTAWA, Ill., Feb. 15, 2024 (GLOBE NEWSWIRE) — Ottawa Bancorp, Inc. (the “Company”) (OTCQX: OTTW), the holding company for OSB Community Bank (the “Bank”), announced net income of $0.2 million, or $0.08 per basic and diluted common share for the three months ended December 31, 2023, compared to net income of $0.5 million, or $0.22 per basic and diluted common share for the three months ended December 31, 2022. For the year ended December 31, 2023, the Company announced net income of $1.7 million, or $0.66 per basic and diluted common share, compared to net income of $2.5 million, or $0.96 per basic and diluted common share for the year ended December 31, 2022. The loan portfolio, net of allowance, increased to $312.2 million as of December 31, 2023 from $307.8 million as of December 31, 2022. Non-performing loans increased from $2.3 million at December 31, 2022 to $4.8 million at December 31, 2023, which caused the ratio of non-performing loans to gross loans to increase from 0.73% at December 31, 2022 to 1.52% at December 31, 2023.
“The higher interest rate environment continued to negatively impact our business operations during the fourth quarter,” said Craig Hepner, President and Chief Executive Officer of the Company. “Growth in interest expense outpaced growth in interest income as we continued to face strong competition for retail deposits in our local markets from bank and non-bank entities. This continued to put upward pressure on our cost of funds and increased reliance on wholesale funding sources.” Hepner went on to say, “In addition, elevated mortgage interest rates combined with a lack of real estate sale activity in our markets resulted in a substantial decline in our mortgage banking operations throughout 2023 which led to a significant reduction in our non-interest income for the year. To offset these challenges, we continue to follow our controlled growth and balance sheet strategies. Key areas of focus include managing wholesale funding costs and continuing to enhance our relationship banking model, through which we are pursuing additional lower-cost deposits, particularly through the addition of new and expanded commercial deposit relationships. We believe that we are beginning to see the benefits of these strategies.”
Mr. Hepner continued, “As we have indicated previously, despite the higher interest rate environment, our overall asset quality remains strong, and we continue to successfully manage the limited number of troubled loan relationships we have experienced in recent quarters. Our capital levels also remain strong. The Board of Directors remains committed to implementing capital management strategies to maximize stockholder value when possible. To this end, the Company continues to pay a regular quarterly dividend. The Board also regularly consults with management, and the Company’s third-party advisors, to evaluate options to implement other capital management tools, such as stock repurchases. However, the ability to implement these strategies is dependent on a variety of factors, including the Bank’s ability to dividend sufficient funds to the Company to fund them, and subject to the receipt of any required regulatory approval or non-objection. As we have indicated before, the lower earnings and tighter liquidity we have experienced in recent periods have limited the Bank’s ability to upstream funds to the Company. Our goal is to execute our strategies to improve earnings, liquidity and funding costs and be in position to execute additional capital management strategies as soon as possible.”
Comparison of Results of Operations for the Three Months Ended December 31, 2023 and December 31, 2022
Net income for the three months ended December 31, 2023 was $0.2 million compared to net income of $0.5 million for the three months ended December 31, 2022. Total interest and dividend income was $3.9 million for the three months ended December 31, 2023 compared to $3.6 million at December 31, 2022 due to an increase in the average balances of interest-earning assets of $6.0 million and the higher rate environment. The yield on interest-earning assets increased by 0.30% to 4.61%. Interest expense was $0.8 million higher during the three months ended December 31, 2023 due to average cost of funds increasing to 2.09% with majority of that increase resulting from the elevated interest rate environment. Interest expense was $1.6 million during the three months ended December 31, 2023 as compared to as compared to $0.8 million for the three months ended December 31, 2022. Net interest income was $2.3 million for the three months ended December 31, 2023 as compared to $2.8 million for the three months ended December 31, 2022. Net interest income after provision for credit losses was $2.3 million for the three months ended December 31, 2023 as compared to $2.4 million for the three months ended December 31, 2022. Total other income was $0.3 million for the three months ended December 31, 2023 compared to $0.5 million for the three months ended December 31, 2022. Total other expenses were $2.3 million for the three months ended December 31, 2023 compared to $2.1 million for the three months ended December 31, 2022. The increase was primarily due to a $0.1 million increase in legal and professional services and a $0.1 million increase in other expense. Other expense increased by $0.1 million due to a one-time expense related to the correction of franchise tax owed to the State of Illinois. Therefore, net income was $0.3 million lower for the three months ended December 31, 2023 compared to the three months ended December 31, 2022.
During the third quarter of 2022, a multi-loan commercial relationship with outstanding balances totaling approximately $2.2 million was identified as being impaired, meaning that it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreements. Based on our initial analysis, a specific reserve of approximately $1.0 million was initially established for this relationship. After additional adjustments during the fourth quarter of 2022 which included some charge-offs and additional reserve requirements, this relationship as of December 31, 2022 had balances of $1.3 million with a specific reserve of $0.6 million. During 2023, we charged off $0.4 million against the reserve, the borrower paid off two loans, and the one additional loan in the relationship was downgraded to non-performing. The relationship as of December 31, 2023 has balances of approximately $0.7 million with a specific reserve of $0.2 million.
The Company recorded a recovery of about $45,000 for the three-month period ended December 31, 2023 to decrease the Allowance for Credit Losses(“ACL”) position. This compares to expense of $0.4 million for the three months ended December 31, 2022. The ACL was $4.4 million, or 1.38% of total gross loans at December 31, 2023 compared to $4.3 million, or 1.38% of gross loans at December 31, 2022. Net recoveries during the fourth quarter of 2023 were $17,298 compared to net charge offs of $566,036 during the fourth quarter of 2022. The current period adjustment to the ACL is the result of the quarterly calculation of Current Expected Credit Losses (CECL) which was adopted as of January 1, 2023. Nonperforming loans increased to $4.8 million as of December 31, 2023 from $2.3 million as of December 31, 2022. The necessary reserves on non-performing loans as of December 31, 2023 were lower than the required reserves as of December 31, 2022 as one of the new non-performing loans of $3.1 million is still accruing and the workout on the large troubled relationship identified in the third quarter of 2022 is progressing as planned as discussed above.
The Company recorded income tax expense of $0.1 million for the three-month period ended December 31, 2023 as compared to $0.2 million for the three months ended December 31, 2022 as pre-tax income was lower during the three months ended December 31, 2023.
Comparison of Results of Operations for the Year Ended December 31, 2023 and December 31, 2022
Net income was $1.7 million for the year ended December 31, 2023 compared to $2.5 million for the year ended December 31, 2022, which is a decrease of 32.6%. Total interest and dividend income was $15.2 million for the year ended December 31, 2023 compared to $13.2 million for the year ended December 31, 2022. Earning assets increased by $14.9 million, and the yield on interest-earning assets improved to 4.52%. Interest expense for 2023 was $3.9 million higher due to the rising interest rates experienced during the year as the cost of funds increased to 1.84% from 0.66%. Even with the growth in interest and dividend income, net interest income decreased $1.9 million to $9.4 million as compared to $11.3 million for 2022. Total other income decreased by $0.5 million during 2023 to $1.3 million primarily due to the lower volume of mortgage loan originations in 2023 which resulted in a corresponding decrease in gain on sale of loans and loan origination and servicing income of $0.3 million. Total other expenses were $8.6 million for the year ended December 31, 2023 as compared to $8.5 million for the year ended December 31, 2022.
The Company recorded a recovery of $249,641 for the twelve-month period ended December 31, 2023 to decrease the ACL position. This compares to expense of $1.1 million for the twelve-month period ended December 31, 2022. Net charge-offs during the year ended 2023 were $212,234 compared to net charge-offs of $486,839 during the year ended 2022. The current period adjustment to the ACL is the result of the quarterly calculation of CECL which was adopted as of January 1, 2023.
The Company recorded income tax expense of $0.7 million for the year ended December 31, 2023 and $1.0 million for the year ended December 31, 2022. This decrease is due primarily to lower pre-tax earnings in 2023.
Comparison of Financial Condition at December 31, 2023 and December 31, 2022
Total consolidated assets as of December 31, 2023 were $363.9 million, an increase of $6.1 million, or 1.7%, from $357.8 million at December 31, 2022. The increase was primarily due to an increase of $4.4 million in the net loan portfolio, a $2.5 million increase in cash and cash equivalents, a $0.1 million increase in deferred tax asset, a $1.1 million increase in other assets and a $0.4 million increase in accrued interest receivable. These increases were partially offset by a decrease of $2.1 million in securities available for sale, a $0.2 million decrease in premises and equipment, net and a decrease of $0.3 million in time deposits.
Cash and cash equivalents increased $2.5 million, or 23.3%, to $13.4 million at December 31, 2023 from $10.9 million at December 31, 2022. The increase in cash and cash equivalents was primarily the result of cash provided by operating activities of $3.4 million and cash provided by financing activities of $1.4 million exceeding cash used in investing activities of $2.3 million.
Securities available for sale decreased by $2.1 million, or 10.1%, to $18.8 million at December 31, 2023 from $20.9 million at December 31, 2022, as paydowns, calls, maturities and sales exceeded purchases of securities. Additionally, the valuation of the portfolio due to market conditions improved slightly as of December 31, 2023 to $(3.4) million as compared to $(3.5) million as of December 31, 2022.
Net loans increased $4.4 million, or 1.4%, to $312.2 million at December 31, 2023 compared to $307.8 million at December 31, 2022 primarily the result of an increase of $12.9 million in non-residential loans. This increase was offset by decreases of $2.4 million in one-to-four family loans, a decrease of $1.7 million in multi-family loans, a decrease of $1.6 million in commercial loans and a decrease of $2.7 million in consumer direct loans. The allowance for loan credit losses increased by $0.1 million from December 31, 2022 to December 31, 2023.
Total deposits decreased $8.6 million, or 3.0%, to $281.1 million at December 31, 2023 from $289.7 million at December 31, 2022. For the year ended December 31, 2023, savings accounts decreased by $4.9 million, interest-bearing checking accounts decreased by $10.5 million, money market accounts decreased by $5.7 million and certificates of deposit increased by $11.3 million and non-interest-bearing checking accounts increased by $1.2 million, primarily as a result of our strategy to pursue lower-cost deposits through expanded commercial relationships.
FHLB advances increased $12.0 million, or 64.0% to $30.7 million at December 31, 2023 compared to $18.7 million at December 31, 2022 to fund loan growth and offset declines in deposits.
Stockholders’ equity increased $0.2 million, or 0.5% to $41.7 million at December 31, 2023 from $41.5 million at December 31, 2022. The increase is primarily related to net income of $1.7 million and other increases of $0.2 million. The increases were partially offset by $1.1 million in cash dividends and a CECL adjustment of $0.6 million.
Director Retirement and Appointment of New Board Member
The Company also announced that Arthur Mueller has retired from the Board of Directors of the Company and the Bank after 32 years of service as a director. “The Company is grateful for Art’s more than three decades of service and contributions to our Bank and our community. We wish Art well in his well-deserved retirement,” said Craig M. Hepner, President and Chief Executive Officer. Hepner continued, "The Board of Directors is pleased to announce that it has appointed Greg Mueller as a director of the Company and the Bank to fill the vacancy created by Art’s retirement. Greg represents the new generation of community-focused business minds, and we are confident that his talents will further the Board’s commitment to strengthen the Company and Bank and to maximize stockholder value.”
About Ottawa Bancorp, Inc.
Ottawa Bancorp, Inc. is the holding company for OSB Community Bank which provides various financial services to individual and corporate customers in the United States. The Bank offers various deposit accounts, including checking, money market, regular savings, club savings, certificates of deposit and various retirement accounts. Its loan portfolio includes one-to-four family residential mortgage, multi-family and non-residential real estate, commercial and construction loans as well as auto loans and home equity lines of credit. OSB Community Bank was founded in 1871 and is headquartered in Ottawa, Illinois. For more information about the Company and the Bank, please visit www.myosb.bank.
Cautionary Statement Regarding Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the federal securities laws. Statements in this release that are not strictly historical are forward-looking and are based upon current expectations that may differ materially from actual results. These forward-looking statements, identified by words such as “will,” “expected,” “believe,” and “prospects,” involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein. These risks and uncertainties involve general economic trends and changes in interest rates, increased competition, changes in consumer demand for financial services, the possibility of unforeseen events affecting the industry generally, the uncertainties associated with newly developed or acquired operations, market disruptions, our ability to pay future dividends and if so at what level, our ability to receive any required regulatory approval or non-objection for the payment of dividends from the Bank to the Company or from the Company to stockholders, and our efforts to maximize stockholder value, including our ability to execute any capital management strategies, such as the repurchase of shares of the Company’s common stock, and our ability to execute any controlled growth and balance sheet strategies designed to lower the cost of funds and enhance earnings and liquidity. Ottawa Bancorp, Inc. undertakes no obligation to release revisions to these forward-looking statements publicly to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under applicable law.
| Ottawa Bancorp, Inc. & Subsidiary | |||||||
| Consolidated Balance Sheets | |||||||
| December 31, 2023 and December 31, 2022 | |||||||
| (Unaudited) | |||||||
| December 31, | December 31, | ||||||
| 2023 | 2022 | ||||||
| Assets | |||||||
| Cash and due from banks | $ | 3,511,709 | $ | 10,338,273 | |||
| Interest bearing deposits | 9,884,710 | 524,427 | |||||
| Total cash and cash equivalents | 13,396,419 | 10,862,700 | |||||
| Time deposits | – | 250,000 | |||||
| Federal funds sold | – | 55,000 | |||||
| Securities available for sale | 18,781,463 | 20,898,175 | |||||
| Loans, net of allowance for credit losses of $4,370,934 and $4,301,307 | |||||||
| at December 31, 2023 and December 31, 2022, respectively | 312,181,918 | 307,750,228 | |||||
| Premises and equipment, net | 5,998,742 | 6,163,630 | |||||
| Accrued interest receivable | 1,700,911 | 1,309,931 | |||||
| Deferred tax assets | 2,799,503 | 2,652,355 | |||||
| Cash value of life insurance | 2,717,888 | 2,672,025 | |||||
| Goodwill | 649,869 | 649,869 | |||||
| Core deposit intangible | 31,909 | 67,567 | |||||
| Other assets | 5,659,190 | 4,515,880 | |||||
| Total assets | $ | 363,917,812 | $ | 357,847,360 | |||
|
Liabilities and Stockholders’ Equity |
|||||||
| Liabilities | |||||||
| Deposits: | |||||||
| Non-interest bearing | $ | 23,858,692 | $ | 22,634,695 | |||
| Interest bearing | 257,246,330 | 267,048,730 | |||||
| Total deposits | 281,105,022 | 289,683,425 | |||||
| Accrued interest payable | 320,238 | 119,769 | |||||
| FHLB advances | 30,750,000 | 18,750,000 | |||||
| Long Term Debt | 1,700,000 | 2,100,000 | |||||
| Other liabilities | 6,710,762 | 3,906,217 | |||||
| Total liabilities | 320,586,222 | 314,559,411 | |||||
| Commitments and Contingencies ESOP Repurchase Obligation |
1,670,851 | 1,821,029 | |||||
|
Stockholders’ Equity |
|||||||
| Common stock, $.01 par value, 12,000,000 shares authorized; 2,552,971 and 2,561,406 | |||||||
| shares issued at December 31, 2023 and December 31, 2022, respectively | 25,529 | 25,613 | |||||
| Additional paid-in-capital | 24,738,473 | 24,847,455 | |||||
| Retained earnings | 21,798,053 | 21,861,151 | |||||
| Unallocated ESOP shares | (682,192 | ) | (815,766 | ) | |||
| Unallocated management recognition plan shares | (103,417 | ) | (150,664 | ) | |||
| Accumulated other comprehensive income | (2,444,856 | ) | (2,479,840 | ) | |||
| 43,331,590 | 43,287,949 | ||||||
| Less: | |||||||
| ESOP Owned Shares | (1,670,851 | ) | (1,821,029 | ) | |||
| Total stockholders’ equity | 41,660,739 | 41,466,920 | |||||
| Total liabilities and stockholders’ equity | $ | 363,917,812 | $ | 357,847,360 | |||
| Ottawa Bancorp, Inc. & Subsidiary | ||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||
| Three Months and Year Ended December 31, 2023 and 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||
| December 31, | December 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| Interest and dividend income: | ||||||||||||||
| Interest and fees on loans | $ | 3,691,951 | $ | 3,429,290 | $ | 14,465,536 | $ | 12,642,349 | ||||||
| Securities: | ||||||||||||||
| Residential mortgage-backed and related securities | 81,518 | 72,658 | 318,790 | 313,240 | ||||||||||
| State and municipal securities | 22,800 | 28,611 | 90,442 | 161,593 | ||||||||||
| Dividends on non-marketable equity securities | 34,243 | 20,427 | 87,416 | 49,318 | ||||||||||
| Interest-bearing deposits | 62,487 | 26,296 | 192,300 | 59,172 | ||||||||||
| Total interest and dividend income | 3,892,999 | 3,577,282 | 15,154,484 | 13,225,672 | ||||||||||
| Interest expense: | ||||||||||||||
| Deposits | 1,435,829 | 708,463 | 5,124,170 | 1,615,157 | ||||||||||
| Borrowings | 205,773 | 94,898 | 629,246 | 279,357 | ||||||||||
| Total interest expense | 1,641,602 | 803,361 | 5,753,416 | 1,894,514 | ||||||||||
| Net interest income | 2,251,397 | 2,773,921 | 9,401,068 | 11,331,158 | ||||||||||
| Provision (recovery) for credit losses | (45,455 | ) | 418,000 | (249,641 | ) | 1,148,000 | ||||||||
| Net interest income after provision for credit losses | 2,296,852 | 2,355,921 | 9,650,709 | 10,183,158 | ||||||||||
| Other income: | ||||||||||||||
| Gain on sale of loans | 23,174 | 20,354 | 119,572 | 196,015 | ||||||||||
| Loan origination and servicing income | 131,283 | 135,126 | 564,984 | 758,859 | ||||||||||
| Origination of mortgage servicing rights, net of amortization | 13,501 | 253,778 | 70,192 | 263,859 | ||||||||||
| Customer service fees | 137,053 | 103,810 | 482,117 | 458,507 | ||||||||||
| Increase in cash surrender value of life insurance | 9,328 | 2,859 | 45,863 | 22,084 | ||||||||||
| Gain (Loss) on sale of foreclosed real estate | – | – | 5,653 | – | ||||||||||
| Other | 766 | 24,979 | 12,255 | 52,702 | ||||||||||
| Total other income | 315,105 | 540,906 | 1,300,636 | 1,752,026 | ||||||||||
| Other expenses: | ||||||||||||||
| Salaries and employee benefits | 1,172,457 | 1,191,032 | 4,711,855 | 4,904,943 | ||||||||||
| Directors fees | 31,500 | 42,000 | 166,500 | 177,000 | ||||||||||
| Occupancy | 154,114 | 165,174 | 625,463 | 651,399 | ||||||||||
| Deposit insurance premium | 49,865 | 21,381 | 147,397 | 85,229 | ||||||||||
| Legal and professional services | 167,954 | 79,078 | 452,341 | 302,504 | ||||||||||
| Data processing | 318,507 | 301,755 | 1,239,742 | 1,150,203 | ||||||||||
| Loss on sale of securities | – | – | – | 13,291 | ||||||||||
| Loan expense | 70,272 | 97,596 | 264,536 | 333,210 | ||||||||||
| Valuation adjustments and expenses on foreclosed real estate | 583 | – | 4,144 | – | ||||||||||
| Other | 344,465 | 222,643 | 1,013,493 | 864,079 | ||||||||||
| Total other expenses | 2,309,717 | 2,120,659 | 8,625,471 | 8,481,858 | ||||||||||
| Income before income tax expense | 302,240 | 776,168 | 2,325,874 | 3,453,326 | ||||||||||
| Income tax expense | 98,557 | 230,070 | 657,123 | 976,653 | ||||||||||
| Net income | $ | 203,683 | $ | 546,098 | $ | 1,668,751 | $ | 2,476,673 | ||||||
| Basic earnings per share | $ | 0.08 | $ | 0.22 | $ | 0.66 | $ | 0.96 | ||||||
| Diluted earnings per share | $ | 0.08 | $ | 0.22 | $ | 0.66 | $ | 0.96 | ||||||
| Dividends per share | $ | 0.11 | $ | 0.12 | $ | 0.43 | $ | 0.45 | ||||||
|
Ottawa Bancorp, Inc. & Subsidiary |
|||||||||
| Selected Financial Data and Ratios | |||||||||
| (Unaudited) | |||||||||
| At or for the | At or for the | ||||||||
| Three Months Ended | Year Ended | ||||||||
| December 31, | December 31, | ||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||
| Performance Ratios: | |||||||||
| Return on average assets (5) | 0.23 | % | 0.65 | % | 0.46 | % | 0.71 | % | |
| Return on average stockholders’ equity (5) | 1.97 | 5.26 | 4.04 | 5.77 | |||||
| Average stockholders’ equity to average assets | 11.49 | 12.32 | 11.47 | 12.28 | |||||
| Stockholders’ equity to total assets at end of period | 11.45 | 11.53 | 11.45 | 11.53 | |||||
| Net interest rate spread (1) (5) | 2.52 | 3.30 | 2.72 | 3.41 | |||||
| Net interest margin (2) (5) | 2.66 | 3.38 | 2.86 | 3.48 | |||||
| Other expense to average assets | 0.64 | 0.60 | 2.39 | 2.40 | |||||
| Efficiency ratio (3) | 90.02 | 63.41 | 80.60 | 64.68 | |||||
| Dividend payout ratio | 138.75 | 50.88 | 65.96 | 47.66 | |||||
| At or for the | At or for the | ||||||
| Year Ended | Year Ended | ||||||
| December 31, | December 31, | ||||||
| 2023 | 2022 | ||||||
| (unaudited) | |||||||
| Regulatory Capital Ratios (4): | |||||||
| Total risk-based capital (to risk-weighted assets) | 17.86 | % | 18.63 | % | |||
| Tier 1 core capital (to risk-weighted assets) | 16.61 | 17.38 | |||||
| Common equity Tier 1 (to risk-weighted assets) | 16.61 | 17.38 | |||||
| Tier 1 leverage (to adjusted total assets) | 12.29 | 12.47 | |||||
| Asset Quality Ratios: | |||||||
| Net charge-offs to average gross loans outstanding | 0.07 | 0.17 | |||||
| Allowance for credit losses to gross loans outstanding | 1.38 | 1.38 | |||||
| Non-performing loans to gross loans (6) | 1.52 | 0.73 | |||||
| Non-performing assets to total assets (6) | 1.32 | 0.64 | |||||
| Other Data: | |||||||
| Book Value per common share | $ | 16.32 | $ | 16.11 | |||
| Tangible Book Value per common share (7) | $ | 16.05 | $ | 15.83 | |||
| Number of full-service offices | 3 | 3 | |||||
| (1) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of funds on average interest-bearing liabilities. | |||||||
| (2) Represents net interest income as a percent of average interest-earning assets. | |||||||
| (3) Represents total other expenses divided by the sum of net interest income and total other income. | |||||||
| (4) Ratios are for Ottawa Savings Bank. | |||||||
| (5) Annualized. | |||||||
| (6) Non-performing assets consist of non-performing loans, foreclosed real estate and other foreclosed assets. Non-performing loans consist of all loans 90 days or more past due and all loans no longer accruing interest. | |||||||
| (7) Non-GAAP measure. Excludes goodwill and core deposit intangible. | |||||||
