Ottawa Bancorp, Inc. Announces Second Quarter 2023 Results
OTTAWA, Ill., Aug. 14, 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 $0.22 per basic and diluted common share for the three months ended June 30, 2023, compared to net income of $0.7 million, or $0.28 per basic and diluted common share for the three months ended June 30, 2022. For the six months ended June 30, 2023, the Company announced net income of $1.0 million, or $0.39 per basic and diluted common share, compared to net income of $1.6 million, or $0.59 per basic and diluted common share for the six months ended June 30, 2022. The loan portfolio, net of allowance, increased to $317.7 million as of June 30, 2023 from $307.7 million as of December 31, 2022 as originations of $31.4 million exceeded payoffs and payments. Non-performing loans were $2.3 million at June 30, 2023 and December 31, 2022. Due to the growth in the loan portfolio, the ratio of non-performing loans to gross loans decreased to 0.72% at June 30, 2023 from 0.73% at December 31, 2022.
Craig Hepner, President and Chief Executive Officer of the Company, said “Even though we continue to realize a substantial increase in our interest revenue as a result of the Federal Reserve’s interest rate hikes over the past several quarters, our interest expense has increased to a much larger degree during that same time frame. The market for deposit dollars in which the Company operates is highly competitive, with this competition stemming from bank and non-bank financial institutions alike. This has resulted in an increased dependency on more expensive time deposits and wholesale funding sources to support operations and the loan growth realized during the first six months of 2023. This in turn has lead to a significant increase in our cost of funds and to a further compression of our net interest margin during the first half of the year. We are beginning to see the effects of the Federal Reserve’s rate increases in our local markets as demand for new loan financing has declined in recent months. We expect this trend to continue throughout the remainder of 2023 which will likely result in less dependency on more expensive funding sources.”
Mr. Hepner added “Despite the challenging interest rate environment, we have been able to experience modest loan growth and strong asset quality. While higher rates have negatively impacted lending activity, our strong capital levels position us for controlled growth, particularly if current economic headwinds subside. The Board of Directors also understands the potential benefits of executing the various capital management strategies available to the Company. To this point, 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. While lower earnings and tighter liquidity levels caused by the higher interest rate environment have impacted our ability to make use of these capital management tools since 2022, we expect that the Board will evaluate the Company’s ability to further implement these types of strategies once the current economic uncertainty subsides and operating metrics return to more normal levels.”
Comparison of Results of Operations for the Three Months Ended June 30, 2023 and June 30, 2022
Net income for the three months ended June 30, 2023 was $0.5 million compared to $0.7 million for the three months ended June 30, 2022. Total interest and dividend income was $3.8 million for the three months ended June 30, 2023 compared to $3.2 million at for the three months ended June 30, 2022 due to an increase in the average balances of interest-earning assets of $19.1 million and the rate environment. The yield on interest-earning assets increased by 0.55%. Interest expense was $1.1 million higher during the three months ended June 30, 2023 due to average cost of funds increasing to 1.82% with the majority of that increase resulting from the higher rate environment. Interest expense was $1.4 million during the three months ended June 30, 2023 as compared to $0.3 million during the three months ended June 30, 2022 as a result of the higher interest rate environment. Net interest income was $2.4 million for the three months ended June 30, 2023 compared to $2.9 million for the three months ended June 30, 2022 In addition, there was a provision (recovery) of ($132,417) for loan losses taken during the three months ended June 30, 2023 as compared to no provision for the three months ended June 30, 2022. Net interest income after provision for loan losses decreased by $0.4 million to $2.5 million during the three months ended June 30, 2023 as compared to $2.9 million for the three months ended June 30, 2022. Total other income decreased by $0.1 million to $0.3 million for the three months ended June 30,2023. Total other expenses decreased by $0.1 million this quarter to $2.1 million as compared to $2.2 million in the second quarter of 2022. Therefore, net income was $0.2 million lower for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.
The Company recorded income of $132,417 for the three-month period ended June 30, 2023 to reduce the Allowance for Credit Losses (ACL) position. This compares to $0 for the three-month period ended June 30, 2022. The ACL was $4.9 million, or 1.52%, of total gross loans at June 30, 2023 compared to $3.6 million, or 1.27%, of gross loans at June 30, 2022. Net recoveries during the second quarter of 2023 were $107 thousand compared to net recoveries of $6 thousand during the second 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 remained consistent between June 30, 2023 and December 31, 2022. The necessary reserves on non-performing loans as of June 30, 2023 were slightly higher than the required reserves as of December 31, 2022.
The Company recorded income tax expense of $0.2 million for the three-month period ended June 30, 2023 as compared to $0.3 million for the three months ended June 30, 2022 as pre-tax income was lower during the three months ended June 30, 2023.
Comparison of Results of Operations for the Six Months Ended June 30, 2023 and June 30, 2022
Net income was $1.0 million for the six months ended June 30, 2023 compared to $1.6 million for the six months ended June 30, 2022, a decrease of 38.8%. Total interest and dividend income was $7.4 million for the six months ended June 30, 2023 compared to $6.3 million for the six months ended June 30, 2022. Earning assets increased by $15.3 million, and the yield on interest-earning assets improved to 4.38%. Interest expense for the six months ended June 30, 2023 was $2.0 million higher due to the rising interest rates experienced during the past twelve months as cost of funds increased to 1.64% form 0.43%. Due to the increase in interest expense, net interest income decreased $0.8 million to $4.9 million as compared to $5.7 million for the six months ended June 30, 2022. Total other income decreased by $0.2 million during the six months ended June 30, 2023 to $0.7 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 $0.2 million lower, decreasing to $4.2 million for the six months ended June 30, 2023 as compared to $4.4 million for the six months ended June 30, 2022. The decrease in other expense was the result of a decrease in salaries and employee benefits of $0.2 million and a decrease of $0.1 million in loan expense.
The Company recorded expense of $5,100 for the six-month period ended June 30, 2023 to increase the ACL position. This compares to $0 for the six-month period ended June 30, 2022. Net recoveries during the six months ended June 30, 2023 were $119,000 compared to net recoveries of $67,000 during the six months ended June 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 remained consistent between June 30, 2023 and December 31, 2022. The necessary reserves on non-performing loans as of June 30, 2023 were slightly higher than the required reserves as of December 31, 2022.
We recorded income tax expense of $0.4 million for the six months ended June 30, 2023 compared to $0.6 million for the six months ended June 30, 2022. This decrease is due primarily to lower pre-tax earnings in 2023.
Comparison of Financial Condition at June 30, 2023 and December 31, 2022
Total consolidated assets as of June 30, 2023 were $366.8 million, an increase of $9.0 million, or 2.5%, from $357.8 million at December 31, 2022. The increase was primarily due to an increase of $9.9 million increase in the net loan portfolio, a $0.6 million increase in other assets and a $0.3 million increase in deferred tax assets. These increases were partially offset by a decrease in cash and cash equivalents of $1.0 million and a decrease of $0.3 million in securities available for sale.
Cash and cash equivalents decreased $1.0 million, or 9.2%, to $9.9 million at June 30, 2023 from $10.9 million at December 31, 2022. The decrease in cash and cash equivalents was primarily the result of cash used in investing activities of $10.0 million exceeding cash provided by operating activities of $0.6 million and cash provided by financing activities of $8.4 million.
Securities available for sale decreased $0.3 million, or 1.4%, to $20.6 million at June 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 $0.1 million.
Net loans increased $9.9 million, or 3.2%, to $317.7 million at June 30, 2023 compared to $307.8 million at December 31, 2022 primarily the result of an increase of $1.3 million in one-to-four family loans, an increase of $1.4 million in multi-family loans and an increase of $9.5 million in non-residential real estate loans. These increases were partially offset by decreases of $1.4 million in consumer direct loans and $0.3 million in commercial loans. The allowance for loan losses increased by $0.6 million from December 31, 2022 to June 30, 2023.
Total deposits increased $1.7 million, or 0.6%, to $291.4 million at June 30, 2023 from $289.7 million at December 31, 2022. During the six months ended June 30, 2023, certificates of deposit increased by $12.7 million and non-interest bearing checking accounts increased by $4.5 million while savings accounts decreased by $3.4 million, interest-bearing checking accounts decreased by $11.3 million and money market accounts decreased by $0.8 million as compared to December 31, 2022.
FHLB advances increased $8.0 million, or 43.3%, to $26.7 million at June 30, 2023 compared to $18.7 million at December 31, 2022 to fund loan growth.
Stockholders’ equity decreased $0.2 million, or 0.01%, to $41.3 million at June 30, 2023 from $41.5 million at December 31, 2022. The decrease reflects $0.6 million in cash dividends, a $0.2 million decrease in other comprehensive income due to a decrease in fair value of securities available for sale and other decreases totaling $0.4 million. The decreases were partially offset by net income of $1.0 million for the six months ended June 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, 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 | ||||||||
| June 30, 2023 and December 31, 2022 | ||||||||
| (Unaudited) | ||||||||
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Cash and due from banks | $ | 6,282,729 | $ | 10,338,273 | ||||
| Interest bearing deposits | 3,598,912 | 524,427 | ||||||
| Total cash and cash equivalents | 9,881,641 | 10,862,700 | ||||||
| Time deposits | – | 250,000 | ||||||
| Federal funds sold | – | 55,000 | ||||||
| Securities available for sale | 20,589,482 | 20,898,175 | ||||||
| Loans, net of allowance for loan losses of $4,900,436 and $4,301,307 at June 30, 2023 and December 31, 2022, respectively | 317,658,515 | 307,750,228 | ||||||
| Premises and equipment, net | 6,062,477 | 6,163,630 | ||||||
| Accrued interest receivable | 1,173,256 | 1,309,931 | ||||||
| Deferred tax assets | 2,942,276 | 2,652,355 | ||||||
| Cash value of life insurance | 2,696,088 | 2,672,025 | ||||||
| Goodwill | 649,869 | 649,869 | ||||||
| Core deposit intangible | 51,907 | 67,567 | ||||||
| Other assets | 5,060,250 | 4,515,880 | ||||||
| Total assets | $ | 366,765,761 | $ | 357,847,360 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities | ||||||||
| Deposits: | ||||||||
| Non-interest bearing | $ | 27,197,513 | $ | 22,634,695 | ||||
| Interest bearing | 264,156,098 | 267,048,730 | ||||||
| Total deposits | 291,353,611 | 289,683,425 | ||||||
| Accrued interest payable | 261,152 | 119,769 | ||||||
| FHLB advances | 26,750,000 | 18,750,000 | ||||||
| Long Term Debt | 1,900,000 | 2,100,000 | ||||||
| Other liabilities | 3,578,560 | 3,906,217 | ||||||
| Total liabilities | 323,843,323 | 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 June 30, 2023 and December 31, 2022, respectively | 25,506 | 25,613 | ||||||
| Additional paid-in-capital | 24,697,539 | 24,847,455 | ||||||
| Retained earnings | 21,775,999 | 21,861,151 | ||||||
| Unallocated ESOP shares | (815,766 | ) | (815,766 | ) | ||||
| Unallocated management recognition plan shares | (127,853 | ) | (150,664 | ) | ||||
| Accumulated other comprehensive income | (2,632,987 | ) | (2,479,840 | ) | ||||
| 42,922,438 | 43,287,949 | |||||||
| Less: | ||||||||
| ESOP Owned Shares | (1,670,851 | ) | (1,821,029 | ) | ||||
| Total stockholders’ equity | 41,251,587 | 41,466,920 | ||||||
| Total liabilities and stockholders’ equity | $ | 366,765,761 | $ | 357,847,360 | ||||
| Ottawa Bancorp, Inc. & Subsidiary | ||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||
| Three and Six Months Ended June 30, 2023 and 2022 | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Interest and dividend income: | ||||||||||||||||
| Interest and fees on loans | $ | 3,669,838 | $ | 3,030,894 | $ | 7,113,373 | $ | 6,049,719 | ||||||||
| Securities: | ||||||||||||||||
| Residential mortgage-backed and related securities | 82,540 | 81,243 | 151,634 | 164,052 | ||||||||||||
| State and municipal securities | 12,705 | 47,088 | 42,612 | 99,392 | ||||||||||||
| Dividends on non-marketable equity securities | 16,657 | 9,672 | 29,919 | 18,647 | ||||||||||||
| Interest-bearing deposits | 52,090 | 11,838 | 86,647 | 18,242 | ||||||||||||
| Total interest and dividend income | 3,833,830 | 3,180,735 | 7,424,185 | 6,350,052 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | 1,301,577 | 276,050 | 2,302,243 | 528,457 | ||||||||||||
| Borrowings | 149,699 | 53,381 | 261,127 | 112,720 | ||||||||||||
| Total interest expense | 1,451,276 | 329,431 | 2,563,370 | 641,177 | ||||||||||||
| Net interest income | 2,382,554 | 2,851,304 | 4,860,815 | 5,708,875 | ||||||||||||
| Provision (recovery) for loan losses | (132,417 | ) | – | 5,083 | – | |||||||||||
| Net interest income after provision for loan losses | 2,514,971 | 2,851,304 | 4,855,732 | 5,708,875 | ||||||||||||
| Other income: | ||||||||||||||||
| Gain on sale of loans | 45,683 | 31,490 | 63,652 | 121,823 | ||||||||||||
| Loan origination and servicing income | 156,160 | – | 292,286 | 460,014 | ||||||||||||
| Origination of mortgage servicing rights, net of amortization | (5,208 | ) | 193,231 | 55,025 | 10,360 | |||||||||||
| Customer service fees | 115,734 | (4,279 | ) | 219,757 | 234,671 | |||||||||||
| Increase in cash surrender value of life insurance | 12,354 | 119,964 | 24,063 | 21,529 | ||||||||||||
| Gain (Loss) on sale of foreclosed real estate | 5,653 | 10,816 | 5,653 | – | ||||||||||||
| Other | 1,180 | 10,159 | 9,448 | 25,246 | ||||||||||||
| Total other income | 331,556 | 361,381 | 669,884 | 873,643 | ||||||||||||
| Other expenses: | ||||||||||||||||
| Salaries and employee benefits | 1,193,914 | 1,339,518 | 2,380,007 | 2,627,883 | ||||||||||||
| Directors’ fees | 45,000 | 46,500 | 90,000 | 93,000 | ||||||||||||
| Occupancy | 153,569 | 154,271 | 314,043 | 322,614 | ||||||||||||
| Deposit insurance premium | 35,626 | 21,500 | 60,769 | 42,548 | ||||||||||||
| Legal and professional services | 84,066 | 79,591 | 162,687 | 150,496 | ||||||||||||
| Data processing | 306,605 | 282,634 | 602,059 | 564,008 | ||||||||||||
| Loss on sale of securities | – | 2,823 | – | 2,823 | ||||||||||||
| Loan expense | 70,061 | 71,117 | 133,373 | 155,859 | ||||||||||||
| Valuation adjustments and expenses on foreclosed real estate | 3,352 | – | 3,352 | – | ||||||||||||
| Other | 209,444 | 208,029 | 419,922 | 395,396 | ||||||||||||
| Total other expenses | 2,101,637 | 2,205,983 | 4,166,212 | 4,354,627 | ||||||||||||
| Income before income tax expense | 744,890 | 1,006,702 | 1,359,404 | 2,227,891 | ||||||||||||
| Income tax expense | 203,121 | 276,386 | 375,166 | 618,756 | ||||||||||||
| Net income | $ | 541,769 | $ | 730,316 | $ | 984,238 | $ | 1,609,135 | ||||||||
| Basic earnings per share | $ | 0.22 | $ | 0.28 | $ | 0.39 | $ | 0.59 | ||||||||
| Diluted earnings per share | $ | 0.22 | $ | 0.28 | $ | 0 39 | $ | 0.59 | ||||||||
| Dividends per share | $ | 0.113 | $ | 0.11 | $ | 0.222 | $ | 0.23 | ||||||||
| Ottawa Bancorp, Inc. & Subsidiary | |||||||||||||
| Selected Financial Data and Ratios | |||||||||||||
| (Unaudited) | |||||||||||||
| At or for the | At or for the | ||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||
| June 30, | June 30, | ||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||
| Performance Ratios: | |||||||||||||
| Return on average assets (5) | 0.60 | % | 0.84 | % | 0.55 | % | 0.93 | % | |||||
| Return on average stockholders’ equity (5) | 5.21 | 6.55 | 4.76 | 7.13 | |||||||||
| Average stockholders’ equity to average assets | 11.48 | 12.82 | 11.46 | 13.00 | |||||||||
| Stockholders’ equity to total assets at end of period | 11.25 | 12.55 | 11.25 | 12.55 | |||||||||
| Net interest rate spread (1) (5) | 2.66 | 3.48 | 2.75 | 3.49 | |||||||||
| Net interest margin (2) (5) | 2.78 | 3.52 | 2.87 | 3.52 | |||||||||
| Other expense to average assets | 0.59 | 0.63 | 1.15 | 1.26 | |||||||||
| Efficiency ratio (3) | 77.42 | 68.66 | 75.32 | 66.17 | |||||||||
| Dividend payout ratio | 50.00 | 39.29 | 55.64 | 37.38 | |||||||||
| At or for the | At or for the | ||||||||
| Six Months Ended | Twelve Months Ended | ||||||||
| June 30, | December 31, | ||||||||
| 2023 | 2022 | ||||||||
| (unaudited) | |||||||||
| Regulatory Capital Ratios (4): | |||||||||
| Total risk-based capital (to risk-weighted assets) | 17.74 | % | 18.63 | % | |||||
| Tier 1 core capital (to risk-weighted assets) | 16.49 | 17.38 | |||||||
| Common equity Tier 1 (to risk-weighted assets) | 16.49 | 17.38 | |||||||
| Tier 1 leverage (to adjusted total assets) | 12.06 | 12.47 | |||||||
| Asset Quality Ratios: | |||||||||
| Net charge-offs to average gross loans outstanding | (0.14 | ) | 0.17 | ||||||
| Allowance for loan losses to gross loans outstanding | 1.52 | 1.38 | |||||||
| Non-performing loans to gross loans (6) | 0.72 | 0.73 | |||||||
| Non-performing assets to total assets (6) | 0.63 | 0.64 | |||||||
| Other Data: | |||||||||
| Book Value per common share | $16.17 | $16.11 | |||||||
| Tangible Book Value per common share (7) | $15.90 | $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. | |||||||||
Contact:
Craig Hepner
President and Chief Executive Officer
(815) 366-5437
