Ottawa Bancorp, Inc. Announces Third Quarter 2022 Results and Cash Dividend
OTTAWA, Ill., Nov. 16, 2022 (GLOBE NEWSWIRE) — Ottawa Bancorp, Inc. (the “Company”) (OTCQX: OTTW), the holding company for OSB Community Bank (the “Bank”), announced net income of $0.3 million, or $0.13 per basic and diluted common share, for the three months ended September 30, 2022, compared to net income of $0.8 million, or $0.29 per basic and diluted common share for the three months ended September 30, 2021. For the nine months ended September 30, 2022, the Company announced net income of $1.9 million, or $0.73 per basic and diluted common share, compared to net income of $2.1 million, or $0.76 per basic and $0.75 per diluted common share, for the nine months ended September 30, 2021. During the third quarter of 2022, the Company continued to grow the loan portfolio even though loan originations have tapered off significantly throughout 2022. The loan portfolio, net of allowance, increased to $299.6 million as of September 30, 2022 from $283.9 million as of December 31, 2021. Non-performing loans increased from $1.6 million at December 31, 2021 to $3.3 million at September 30, 2022, resulting in the ratio of non-performing loans to gross loans increasing from 0.57% at December 31, 2021 to 1.07% at September 30, 2022. Additionally, through September 30, 2022, the Company has repurchased a total of 953,685 shares of its common stock at an average price of $13.53 per share as part of the five stock repurchase programs approved by the Board of Directors since the Company’s second step conversion was completed in 2016.
“Rising interest rates have definitely impacted our operations during the first nine months of the year”, said Craig Hepner, President and Chief Executive Officer of the Company. “The higher rates have increased our cost of funds and have significantly slowed mortgage loan production, resulting in a lower level of non-interest income during the first three quarters of 2022. However, in spite of the higher interest rates, other areas of lending have remained strong which has allowed us to hold our net interest margin steady. Additionally, lower compensation-related expenses in the mortgage area have helped to off-set the decline in our non-interest income.” Mr. Hepner went on to say, “Aside from the impaired loan relationship discussed below, our asset quality remains strong as our borrowers continue to navigate through the challenges resulting from the extremely high inflation levels experienced throughout the year. We continue to closely monitor our asset quality levels, and we are confident that our strong loan underwriting standards will benefit us as we work through the economic challenges that lie ahead.”
Comparison of Results of Operations for the Three Months Ended September 30, 2022 and September 30, 2021
Net income for the three-months ended September 30, 2022 was $0.3 million compared to net income of $0.8 million for the three months ended September 30, 2021. Total interest and dividend income was $3.4 million for the three months ended September 30, 2022 and $3.2 million for the three months ended September 30, 2021. Interest expense was $0.4 million for the three months ended September 30, 2022 and $0.4 million for the three months ended September 30, 2021. A provision for loan losses of $730,000 was taken during the three months ended September 30, 2022 as compared to $0 for the three months ended September 30, 2021. During the three months ended September 30, 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 analysis, a specific reserve of approximately $1.0 million was established for this relationship. Also, during the third quarter of 2022, a qualitative factor related to the changes in the nature and volume of the portfolio was upgraded in the 1 to 4 family and commercial segments of the portfolio as the performance in these segments warranted the upgrade. As a result of this upgrade, the general portion of the allowance decreased by approximately $0.2 million Additionally, we had a recovery during the quarter related to a previously charged off loan of approximately $0.1 million.
Net interest income after provision for loan losses is $2.2 million for the three months ended September 30, 2022 as compared to $2.8 million for the three months ended September 30, 2021. Total other income decreased to $0.3 million for the three months ended September 30, 2022, from $0.7 million for the three months ended September 30, 2021. This decrease of $0.4 million for the three months ended September 30, 2022 was primarily due to lower loan origination levels for one-to-four family loans during the third quarter which resulted in a corresponding decrease in gain on sale of loans and loan origination and servicing income. These decreases were slightly offset by an increase in customer service fees. Total other expenses decreased from $2.5 million at September 30, 2021 to $2.0 million for the three months ended September 30, 2022. The decrease was primarily due to a $0.4 million decline in compensation-related costs in the area of mortgage loan origination as a result of the significant reduction in mortgage volume in 2022 from 2021 levels.
The Company recorded a provision for loan losses of $730,000 for the three months ended September 30, 2022 as compared to $0 for the three months ended September 30, 2021. The allowance for loan losses was $4.4 million or 1.46% of total gross loans at September 30, 2022 compared to $3.6 million or 1.31% of total gross loans at September 30, 2021. Net charge-offs (recoveries) during the third quarter of 2022 were $(146,714) compared to $(11,838) during the third quarter of 2021.
The Company recorded income tax expense of approximately $0.1 million for the three-months ended September 30, 2022 and $0.3 million for the three months ended September 30, 2021 due to pre-tax earnings being lower in 2022.
Comparison of Results of Operations for the Nine Months Ended September 30, 2022 and September 30, 2021
Net income was $1.9 million for the nine-month period ended September 30, 2022 compared to net income of $2.1 million for the nine-month period ended September 30, 2021. Total interest and dividend income was $10.0 million for the nine-month period ended September 30, 2022 and $9.3 million for the nine-month period ended September 30, 2021. Interest expense was $0.1 million lower during the nine months ended September 30, 2022. A provision for loan losses of $730,000 was taken during the nine months ended September 30, 2022 as compared to $125,000 for the nine months ended September 30, 2021. As discussed above, 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 analysis, a specific reserve of approximately $1.0 million was established for this relationship. Also during the third quarter of 2022, a qualitative factor related to the changes in the nature and volume of the portfolio was upgraded in the 1 to 4 family and commercial segments of the portfolio as the performance in these segments warranted the upgrade. As a result of this upgrade, the general portion of the allowance decreased by approximately $0.2 million Additionally, we had a recovery during the quarter related to a previously charged off loan of approximately $0.1 million.
Net interest income after provision for loan losses improved to $8.2 million during the nine months ended September 30, 2022 as compared to $8.0 million during the nine months ended September 30, 2021. Total other income decreased from $2.2 million during the nine months ended September 30, 2021 to $0.9 million during the nine months ended September 30, 2022. This decrease of $1.3 million was primarily due to lower loan origination levels for one-to-four family loans during the period, which resulted in a corresponding decrease in gain on sale of loans and loan origination and servicing income of $1.2 million. Total other expenses decreased to $6.4 million for the nine months ended September 30, 2022 from $7.2 million for the nine months ended September 30, 2021. This decrease was primarily due to a $0.7 million decline in compensation-related costs and a $0.2 million reduction in loan expense during the nine months ended September 30, 2022.
We recorded a provision for loan losses of $730,000 for the nine-month period ended September 30, 2022 as compared to $125,000 for the nine-month period ended September 30, 2021. The allowance for loan losses was $4.4 million or 1.46% of total gross loans at September 30, 2022 compared to $3.6 million or 1.31% of total gross loans at September 30, 2021. Net charge-offs (recoveries) during the first nine months of 2022 were $(79,467) compared to $(9,461) during the first nine months of 2021.
We recorded income tax expense of approximately $0.7 million during the nine-month period ended September 30, 2022 as compared to $0.8 million during the nine month period ended September 30, 2021 as pre-tax income is lower by $0.2 million during the nine month period ended September 30, 2022.
Comparison of Financial Condition at September 30, 2022 and December 31, 2021
Total consolidated assets as of September 30, 2022 were $359.2 million, an increase of $16.7 million, or 4.9%, from $342.5 million at December 31, 2021. The increase was primarily due to an increase of $6.5 million in cash and cash equivalents, a $15.7 million increase in the net loan portfolio, an increase of $5.5 million federal funds sold and a $1.0 million increase in deferred tax assets. These increases were offset by a decrease of $11.0 million in securities available for sale and a decrease of $1.0 million in other assets.
Cash and cash equivalents increased by $6.5 million, or 100.0%, to $13.0 million at September 30, 2022 from $6.5 million at December 31, 2021. The increase in cash and cash equivalents was primarily the result of cash provided from financing activities of $17.6 million and cash provided by operating activities of $2.9 million exceeding cash used in investing activities of $14.0 million.
Securities available for sale decreased by $11.0 million, or 33.6% to $21.7 million at September 30, 2022 from $32.7 million at December 31, 2021, as paydowns, calls, and maturities and sales exceeded purchases of securities. During the third quarter of 2022, there were sales of securities of $3.3 million that generated a loss of approximately $10,500.
Net loans increased by $15.7 million, or 5.5%, to $299.6 million at September 30, 2022 compared to $283.9 million at December 31, 2021 primarily as a result of an increase of $7.3 million in one-to-four family loans, an increase of $0.3 million in multi-family loans, an increase of $15.2 million in non-residential real estate loans and a $0.8 million increase in commercial loans. These increases were offset by decreases of $2.5 million in consumer direct loans and $4.6 million in purchased auto loans. During the third quarter, the Company sold the remaining balance of the purchased auto loan portfolio in the aggregate amount of $2.6 million to the institution that originally sold the loans to the Company. Additionally, the allowance for loan losses increased by $0.8 million.
Total deposits increased $22.2 million, or 8.1%, to $295.3 million at September 30, 2022 from $273.1 million at December 31, 2021. During the nine months ended September 30, 2022, savings accounts increased by $1.5 million, non-interest-bearing checking accounts increased by $0.2 million, interest bearing checking accounts increased by $7.8 million and certificates of deposits increased by $12.8 million. These increases were offset by a $0.1 million decrease in money market accounts.
FHLB advances decreased $0.2 million to $16.3 million at September 30, 2022 as compared to $16.5 million at December 31, 2021.
Stockholders’ equity decreased $4.7 million, or 10.3%, to $41.3 million at September 30, 2022 from $46.0 million at December 31, 2021. The decrease reflects $3.2 million used to repurchase and cancel 225,500 outstanding shares of Company common stock, a decrease of $2.6 million in other comprehensive income due to a decrease in fair value of securities available for sale, $0.2 million in other changes, $0.9 million in cash dividends paid and $0.2 million in other changes. These decreases were partially offset by the increase caused by net income of $1.9 million for the nine months ended September 30, 2022.
The Company announced today that its Board of Directors has declared a quarterly cash dividend of $0.11 per share, payable on or about December 14, 2022, to stockholders of record as of the close of business on November 30, 2022.
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, FSB 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 and the potential effects of the COVID-19 pandemic on the local and national economic environment, on our customers and on our operations as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic. 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, 2022 and December 31, 2021 | |||||||
| (Unaudited) | |||||||
| September 30, | December 31, | ||||||
| 2022 | 2021 | ||||||
| Assets | |||||||
| Cash and due from banks | $ | 11,439,118 | $ | 5,266,361 | |||
| Interest bearing deposits | 1,595,679 | 1,249,947 | |||||
| Total cash and cash equivalents | 13,034,797 | 6,516,308 | |||||
| Time deposits | 250,000 | 250,000 | |||||
| Federal funds sold | 7,249,000 | 1,716,000 | |||||
| Securities available for sale | 21,715,296 | 32,700,414 | |||||
| Loans, net of allowance for loan losses of $4,449,613 and $3,640,145 | |||||||
| at September 30, 2022 and December 31, 2021, respectively | 299,582,444 | 283,877,203 | |||||
| Loans held for sale | 215,000 | 403,920 | |||||
| Premises and equipment, net | 6,211,207 | 6,331,188 | |||||
| Accrued interest receivable | 1,139,922 | 1,007,399 | |||||
| Deferred tax assets | 2,800,337 | 1,793,910 | |||||
| Cash value of life insurance | 2,669,167 | 2,649,941 | |||||
| Goodwill | 649,869 | 649,869 | |||||
| Core deposit intangible | 75,397 | 100,326 | |||||
| Other assets | 3,584,880 | 4,528,862 | |||||
| Total assets | $ | 359,177,316 | $ | 342,525,340 | |||
Liabilities and Stockholders’ Equity | |||||||
| Liabilities | |||||||
| Deposits: | |||||||
| Non-interest bearing | $ | 23,089,425 | $ | 22,898,814 | |||
| Interest bearing | 272,172,963 | 250,152,124 | |||||
| Total deposits | 295,262,388 | 273,050,938 | |||||
| Accrued interest payable | 61,609 | 48,825 | |||||
| FHLB advances | 16,262,322 | 16,524,555 | |||||
| Other liabilities | 4,524,539 | 4,860,206 | |||||
| Total liabilities | 316,110,858 | 294,484,524 | |||||
| Commitments and contingencies | |||||||
| ESOP Repurchase Obligation | 1,809,099 | 2,066,911 | |||||
| Stockholders’ Equity | |||||||
| Common stock, $.01 par value, 12,000,000 shares authorized; 2,583,095 and 2,818,517 | |||||||
| shares issued at September 30, 2022 and December 31, 2021, respectively | 25,830 | 28,185 | |||||
| Additional paid-in-capital | 25,089,354 | 28,473,180 | |||||
| Retained earnings | 21,586,365 | 20,536,121 | |||||
| Unallocated ESOP shares | (949,340 | ) | (949,340 | ) | |||
| Unallocated management recognition plan shares | (163,341 | ) | (99,352 | ) | |||
| Accumulated other comprehensive income (loss) | (2,522,410 | ) | 52,022 | ||||
| 43,066,458 | 48,040,816 | ||||||
| Less: | |||||||
| ESOP Owned Shares | (1,809,099 | ) | (2,066,911 | ) | |||
| Total stockholders’ equity | 41,257,359 | 45,973,905 | |||||
| Total liabilities and stockholders’ equity | $ | 359,177,316 | $ | 342,525,340 | |||
| Ottawa Bancorp, Inc. & Subsidiary | ||||||||||||
| Consolidated Statements of Operations | ||||||||||||
| Three and Nine Months Ended September 30 2022 and 2021 | ||||||||||||
| (Unaudited) | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Interest and dividend income: | ||||||||||||
| Interest and fees on loans | $ | 3,229,962 | $ | 3,080,510 | $ | 9,564,957 | $ | 8,927,109 | ||||
| Securities: | ||||||||||||
| Residential mortgage-backed and related securities | 76,531 | 54,459 | 240,583 | 135,054 | ||||||||
| State and municipal securities | 33,589 | 53,238 | 132,981 | 188,844 | ||||||||
| Dividends on non-marketable equity securities | 10,244 | 8,332 | 28,891 | 25,472 | ||||||||
| Interest-bearing deposits | 19,897 | 6,132 | 38,139 | 16,812 | ||||||||
| Total interest and dividend income | 3,370,223 | 3,202,671 | 10,005,551 | 9,293,291 | ||||||||
| Interest expense: | ||||||||||||
| Deposits | 378,237 | 290,237 | 906,694 | 992,914 | ||||||||
| Borrowings | 71,739 | 64,714 | 184,459 | 208,240 | ||||||||
| Total interest expense | 449,976 | 354,952 | 1,091,153 | 1,201,154 | ||||||||
| Net interest income | 2,920,247 | 2,847,719 | 8,914,398 | 8,092,137 | ||||||||
| Provision for loan losses | 730,000 | – | 730,000 | 125,000 | ||||||||
| Net interest income after provision for loan losses | 2,190,247 | 2,847,719 | 8,184,398 | 7,967,137 | ||||||||
| Other income: | ||||||||||||
| Gain on sale of loans | 53,837 | 260,629 | 175,660 | 779,471 | ||||||||
| Gain on sale of repossessed assets, net | – | – | – | 12,084 | ||||||||
| Loan origination and servicing income | 86,571 | 295,215 | 261,309 | 859,159 | ||||||||
| Origination of mortgage servicing rights, net of amortization | (279 | ) | 28,962 | 10,081 | 90,952 | |||||||
| Customer service fees | 120,026 | 102,751 | 354,691 | 290,524 | ||||||||
| Increase in cash surrender value of life insurance | (2,303 | ) | 11,328 | 19,226 | 35,721 | |||||||
| Other | 7,740 | 37,436 | 32,991 | 84,224 | ||||||||
| Total other income | 265,592 | 736,321 | 853,958 | 2,152,135 | ||||||||
| Other expenses: | ||||||||||||
| Salaries and employee benefits | 1,086,027 | 1,575,608 | 3,713,911 | 4,485,037 | ||||||||
| Director fees | 42,000 | 35,000 | 135,000 | 113,750 | ||||||||
| Occupancy | 163,611 | 151,921 | 486,225 | 457,616 | ||||||||
| Deposit insurance premium | 21,300 | 18,000 | 63,848 | 54,178 | ||||||||
| Legal and professional services | 72,930 | 91,755 | 223,426 | 263,431 | ||||||||
| Data processing | 284,439 | 271,808 | 848,447 | 780,339 | ||||||||
| Loss on sale of securities | 10,468 | – | 13,291 | – | ||||||||
| Loan expense | 79,756 | 113,328 | 235,614 | 408,721 | ||||||||
| Valuation adjustments and expenses on foreclosed real estate | – | 9,007 | – | 24,731 | ||||||||
| Other | 246,039 | 183,503 | 641,436 | 600.469 | ||||||||
| Total other expenses | 2,006,570 | 2,449,930 | 6,361,198 | 7,188,272 | ||||||||
| Income before income tax expense | 449,269 | 1,134,110 | 2,677,158 | 2,931,000 | ||||||||
| Income tax expense | 127,827 | 306,645 | 746,583 | 787,236 | ||||||||
| Net income | $ | 321,442 | $ | 827,465 | $ | 1,930 ,575 | $ | 2,143,764 | ||||
| Basic earnings per share | $ | 0.13 | $ | 0.29 | $ | 0.73 | $ | 0.76 | ||||
| Diluted earnings per share | $ | 0.13 | $ | 0.29 | $ | 0.73 | $ | 0.75 | ||||
| Dividends per share | $ | 0.12 | $ | 0.10 | $ | 0.34 | $ | 0.55 | ||||
| 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, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Performance Ratios: | ||||||||
| Return on average assets (5) | 0.37 | % | 0.97 | % | 0.75 | % | 0.87 | % |
| Return on average stockholders’ equity (5) | 2.90 | 6.73 | 5.56 | 5.79 | ||||
| Average stockholders’ equity to average assets | 12.92 | 14.38 | 13.52 | 15.02 | ||||
| Stockholders’ equity to total assets at end of period | 11.47 | 13.78 | 11.47 | 13.78 | ||||
| Net interest rate spread (1) (5) | 3.50 | 3.47 | 3.49 | 3.45 | ||||
| Net interest margin (2) (5) | 3.55 | 3.55 | 3.55 | 3.55 | ||||
| Other expense to average assets | 0.59 | 0.72 | 1.86 | 2.19 | ||||
| Efficiency ratio (3) | 62.99 | 68.34 | 65.11 | 70.14 | ||||
| Dividend payout ratio | 92.00 | 34.20 | 46.67 | 72.20 | ||||
| At or for the | At or for the | ||||||
| Nine Months Ended | Twelve Months Ended | ||||||
| September 30, | December 31, | ||||||
| 2022 | 2021 | ||||||
| (unaudited) | |||||||
| Regulatory Capital Ratios (4): | |||||||
| Total risk-based capital (to risk-weighted assets) | 18.65 | % | 19.58 | % | |||
| Tier 1 core capital (to risk-weighted assets) | 17.39 | 18.32 | |||||
| Common equity Tier 1 (to risk-weighted assets) | 17.39 | 18.32 | |||||
| Tier 1 leverage (to adjusted total assets) | 13.07 | 13.27 | |||||
| Asset Quality Ratios: | |||||||
| Net charge-offs to average gross loans outstanding | (0.83 | ) | (0.02 | ) | |||
| Allowance for loan losses to gross loans outstanding | 1.46 | 1.27 | |||||
| Non-performing loans to gross loans (6) | 1.07 | 0.57 | |||||
| Non-performing assets to total assets (6) | 0.91 | 0.48 | |||||
| Other Data: | |||||||
| Book Value per common share | $ | 15.95 | $ | 16.53 | |||
| Tangible Book Value per common share (7) | $ | 15.67 | $ | 16.26 | |||
| 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. | |||||||
Craig Hepner
President and Chief Executive Officer
(815) 366-5437
