Ottawa Bancorp, Inc. Announces First Quarter 2023 Results

OTTAWA, Ill., May 10, 2023 (GLOBE NEWSWIRE) -- Ottawa Bancorp, Inc. (the “Company”) (OTCQX: OTTW), the holding company for OSB Community Bank (the “Bank”), announced net income of $0.4 million, or $0.17 per basic and diluted common share for the three months ended March 31, 2023, compared to net income of $0.9 million, or $0.33 per basic and diluted common share for the three months ended March 31, 2022. The loan portfolio, net of allowance, increased to $316.1 million as of March 31, 2023 from $307.7 million as of December 31, 2022 as originations of $17.6 million exceeded payoffs and payments. Non-performing loans increased from $2.3 million at December 31, 2022 to $2.4 million at March 31, 2023, which caused the ratio of non-performing loans to gross loans to increase from 0.73% at December 31, 2022 to 0.75% at March 31, 2023.   The Company adopted ACS Topic 326 “Financial Instruments – Credit Losses” using the modified retrospective method for all financial instruments measured at amortized cost and off-balance-sheet credit exposures. The Company recorded the one-time adjustment of $375,250, net of tax, which increased the allowance for credit losses by $475,000.

“Operating results in the first quarter were significantly impacted by the continued rise in short-term interest rates as the increase in our cost of funds out-paced the increase in our interest income,” said Craig Hepner, President and Chief Executive Officer of the Company. “Competition for local deposits within our branch markets and the increased reliance on wholesale funding to support continued loan growth during the quarter resulted in tighter margins and reduced net earnings.” Mr. Hepner went on to say, “We continue to focus on controlling operating expenses to off-set the higher cost of funds, and we anticipate that loan growth will slow over the next few months as a result of uncertain economic conditions and the higher interest rate environment, leading to reduced reliance on the more expensive wholesale funding sources.”

Mr. Hepner stated further, “I am pleased to report that in spite of the turmoil in certain sectors of the banking industry that have come to light in recent weeks, our liquidity and capital levels remain strong as does our asset quality. We continue to focus on safe and sound banking practices in order to serve the financial needs of our customers and enhance the long-term value of the Company for the benefit of our shareholders.”

Comparison of Results of Operations for the Three Months Ended March 31, 2023 and March 31, 2022

Net income for the three months ended March 31, 2023 was $0.4 million compared to net income of $0.9 million for the three months ended March 31, 2022. Total interest and dividend income increased to $3.6 million for the three months ended March 31, 2023 from $3.2 million for the three months ended March 31, 2022 due to an increase in the average balances of interest-earning assets of $11.4 million and the rate environment. Interest expense was $0.8 million higher during the three months ended March 31, 2023 due to average cost of funds increasing to 1.44% with the majority of that increase resulting from the higher rate environment. In addition, due primarily to the growth in the loan portfolio, there was provision of $137,500 for loan losses taken during the three months ended March 31, 2023 as compared to no provision for the three months ended March 31, 2022. Thus, net interest income after provision for loan losses decreased by $0.6 million to $2.3 million for the three months ended March 31, 2023 from $2.9 million for the three months ended March 31, 2022. Total other income decreased by $0.2 million to $0.3 million for the three months ended March 31,2023. Total other expenses decreased by $0.1 million this quarter to $2.1 million as compared to $2.2 million in the first quarter of 2022. Therefore, net income was $0.5 million lower for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

The Company recorded a provision for loan losses of $137,500 for the three months ended March 31, 2023 as compared to $0 for the three months ended March 31, 2022. The allowance for loan losses was $4.9 million, or 1.53% of total gross loans at March 31, 2023 compared to $3.6 million, or 1.25% of gross loans at March 31, 2022. Net recoveries during the first quarter of 2023 were $12 thousand compared to net charge-offs of $61 thousand during the first quarter of 2022. The increase in the provision for the three months ended March 31, 2023 was due to loan growth and the adoption of ASU 2016-13 Financial Instruments – Credit Losses. Non-performing loans increased and the necessary reserves on non-performing loans as of March 31, 2023 were slightly higher than the reserves as of December 31, 2022.

The Company recorded income tax expense of $172 thousand for the three months ended March 31, 2023 as compared to $336 thousand for the three months ended March 31, 2022 due to lower pretax earnings for the first quarter of 2023.

Comparison of Financial Condition at March 31, 2023 and December 31, 2022

Total consolidated assets as of March 31, 2023 were $369.1 million, an increase of $11.3 million, or 3.2%, from $357.8 million at December 31, 2022.  The increase was primarily due to an increase of $8.3 million in the loan portfolio, a $2.1 million increase in cash and cash equivalents, a $0.8 million increase in federal funds sold and a $0.3 million increase in other assets. These increases were partially offset by a decrease in the securities available for sale of $0.2 million, a decrease in accrued interest receivable of $0.2 million and a $0.1 million decrease in premises and equipment.

Cash and cash equivalents increased $2.1 million, or 19.3%, to $13.0 million at March 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 $1.2 million and cash provided by financing activities of $10.3 million exceeding cash used in investing activities of $9.4 million

Securities available for sale decreased $0.2 million, or 1.1%, to $20.7 million at March 31, 2023 from $20.9 million at December 31, 2022 as paydowns, calls, and maturities exceeded purchases of new securities.

Net loans increased $8.3 million, or 2.7%, to $316.1 million at March 31, 2023 compared to $307.8 million at December 31, 2022 primarily as a result of increases of $1.1 million in one-to-four residential loans, $0.1 million in multi-family loans and $9.9 million in non-residential real estate loans. These increases were offset by decreases of $1.7 million in commercial loans and $0.5 million in consumer direct loans. The allowance for loan losses also increased by $0.6 million.

Total deposits increased $5.1 million, or 1.9%, to $295.2 million at March 31, 2023 from $289.7 million at December 31, 2022. Non-interest bearing accounts increased by $2.0 million and certificates of deposit increased by $12.8 million during the quarter. Offsetting these increases were decreases in interest bearing checking accounts of $7.2 million, money market accounts of $1.3 million and savings accounts of $1.2 million.

FHLB advances increased $5.5 million to $24.3 million at March 31, 2023 as compared to $18.8 million at December 31, 2022 primarily to fund loan growth.      

Stockholders’ equity decreased $0.3 million, or 0.7% to $41.2 million at March 31, 2023 from $41.5 million at December 31, 2022. The decrease reflects $0.3 million adjustment to retained earnings related to the adoption of ACS Topic 326, $0.3 million in cash dividends and a $0.1 million adjustment to prior periods earnings.   The decreases were partially offset by net income of $0.4 million for the three months ended March 31, 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, and market disruptions. 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
March 31, 2023 and December 31, 2022
(Unaudited)
	March 31,				December 31,
		2023				2022
Assets
Cash and due from banks	$	11,984,738			$	10,338,273
Interest bearing deposits		974,651				524,427
Total cash and cash equivalents		12,959,389				10,862,700
Time deposits		250,000				250,000
Federal funds sold		887,000				55,000
Securities available for sale		20,658,778				20,898,175
Loans, net of allowance for loan losses of $4,925,894 and $4,301,307
at March 31, 2023 and December 31, 2022, respectively		316,092,402				307,750,228
Loans held for sale		57,000				-
Premises and equipment, net		6,105,072				6,163,630
Accrued interest receivable		1,084,987				1,309,931
Deferred tax assets		2,822,490				2,652,355
Cash value of life insurance		2,683,734				2,672,025
Goodwill		649,869				649,869
Core deposit intangible		59,737				67,567
Other assets		4,830,797				4,515,880
Total assets	$	369,141,255			$	357,847,360
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing	$	24,677,138			$	22,634,695
Interest bearing		270,493,442				267,048,730
Total deposits		295,170,580				289,683,425
Accrued interest payable		236,231				119,769
FHLB advances		24,250,000				18,750,000
Long term debt		2,100,000				2,100,000
Other liabilities		4,375,729				3,906,217
Total liabilities		326,132,540				314,559,411
Commitments and contingencies
ESOP Repurchase Obligation		1,821,029				1,821,029
Stockholders' Equity
Common stock, $.01 par value, 12,000,000 shares authorized; 2,561,406 shares
issued at March 31 2023 and December 31, 2022		25,613				25,613
Additional paid-in-capital		24,847,454				24,847,455
Retained earnings		21,505,815				21,861,151
Unallocated ESOP shares		(815,766	)			(815,766	)
Unallocated management recognition plan shares		(137,984	)			(150,664	)
Accumulated other comprehensive income		(2,416,417	)			(2,479,840	)
		43,008,715				43,287,949
Less:
ESOP Owned Shares		(1,821,029	)			(1,821,029	)
Total stockholders' equity		41,187,686				41,466,920
Total liabilities and stockholders' equity	$	369,141,255			$	357,847,360

Ottawa Bancorp, Inc. & Subsidiary
Consolidated Statements of Operations
Three Months Ended March 31, 2023 and 2022
(Unaudited)
	Three Months Ended
	March 31,
		2023			2022
Interest and dividend income:
Interest and fees on loans	$	3,443,535		$	3,021,358
Securities:
Residential mortgage-backed and related securities		69,094			82,809
State and municipal securities		29,907			52,304
Dividends on non-marketable equity securities		13,262			8,974
Interest-bearing deposits		34,557			3,871
Total interest and dividend income		3,590,355			3,169,316
Interest expense:
Deposits		1,000,666			252,407
Borrowings		111,428			59,339
Total interest expense		1,112,094			311,746
Net interest income		2,478,261			2,857,570
Provision for loan losses		137,500			-
Net interest income after provision for loan losses		2,340,761			2,857,570
Other income:
Gain on sale of loans		17,969			90,333
Loan origination and servicing income		136,127			266,783
Origination of mortgage servicing rights, net of amortization		60,232			14,638
Customer service fees		104,024			111,706
Increase in cash surrender value of life insurance		11,708			10,713
Other		8,268			18,088
Total other income		338,328			512,261
Other expenses:
Salaries and employee benefits		1,186,093			1,288,366
Directors fees		45,000			46,500
Occupancy		160,474			168,344
Deposit insurance premium		25,144			21,048
Legal and professional services		78,622			65,491
Data processing		295,454			281,374
Loan expense		63,312			84,742
Other		210,477			198,705
Total other expenses		2,064 576			2,154,570
Income before income tax expense		614,513			1,215,261
Income tax expense		172,045			336,445
Net income	$	442,468		$	878,816
Basic earnings per share	$	0.168		$	0.333
Diluted earnings per share	$	0.168		$	0.332
Dividends per share	$	0.107		$	0.118

Ottawa Bancorp, Inc. & Subsidiary
Selected Financial Data and Ratios
(Unaudited)
	At or for the
	Three Months Ended
	March 31,
	2023		2022
Performance Ratios:
Return on average assets (5)	0.49	%	1.01	%
Return on average stockholders' equity (5)	4.26		6.98
Average stockholders' equity to average assets	11.59		14.52
Stockholders' equity to total assets at end of period	11.16		12.91
Net interest rate spread (1) (5)	2.85		3.47
Net interest margin (2) (5)	2.96		3.55
Other expense to average assets	0.58		0.62
Efficiency ratio (3)	73.30		63.97
Dividend payout ratio	62.94		35.49

	At or for the			At or for the
	Three Months Ended			Twelve Months Ended
	March 31,			December 31,
		2023			2022
	(unaudited)
Regulatory Capital Ratios (4):
Total risk-based capital (to risk-weighted assets)		18.24	%		18.63	%
Tier 1 core capital (to risk-weighted assets)		16.98			17.38
Common equity Tier 1 (to risk-weighted assets)		16.98			17.38
Tier 1 leverage (to adjusted total assets)		12.36			12.47
Asset Quality Ratios:
Net charge-offs to average gross loans outstanding		0.02			0.17
Allowance for loan losses to gross loans outstanding		1.53			1.38
Non-performing loans to gross loans (6)		0.75			0.73
Non-performing assets to total assets (6)		0.65			0.64
Other Data:
Book Value per common share	$	16.08		$	16.11
Tangible Book Value per common share (7)	$	15.80		$	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.