OTTAWA, Ill., Nov. 13, 2023 (GLOBE NEWSWIRE) — Ottawa Bancorp, Inc. (the “Company”) (OTCQX: OTTW), the holding company for OSB Community Bank (the “Bank”), announced net income of $0.5 million, or $0.20 per basic and diluted common share for the three months ended September 30, 2023, compared to net income of $0.3 million, or $0.13 per basic and diluted common share for the three months ended September 30, 2022. For the nine months ended September 30, 2023, the Company announced net income of $1.5 million, or $0.58 per basic and diluted common share, compared to net income of $1.9 million, or $0.73 per basic and diluted common share for the nine months ended September 30, 2022. The loan portfolio, net of allowance, increased to $313.5 million as of September 30, 2023 from $307.7 million as of December 31, 2022 as originations of $40.3 million exceeded payoffs and payments. Non-performing loans were $4.8 million at September 30, 2023 and $2.3 million at December 31, 2022. Due to the increase in non-performing loans, the ratio of non-performing loans to gross loans increased to 1.52% at September 30, 2023 from 0.73% at December 31, 2022.
Craig Hepner, President and Chief Executive Officer of the Company, said “Operating results in the third quarter were similar to those in the prior quarter as we continue to manage through the effects of the higher interest rate environment. The precipitous rise in interest rates over the past year and a half, while having a positive effect on earning asset yields, has also led to increased competition within our local markets to attract and maintain customer deposits. These higher retail deposit costs, when coupled with a similar increase in the cost of wholesale funding, continue to pressure our liquidity levels, net interest margin and overall earnings.” Hepner went on to say, “Although our loan origination volume remains constrained by the higher interest rate environment, and in spite of a slight increase in our non-performing loans during the quarter, our asset quality remains very strong. The Board of Directors is committed to implementing strategies to strengthen the Company, enhance earnings and maximize stockholder value. The Board regularly consults with management, and the Company’s third-party advisors, to evaluate our ability to make use of various capital management strategies, including the repurchase of common stock. From 2017 through 2022, the Company repurchased and retired over 954,000 of its shares, representing 27.5% of the shares outstanding at the beginning of the first repurchase plan. The Company’s ability to implement these strategies is, in part, dependent on the Bank’s ability to dividend sufficient funds to the Company. Lower earnings and tighter liquidity, resulting from the higher cost of funds in recent periods, and loan losses tied to one loan relationship identified in 2022, have limited the Bank’s ability to do so. We have been executing a controlled growth strategy and working with our third-party financial advisor to implement balance sheet strategies to control the cost of funds and enhance revenue in the current interest rate environment. Our goal is that this strategy, together with the strength of our loan portfolio, capital levels and our exceptional banking team, will put the Board in a position to again avail itself of all strategies to maximize stockholder value as soon as possible.”
Comparison of Results of Operations for the Three Months Ended September 30, 2023 and September 30, 2022
Net income for the three months ended September 30, 2023 was $0.5 million compared to $0.3 million for the three months ended September 30, 2022. Total interest and dividend income was $3.8 million for the three months ended September 30, 2023 compared to $3.4 million at for the three months ended September 30, 2022 due to an increase in the average balances of interest-earning assets of $19.7 million and the higher interest rate environment. The yield on interest-earning assets increased by 0.40% to 4.51%. Interest expense was $1.1 million higher during the three months ended September 30, 2023 due to average cost of funds increasing to 1.93% with the majority of that increase resulting from the higher interest rate environment. Interest expense was $1.5 million during the three months ended September 30, 2023 as compared to $0.4 million during the three months ended September 30, 2022 as a result of the higher interest rate environment. Net interest income was $2.3 million for the three months ended September 30, 2023 compared to $2.9 million for the three months ended September 30, 2022. In addition, there was a recovery of $0.2 million for loan losses taken during the three months ended September 30, 2023 as compared to $0.7 million of provision for the three months ended September 30, 2022. Net interest income after provision for loan losses increased by $0.3 million to $2.5 million for the three months ended September 30, 2023 as compared to $2.2 million for the three months ended September 30, 2022. Total other income was $0.3 million for the three months ended September 30, 2023 and September 30, 2022. Total other expenses increased by $0.1 million this quarter to $2.1 million as compared to $2.0 million in the third quarter of 2022. Therefore, net income was $0.2 million higher for the three months ended September 30, 2023 compared to the three months ended September 30, 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 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 remaining with a specific reserve of $0.6 million. During 2023, we took additional charge-offs on several loans, the borrower paid off one loan and one additional loan in the relationship was downgraded to non-performing. The relationship as of September 30, 2023 has balances of approximately $0.8 million with a specific reserve of $0.3 million.
The Company recorded a recovery of $0.2 million for the three-month period ended September 30, 2023 to reduce the Allowance for Credit Losses (ACL) position. This compares to an expense of $0.7 million for the three-month period ended September 30, 2022. The ACL was $4.4 million, or 1.38%, of total gross loans at September 30, 2023 compared to $4.4 million, or 1.46%, of gross loans at September 30, 2022. Net charge-offs during the third quarter of 2023 were $349 thousand compared to net recoveries of $147 thousand during the third 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. Non-performing loans increased to $4.8 million as of September 30, 2023 from $2.3 million as of December 31, 2022. The necessary reserves on non-performing loans as of September 30, 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 $0.2 million for the three-month period ended September 30, 2023 as compared to $0.1 million for the three months ended September 30, 2022 as pre-tax income was higher during the three months ended September 30, 2023.
Comparison of Results of Operations for the Nine Months Ended September 30, 2023 and September 30, 2022
Net income was $1.5 million for the nine months ended September 30, 2023 compared to $1.9 million for the nine months ended September 30, 2022, a decrease of 24.1%. Total interest and dividend income was $11.3 million for the nine months ended September 30, 2023 compared to $10.0 million for the nine months ended September 30, 2022. Earning assets increased by $17.5 million, and the yield on interest-earning assets improved to 4.43%. Interest expense for the nine months ended September 30, 2023 was $3.0 million higher due to the rising interest rates experienced during the past twelve months as cost of funds increased to 1.67% form 0.51%. Due to the increase in interest expense, net interest income decreased $1.8 million to $7.1 million for the nine months ended September 30, 2023 as compared to $8.9 million for the nine months ended September 30, 2022. Total other income decreased by $0.2 million during the nine months ended September 30, 2023 to $1.0 million as a result of the lower volume of mortgage loan originations during the period which resulted in a corresponding decrease in gain on sale of loans and loan origination and servicing income of $0.2 million. Other expense levels were $0.1 million lower, decreasing to $6.3 million for the nine months ended September 30, 2023 as compared to $6.4 million for the nine months ended September 30, 2022. The decrease in other expense was the result of a decrease in salaries and employee benefits of $0.2 million offset by a $0.1 million increase of other expense categories.
The Company recorded a recovery of $204,186 for the nine-month period ended September 30, 2023 to decrease the ACL position. This compares to expense of $730,000 for the nine-month period ended September 30, 2022. Net charge-offs during the nine months ended September 30, 2023 were $230 thousand compared to net recoveries of $79 thousand during the nine months ended September 30, 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. Non-performing loans increased to $4.8 million as of September 30, 2023 from $2.3 million as of December 31, 2022. The necessary reserves on non-performing loans as of September 30, 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.
We recorded income tax expense of $0.6 million for the nine months ended September 30, 2023 compared to $0.7 million for the nine months ended September 30, 2022. This decrease is due primarily to lower pre-tax earnings in 2023.
Comparison of Financial Condition at September 30, 2023 and December 31, 2022
Total consolidated assets as of September 30, 2023 were $365.2 million, an increase of $7.4 million, or 2.1%, from $357.8 million at December 31, 2022. The increase was primarily due to a $5.7 million increase in the net loan portfolio, a $0.9 million increase in other assets, a $1.6 million increase in cash and cash equivalents, a $0.4 million increase in federal funds sold, a $0.3 million increase in deferred tax assets, a $0.1 million increase in loans held for sale and a $0.2 million increase in accrued interest receivable. These increases were partially offset by a decrease of $1.5 million in securities available for sale, and a $0.3 million decrease in time deposits.
Cash and cash equivalents increased $1.6 million, or 14.9%, to $12.5 million at September 30, 2023 from $10.9 million at December 31, 2022. The increase in cash and cash equivalents was primarily the result of cash provided by financing activities of $7.2 million exceeding cash used in operating activities of $0.1 million and cash used in investing activities of $5.5 million.
Securities available for sale decreased $1.5 million, or 7.2%, to $19.4 million at September 30, 2023 from $20.9 million at December 31, 2022, as paydowns, calls and maturities exceeded purchases of securities. Additionally, the valuation of the portfolio due to market conditions declined by $0.7 million.
Net loans increased $5.7 million, or 1.9%, to $313.5 million at September 30, 2023 compared to $307.8 million at December 31, 2022 primarily the result of an increase of $11.7 million in non-residential real estate loans. This increases was partially offset by decreases of $1.7 million in one-to-four family loans, $1.6 million in multi-family residential loans, $2.1 million in consumer direct loans and $0.5 million in commercial loans. The allowance for loan losses increased by $0.1 million from December 31, 2022 to September 30, 2023.
Total deposits decreased $5.0 million, or 0.6%, to $284.7 million at September 30, 2023 from $289.7 million at December 31, 2022. During the nine months ended September 30, 2023, savings accounts decreased by $4.0 million, interest-bearing checking accounts decreased by $7.3 million and money market accounts decreased by $2.5 million as compared to December 31, 2022. Offsetting these decreases, certificates of deposit increased by $6.9 million and non-interest bearing checking accounts increased by $1.9 million.
FHLB advances increased $14.0 million, or 75.0%, to $32.7 million at September 30, 2023 compared to $18.7 million at December 31, 2022 to fund loan growth and provide liquidity.
Stockholders’ equity decreased $0.5 million, or 0.01%, to $41.0 million at September 30, 2023 from $41.5 million at December 31, 2022. The decrease reflects $0.8 million in cash dividends, a $0.5 million decrease in other comprehensive income due to a decrease in fair value of securities available for sale, a CECL adjustment of $0.6 million and other decreases totaling $0.1 million. The decreases were partially offset by net income of $1.5 million for the nine months ended September 30, 2023.
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 ability to execute our strategies, including our capital management strategies, to enhance earnings and maximize stockholder value. 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 | |||||||
| September 30, 2023 and December 31, 2022 | |||||||
| (Unaudited) | |||||||
| September 30, | December 31, | ||||||
| 2023 | 2022 | ||||||
| Assets | |||||||
| Cash and due from banks | $ | 4,534,969 | $ | 10,338,273 | |||
| Interest bearing deposits | 7,955,475 | 524,427 | |||||
| Total cash and cash equivalents | 12,490,444 | 10,862,700 | |||||
| Time deposits | – | 250,000 | |||||
| Federal funds sold | 468,000 | 55,000 | |||||
| Securities available for sale | 19,390,409 | 20,898,175 | |||||
| Loans held for sale | 107,000 | – | |||||
| Loans, net of allowance for loan losses of $4,388,202 and $4,301,307 | |||||||
| at September 30, 2023 and December 31, 2022, respectively | 313,495,420 | 307,750,228 | |||||
| Premises and equipment, net | 6,058,323 | 6,163,630 | |||||
| Accrued interest receivable | 1,507,612 | 1,309,931 | |||||
| Deferred tax assets | 2,952,529 | 2,652,355 | |||||
| Cash value of life insurance | 2,712,687 | 2,672,025 | |||||
| Goodwill | 649,869 | 649,869 | |||||
| Core deposit intangible | 41,908 | 67,567 | |||||
| Other assets | 5,351,892 | 4,515,880 | |||||
| Total assets | $ | 365,226,093 | $ | 357,847,360 | |||
| Liabilities and Stockholders’ Equity | |||||||
| Liabilities | |||||||
| Deposits: | |||||||
| Non-interest bearing | $ | 24,511,651 | $ | 22,634,695 | |||
| Interest bearing | 260,158,640 | 267,048,730 | |||||
| Total deposits | 284,670,291 | 289,683,425 | |||||
| Accrued interest payable | 294,737 | 119,769 | |||||
| FHLB advances | 32,750,000 | 18,750,000 | |||||
| Long Term Debt | 1,700,000 | 2,100,000 | |||||
| Other liabilities | 3,126,744 | 3,906,217 | |||||
| Total liabilities | 322,541,772 | 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; 2,550,691 and | |||||||
| 2,561,406 shares issued at September 30, 2023 and December 31, 2022, respectively | 25,506 | 25,613 | |||||
| Additional paid-in-capital | 24,697,539 | 24,847,455 | |||||
| Retained earnings | 21,866,223 | 21,861,151 | |||||
| Unallocated ESOP shares | (815,766 | ) | (815,766 | ) | |||
| Unallocated management recognition plan shares | (114,963 | ) | (150,664 | ) | |||
| Accumulated other comprehensive income | (2,974,218 | ) | (2,479,840 | ) | |||
| 42,684,321 | 43,287,949 | ||||||
| Less: | |||||||
| ESOP Owned Shares | (1,670,851 | ) | (1,821,029 | ) | |||
| Total stockholders’ equity | 41,013,470 | 41,466,920 | |||||
| Total liabilities and stockholders’ equity | $ | 365,226,093 | $ | 357,847,360 | |||
| Ottawa Bancorp, Inc. & Subsidiary | |||||||||||||||
| Consolidated Statements of Operations | |||||||||||||||
| Three and Nine Months Ended September 30, 2023 and 2022 | |||||||||||||||
| (Unaudited) | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Interest and dividend income: | |||||||||||||||
| Interest and fees on loans | $ | 3,660,212 | $ | 3,152,814 | $ | 10,773,586 | $ | 9,202,533 | |||||||
| Securities: | |||||||||||||||
| Residential mortgage-backed and related securities | 85,638 | 76,531 | 237,272 | 240,583 | |||||||||||
| State and municipal securities | 25,031 | 33,589 | 67,642 | 132,981 | |||||||||||
| Dividends on non-marketable equity securities | 23,253 | 10,277 | 53,173 | 28,891 | |||||||||||
| Interest-bearing deposits | 43,166 | 19,897 | 129,813 | 38,139 | |||||||||||
| Total interest and dividend income | 3,837,300 | 3,370,223 | 11,261,486 | 10,005,551 | |||||||||||
| Interest expense: | |||||||||||||||
| Deposits | 1,386,099 | 378,237 | 3,688,342 | 906,694 | |||||||||||
| Borrowings | 162,346 | 71,739 | 423,473 | 184,459 | |||||||||||
| Total interest expense | 1,548,445 | 449,976 | 4,111,815 | 1,091,153 | |||||||||||
| Net interest income | 2,288,855 | 2,920,247 | 7,149,671 | 8,914,398 | |||||||||||
| Provision (recovery) for loan losses | (209,269 | ) | 730,000 | (204,186 | ) | 730,000 | |||||||||
| Net interest income after provision for loan losses | 2,498,124 | 2,190,247 | 7,353,857 | 8,184,398 | |||||||||||
| Other income: | |||||||||||||||
| Gain on sale of loans | 32,746 | 53,837 | 96,398 | 175,660 | |||||||||||
| Loan origination and servicing income | 141,415 | 163,719 | 433,700 | 623,733 | |||||||||||
| Origination of mortgage servicing rights, net of amortization | 1,667 | (279 | ) | 56,692 | 10,081 | ||||||||||
| Customer service fees | 117,016 | 120,026 | 345,065 | 354,691 | |||||||||||
| Increase in cash surrender value of life insurance | 12,472 | (2,303 | ) | 36,535 | 19,226 | ||||||||||
| Other | 10,332 | 7,740 | 17,140 | 32,991 | |||||||||||
| Total other income | 315,648 | 342,741 | 985,530 | 1,216,383 | |||||||||||
| Other expenses: | |||||||||||||||
| Salaries and employee benefits | 1,159,391 | 1,086,027 | 3,539,398 | 3,713,911 | |||||||||||
| Directors’ fees | 45,000 | 42,000 | 135,000 | 135,000 | |||||||||||
| Occupancy | 157,306 | 163,611 | 471,349 | 486,225 | |||||||||||
| Deposit insurance premium | 36,762 | 21,300 | 97,532 | 63,848 | |||||||||||
| Legal and professional services | 121,701 | 72,930 | 284,388 | 223,426 | |||||||||||
| Data processing | 319,176 | 284,439 | 921,235 | 848,447 | |||||||||||
| Loss on sale of securities | – | 10,468 | – | 13,291 | |||||||||||
| Loan expense | 60,891 | 79,756 | 194,264 | 235,614 | |||||||||||
| Valuation adjustments and expenses on foreclosed real estate | 208 | – | 3,560 | – | |||||||||||
| Other | 249,107 | 246,039 | 669,028 | 641,436 | |||||||||||
| Total other expenses | 2,149,542 | 2,006,570 | 6,315,754 | 6,361,198 | |||||||||||
| Income before income tax expense | 664,230 | 449,269 | 2,023,633 | 2,677,158 | |||||||||||
| Income tax expense | 183,400 | 127,827 | 558,566 | 746,583 | |||||||||||
| Net income | $ | 480,830 | $ | 321,442 | $ | 1,465,067 | $ | 1,930,575 | |||||||
| Basic earnings per share | $ | 0.20 | $ | 0.13 | $ | 0.58 | $ | 0.73 | |||||||
| Diluted earnings per share | $ | 0.20 | $ | 0.13 | $ | 0 58 | $ | 0.73 | |||||||
| Dividends per share | $ | 0.11 | $ | 0.12 | $ | 0.33 | $ | 0.34 | |||||||
| Ottawa Bancorp, Inc. & Subsidiary | ||||||||||||
| Selected Financial Data and Ratios | ||||||||||||
| (Unaudited) | ||||||||||||
| At or for the | At or for the | |||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Performance Ratios: | ||||||||||||
| Return on average assets (5) | 0.53 | % | 0.37 | % | 0.54 | % | 0.75 | % | ||||
| Return on average stockholders’ equity (5) | 4.65 | 2.90 | 4.72 | 5.56 | ||||||||
| Average stockholders’ equity to average assets | 11.48 | 12.92 | 11.48 | 13.52 | ||||||||
| Stockholders’ equity to total assets at end of period | 11.25 | 11.47 | 11.25 | 11.47 | ||||||||
| Net interest rate spread (1) (5) | 2.58 | 3.50 | 2.76 | 3.49 | ||||||||
| Net interest margin (2) (5) | 2.72 | 3.55 | 2.88 | 3.55 | ||||||||
| Other expense to average assets | 0.60 | 0.59 | 1.75 | 1.86 | ||||||||
| Efficiency ratio (3) | 82.53 | 62.99 | 77.64 | 65.11 | ||||||||
| Dividend payout ratio | 56.75 | 92.00 | 56.01 | 46.67 | ||||||||
| At or for the | At or for the | ||||||
| Nine Months Ended | Twelve Months Ended | ||||||
| September 30, | December 31, | ||||||
| 2023 | 2022 | ||||||
| (unaudited) | |||||||
| Regulatory Capital Ratios (4): | |||||||
| Total risk-based capital (to risk-weighted assets) | 18.28 | % | 18.63 | % | |||
| Tier 1 core capital (to risk-weighted assets) | 17.03 | 17.38 | |||||
| Common equity Tier 1 (to risk-weighted assets) | 17.03 | 17.38 | |||||
| Tier 1 leverage (to adjusted total assets) | 12.13 | 12.47 | |||||
| Asset Quality Ratios: | |||||||
| Net charge-offs to average gross loans outstanding | 2.93 | 0.17 | |||||
| Allowance for loan 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) | 1.33 | 0.64 | |||||
| Other Data: | |||||||
| Book Value per common share | $ | 16.08 | $ | 16.11 | |||
| Tangible Book Value per common share (7) | $ | 15.81 | $ | 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 OSB Community 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. |
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Contact:
Craig Hepner
President and Chief Executive Officer
(815) 366-5437
Marc N. Kingry
Senior Vice President & Chief Financial Officer
OSB Community Bank
925 LaSalle Street
Ottawa, Illinois
61350
Office – 815-433-2525
Mobile – 815-993-7262
Fax – 815-433-2573
