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Ottawa Bancorp, Inc. Announces Third Quarter 2019 Results

OTTAWA, Ill., Nov. 01, 2019 (GLOBE NEWSWIRE) -- Ottawa Bancorp, Inc. (the “Company”) (Nasdaq CM: OTTW), the holding company for Ottawa Savings Bank, FSB (the “Bank”), announced net income of $0.5 million, or $0.18 per basic and diluted common share for the three months ended September 30, 2019, compared to net income of $0.6 million, or $0.18 per basic and diluted common share for the three months ended September 30, 2018.  For the nine months ended September 30, 2019, the bank announced net income of $1.38 million, or $0.44 per basic and diluted common share, compared to net income of $1.43 million, or $0.44 per basic and diluted common share for the nine months ended September 30, 2018.   During the third quarter of 2019, the Company experienced an increase in loan originations and a slight increase in non-performing loans.   Non-performing loans increased from $1.5 million at December 31, 2018 to $2.0 million at September 30, 2019, which caused the ratio of non-performing loans to gross loans to increase from 0.63% at December 31, 2018 to 0.80% at September 30, 2019.  Additionally, through September 30, 2019, the Company has repurchased a total of 327,089 shares of its common stock at an average price of $13.96 per share as part of the stock repurchase program approved on November 7, 2018 and its previous stock repurchase program that expired in November, 2018. 

Comparison of Results of Operations for the Three Months Ended September 30, 2019 and September 30, 2018

Net income for the three months ended September 30, 2019 was $544,916 compared to net income of $590,143 for the three months ended September 30, 2018. The decrease in net income of $45,227 or 7.7%, was primarily attributed to a $47,594 decrease in net interest income after provision for loan losses and an increase in total other expenses of $332,101, which were partially offset by an increase in total other income of $321,013 and a decrease in tax expense of $13,455.   
   
Net interest income decreased by $0.01 million, or 0.4%, to $2.29 million for the three months ended September 30, 2019, from $2.30 million for the three months ended September 30, 2018.  Interest and dividend income increased $0.3 million, or 11.9%, primarily due to an increase in the average balances of interest-earning assets of $27.6 million. The increase in net interest income was partially offset by an increase in interest expense as the average cost of funds increased 47 basis points to 1.44% for the three months ended September 30, 2019. The net interest margin decreased 36 basis points during the three months ended September 30, 2019 to 3.25% from 3.61%.

The Company recorded a provision for loan losses of $0.1 million for the three-month periods ended September 30, 2019 and 2018. The allowance for loan losses was $2.8 million, or 1.13% of total gross loans at September 30, 2019 compared to $2.6 million, or 1.14% of gross loans at September 30, 2018.  Net recoveries during the third quarter of 2019 were $(22) thousand compared to net charge-offs of $17 thousand during the third quarter of 2018.  General reserves were higher at September 30, 2019, when compared to September 30, 2018, primarily due to the balances in most loan categories increasing during the twelve months ended September 30, 2019.  This increase in the allowance due to loan growth was partially offset by improvements in historical loss levels.  Although non-performing loans increased, the necessary reserves on non-performing loans as of September 30, 2019 were approximately $140,000 lower than they were as of September 30, 2018 due to the transfer of one non-performing loan to Foreclosed Real Estate,  the charge-off of the specific reserve for another non-performing loan and an improvement in the payment status of several other non-performing loans.

Total other income increased $0.4 million to $1.0 million for the three months ended September 30, 2019, as compared to $0.6 million for the three months ended September 30, 2018. The increase was primarily due to an increase in gains on the sale of loans, an increase in origination of mortgage servicing rights, an increase in loan origination and servicing income and an increase in other income.  These increases were partially offset by a decrease in gain on sale of foreclosed real estate.

Total other expense increased $0.3 million, or 15.9%, to $2.4 million for the three months ended September 30, 2019, as compared to $2.1 million for the three months ended September 30, 2018.  The increase was primarily due to greater costs in the salaries and employee benefits category due to the addition of a commercial lender and a senior credit analyst. Most expense categories are higher for the 2019 period than in 2018.

The Company recorded income tax expense of $0.2 million for both of the three-month periods ended September 30, 2019 and 2018.

Comparison of Results of Operations for the Nine Months Ended September 30, 2019 and September 30, 2018

Net income was $1.38 million for the nine-month period ended September 30, 2019 which is a $0.05 million decrease from $1.43 million for the nine-month period ended September 30, 2018.  The decrease in net income was primarily the result of total other expense and tax expense increasing more than the increase in total other income and net interest income after provision for loan losses.
   
Net interest income increased by $0.24 million, or 3.5%, to $7.05 million for the nine months ended September 30, 2019, from $6.81 million for the nine months ended September 30, 2018.  Interest and dividend income increased $1.2 million, or 14.4%, primarily due to an increase in the average balances of interest-earning assets of $24.0 million. The increase in interest and dividend income was partially offset by an increase in interest expense as the average cost of funds increased 46 basis points to 1.34% for the nine months ended September 30, 2019. The net interest margin decreased 20 basis points, or 5.51% during the nine months ended September 30, 2019 to 3.43% from 3.63% for the nine months ended September 30, 2018.

The Company recorded a provision for loan losses of $0.4 million for both of the nine-month periods ended September 30, 2019 and 2018.  The allowance for loan losses was $2.8 million, or 1.13% of total gross loans at September 30, 2019 compared to $2.5 million, or 1.14% of gross loans at September 30, 2018.  Net charge-offs during the first nine months of both 2019 and 2018 were $0.3 million.  General reserves were higher at September 30, 2019, when compared to September 30, 2018, primarily due to the balances in all loan categories increasing during the twelve months ended September 30, 2019. This increase in the allowance due to loan growth was partially offset by improvements in historical loss levels. Although non-performing loans increased, the necessary reserves on non-performing loans as of September 30, 2019 were approximately $140,000 lower than they were as of September 30, 2018 due to the transfer of one non-performing loan to Foreclosed Real Estate, the charge-off of the specific reserve for another non-performing loan and an improvement in the payment status of several other non-performing loans.

Total other income increased slightly to $1.9 million for the nine months ended September 30, 2019, as compared to $1.7 million for the nine months ended September 30, 2018.  The increase was primarily due to an increase in gains on sale of loans, an increase in the origination of mortgage servicing rights, an increase in loan origination and servicing income and an increase in other income. These increases were partially offset by a decrease in customer service fees and a decrease in gain on sale of foreclosed real estate.

Total other expense increased $0.4 million, or 6.5%, to $6.6 million for the nine months ended September 30, 2019, as compared to $6.2 million for the nine months ended September 30, 2018.  The increase was primarily due to higher salaries and employee benefits, legal and professional fees and data processing costs.   These increases were offset in reductions in loan expense and other expense. 

The Company recorded income tax expense of approximately $0.5 million for both of the nine-month periods ended September 30, 2019 and 2018.

Comparison of Financial Condition at September 30, 2019 and December 31, 2018

Total consolidated assets as of September 30, 2019 were $304.2 million, an increase of $11.4 million, or 3.9%, from $292.8 million at December 31, 2018.  The increase was primarily due to an increase of $7.3 million in the net loan portfolio, an increase in time deposits of $3.5 million, increases in cash and cash equivalents of $2.3 million, an increase in loans held for sale of $1.6 million, and an increase in Foreclosed Real Estate of $0.2 million.  These increases were partially offset by a decrease in federal funds sold of $1.7 million, a decrease in securities available for sale of $1.4 million and an overall $0.4 million decrease in the remaining other asset categories.

Cash and cash equivalents increased $2.3 million, or 27.4%, to $10.7 million at September 30, 2019 from $8.4 million at December 31, 2018.  The increase in cash and cash equivalents was primarily a result of cash provided by financing activities of $9.9 million and cash provided by operating activities of $0.1 million exceeding cash used in investing activities of $7.7 million.

Securities available for sale decreased $1.4 million, or 5.5%, to $24.1 million at September 30, 2019 from $25.5 million at December 31, 2018, as paydowns, calls, and maturities exceeded new securities purchases. 

Net loans increased by $7.3 million, or 3.1%, to $243.2 million at September 30, 2019 compared to $235.9 million at December 31, 2018 primarily as a result of a $7.3 million increase in one-to-four family loans, a $6.8 million increase in commercial loans and a $4.1 million increase in consumer direct loans.  The increases were off set by decreases of $5.1 million in non-residential real estate loans and $5.8 million in purchased auto loans. 

Total deposits increased $16.4 million, or 7.3%, to $239.8 million at September 30, 2019 from $223.4 million at December 31, 2018.  For the period ended September 30, 2019, checking accounts increased by $5.5 million and certificates of deposit increased by $14.5 million as compared to December 31, 2018.  The increases were offset by a decrease in non-interest bearing checking accounts of $0.3 million, a decrease in savings accounts of $0.1 million and a decrease in money market accounts of $3.2 million as compared to December 31, 2018.

FHLB advances decreased $2.0 million, or 16.5% to $10.1 million at September 30, 2019 compared to $12.1 million at December 31, 2018.  The decrease was related to the maturing of several advances with short term maturities that had been used to fund loan growth during the second quarter of 2019. 

Stockholders’ equity decreased $2.5 million, or 4.7% to $50.3 million at September 30, 2019 from $52.8 million at December 31, 2018.  The decrease reflects $2.7 million used to repurchase and cancel 190,868 outstanding shares of Company common stock and $1.8 million in cash dividends.  The decreases were partially offset by an increase of $0.4 million in other comprehensive income due to an increase in the fair value of securities available for sale, net income of $1.4 million for the nine months ended September 30, 2019 and proceeds from stock options exercised. 

About Ottawa Bancorp, Inc.

Ottawa Bancorp, Inc. is the holding company for Ottawa Savings Bank, FSB 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. Ottawa Savings Bank, FSB was founded in 1871 and is headquartered in Ottawa, Illinois. For more information about the Company and the Bank, please visit www.ottawasavings.com.

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 the rules and regulations of the Securities and Exchange Commission. 

 
Ottawa Bancorp, Inc. & Subsidiary
Consolidated Balance Sheets
September 30, 2019 and December 31, 2018
(Unaudited)
  September 30,   December 31,
  2019   2018
Assets      
Cash and due from banks $ 4,053,800     $ 2,416,568  
Interest bearing deposits   6,627,649       6,013,890  
Total cash and cash equivalents   10,681,449       8,430,458  
Time deposits   3,736,000       250,000  
Federal funds sold   3,947,000       5,663,000  
Securities available for sale   24,089,350       25,533,767  
Loans, net of allowance for loan losses of $2,774,442 and $2,627,738      
at September 30, 2019 and December 31, 2018, respectively   243,244,687       235,926,419  
Loans held for sale   1,571,495       -  
Premises and equipment, net   6,564,106       6,621,080  
Accrued interest receivable   800,805       824,542  
Foreclosed real estate   196,000       -  
Deferred tax assets   1,779,082       1,898,141  
Cash value of life insurance   2,376,864       2,341,453  
Goodwill   649,869       649,869  
Core deposit intangible   184,500       228,000  
Other assets   4,392,723       4,469,350  
Total assets $ 304,213,930     $ 292,836,079  
Liabilities and Stockholders' Equity              
Liabilities              
Deposits:              
Non-interest bearing $ 13,798,606     $ 14,057,719  
Interest bearing   225,967,615       209,390,810  
Total deposits   239,766,221       223,448,529  
Accrued interest payable   10,068       5,648  
FHLB advances   10,078,727       12,087,152  
Other liabilities   4,022,383       4,470,384  
Total liabilities   253,877,399       240,011,713  
               
Stockholders' Equity              
Common stock, $.01 par value, 12,000,000 shares authorized; 3,170,554 and 3,358,922              
shares issued at September 30, 2019 and December 31, 2018, respectively   31,705       33,589  
Additional paid-in-capital   32,976,828       35,579,606  
Retained earnings   18,477,320       18,859,232  
Unallocated ESOP shares   (1,443,104 )     (1,576,616 )
Unallocated management recognition plan shares   (32,962 )     (40,361 )
Accumulated other comprehensive income (loss)   326,744       (31,084 )
Total stockholders' equity   50,336,531       52,824,366  
Total liabilities and stockholders' equity $ 304,213,930     $ 292,836,079  
               


Ottawa Bancorp, Inc. & Subsidiary
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2019 and 2018
(Unaudited)
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2019   2018   2019   2018
Interest and dividend income:                
Interest and fees on loans   $ 2,878,874   $ 2,596,019   $ 8,591,812   $ 7,541,652
Securities:                
Residential mortgage-backed and related securities     67,217     67,156     223,536     205,975
State and municipal securities     101,169     102,269     299,190     305,920
Dividends on non-marketable equity securities     6,387     5,079     19,098     14,473
Interest-bearing deposits     81,905     30,516     181,452     75,864
Total interest and dividend income     3,135,552     2,801,039     9,315,088     8,143,884
Interest expense:                
Deposits     774,630     454,352     2,055,165     1,187,481
Borrowings     68,413     46,584     209,559     143,129
Total interest expense     843,043     500,936     2,264,724     1,330,610
Net interest income     2,292,509     2,300,103     7,050,364     6,813,274
Provision for loan losses     105,000     65,000     405,000     377,500
Net interest income after provision for loan losses      2,187,509     2,235,103     6,645,364     6,435,774
Other income:                
Gain on sale of loans     370,387     155,656     628,678     464,527
Gain/(Loss) on sale of foreclosed real estate, net     -     59,511     -     99,108
Loan origination and servicing income     291,677     244,351     646,068     615,369
Origination of mortgage servicing rights, net of amortization     111,316     4,124     98,581     26,977
Customer service fees     129,831     135,710     370,776     384,717
Increase in cash surrender value of life insurance     11,565     11,986     35,411     35,621
Gain/(Loss) on sale of repossessed assets, net     4,182     5,166     11,978     4,928
Other     42,532     23,973     88,478     72,607
Total other income     961,490     640,477     1,879,970     1,703,854
Other expenses:                
Salaries and employee benefits     1,393,099     1,139,592     3,679,948     3,255,532
Directors fees     43,000     43,000     129,000     137,750
Occupancy     171,352     159,892     499,362     494,353
Deposit insurance premium     2,000     17,107     33,565     49,933
Legal and professional services     105,469     89,623     303,402     279,273
Data processing     186,462     169,316     521,905     485,210
Loan expense     201,404     189,814     538,439     552,483
Valuation adjustments and expenses on foreclosed real estate     20,418     4,465     32,421     25,265
Other     302,536     280,830     901,287     957,569
Total other expenses     2,425,740     2,093,639     6,639,329     6,237,368
Income before income tax expense     723,259     781,941     1,886,005     1,902,260
Income tax expense     178,343     191,798     506,407     476,662
Net income   $ 544,916   $ 590,143   $ 1,379,598   $ 1,425,598
Basic earnings per share   $ 0.18   $ 0.18   $ 0.44   $ 0.44
Diluted earnings per share   $ 0.18   $ 0.18   $ 0.44   $ 0.44
Dividends per share   $ 0.063   $ 0.05   $ 0.563   $ 0.215
                         


Ottawa Bancorp, Inc. & Subsidiary  
Selected Financial Data and Ratios  
(Unaudited)  
            At September 30,   At December 31,  
            2019   2018  
                   
                     
            (In thousands, except per share data)  
Financial Condition Data:                  
Total Assets           $ 304,214   $ 292,836  
Loans, net (1)             243,245     235,926  
Securities available for sale             24,089     25,534  
Deposits             239,766     223,449  
Stockholders' Equity             50,337     52,824  
Book Value per common share           $ 15.88   $ 15.73  
Tangible Book Value per common share (2)           $ 15.61   $ 15.47  
(1) Net of loans in process, deferred loan (cost) fees and allowance for loan losses.                    
(2) Non-GAAP measure. Excludes goodwill and core deposit intangible.                    
                   
    Three Months Ended September 30,   Nine Months Ended September 30,  
    2019   2018   2019     2018  
                   
                     
    (In thousands, except per share data)   (In thousands, except per share data)  
Operations Data:                  
Total interest and dividend income   $ 3,136   $ 2,801   $ 9,315   $ 8,144  
Total interest expense     843     501     2,265     1,331  
Net interest income     2,293     2,300     7,050     6,813  
Provision for loan losses     105     65     405     377  
Total other income     961     640     1,880     1,704  
Total other expense     2,426     2,093     6,639     6,238  
Income tax expense     178     192     506     477  
Net income   $ 545   $ 590   $ 1,380   $ 1,425  
Basic earnings per share   $ 0.18   $ 0.18   $ 0.44   $ 0.44  
Diluted earnings per share   $ 0.18   $ 0.18   $ 0.44   $ 0.44  
Dividends per share   $ 0.063   $ 0.05   $ 0.559   $ 0.215  
                   
    At or for the   At or for the  
    Three Months Ended   Nine Months Ended  
    September 30,   September 30,  
    2019   2018   2019   2018  
Performance Ratios:                  
Return on average assets (5)     0.72 %   0.86 %   0.63 %   0.70 %
Return on average stockholders' equity (5)     3.70     4.48     3.13     3.61  
Average stockholders' equity to average assets     19.56     19.20     19.97     19.55  
Stockholders' equity to total assets at end of period     16.55     18.96     16.55     18.96  
Net interest rate spread (1) (5)     3.01     3.43     3.19     3.47  
Net interest margin (2) (5)     3.25     3.62     3.43     3.63  
Average interest-earning assets to average interest-bearing liabilities     120.57     123.44     121.92     123.66  
Other expense to average assets     0.80     0.76     2.26     2.32  
Efficiency ratio (3)     74.55     71.23     74.34     73.27  
Dividend payout ratio     35.00     27.78     127.95     48.86  
                   


    At or for the   At or for the  
    Nine Months Ended   Twelve Months Ended  
    September 30,   December 31,  
    2019   2018  
           
    (unaudited)  
Regulatory Capital Ratios (4):          
Total risk-based capital (to risk-weighted assets)   21.59 % 21.08 %
Tier 1 core capital (to risk-weighted assets)   20.34   19.88  
Common equity Tier 1 (to risk-weighted assets)   20.34   19.88  
Tier 1 leverage (to adjusted total assets)   15.14   15.16  
Asset Quality Ratios:          
Net charge-offs to average gross loans outstanding (5)   0.32   0.16  
Allowance for loan losses to gross loans outstanding   1.13   1.10  
Non-performing loans to gross loans (6)   0.80   0.63  
Non-performing assets to total assets (6)   0.73   0.54  
Other Data:          
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.  
   

Contact:     Craig Hepner
                  President and Chief Executive Officer
                  (815) 366-5437