Ottawa Bancorp, Inc. Announces Third Quarter 2020 Results

OTTAWA, Ill., Nov. 06, 2020 (GLOBE NEWSWIRE) -- Ottawa Bancorp, Inc. (the “Company”) (OTCQX: OTTW), the holding company for Ottawa Savings Bank, FSB (the “Bank”), announced net income of $0.8 million, or $0.27 per basic and diluted common share for the three months ended September 30, 2020, compared to net income of $0.5 million, or $0.18 per basic and diluted common share for the three months ended September 30, 2019. For the nine months ended September 30, 2020, the Company announced net income of $1.6 million, or $0.55 per basic and diluted common share, compared to net income of $1.4 million, or $0.44 per basic and diluted common share for the nine months ended September 30, 2019. During the third quarter of 2020, the Company experienced an increase in loan originations which drove growth in the loan portfolio. The loan portfolio, net of allowance, increased to $256.7 million as of September 30, 2020 from $247.8 million as of December 31, 2019. Non-performing loans decreased from $2.3 million at December 31, 2019 to $1.8 million at September 30, 2020, which caused the ratio of non-performing loans to gross loans to decrease from 0.90% at December 31, 2019 to 0.68% at September 30, 2020. Additionally, through September 30, 2020, the Company has repurchased a total of 524,341 shares of its common stock at an average price of $12.93 per share as part of the stock repurchase program approved on November 20, 2019 and its previous stock repurchase programs that expired in November 2018 and November 2019.

Craig Hepner, President and Chief Executive Officer of the Company, said “I am pleased with the Company’s performance in the third quarter in light of the continued challenges and uncertainties presented by the on-going COVID-19 pandemic. We continue to follow the Centers for Disease Control (CDC) and Illinois Department of Health (IDPH) guidelines regarding operating in the COVID-19 environment in an effort to ensure the health and safety of our employees and customers. We continue to leverage technology and our recently upgraded digital banking platform in order to serve the financial needs of our customers.”

“As we have throughout our 149 years of existence, Ottawa Savings Bank remains a pillar of strength to the communities in which we operate, and we continue to actively support our customers who have been negatively impacted by the COVID-19 pandemic. With the challenges presented by the pandemic lasting longer than anticipated, the timing and strength of the eventual economic recovery remain uncertain. We believe that our strong capital and liquidity positions will allow us to continue to play a crucial role in supporting our customers, shareholders and communities as we work together to manage through this crisis,” said Mr. Hepner.

Comparison of Results of Operations for the Three Months Ended September 30, 2020 and September 30, 2019

Net income for the three months ended September 30, 2020 was $0.8 million compared to net income of $0.5 million for the three months ended September 30, 2019. Total interest and dividend income was $3.1 million for the three months ended September 30, 2020 and September 30, 2019. Interest expense was $0.2 million lower during the three months ended September 30, 2020. In addition, a provision for loan losses of $80,000 was taken during the three months ended September 30, 2020. Due to the continued anticipated impact of the COVID-19 pandemic on the local and national economies, a qualitative factor in the allowance calculation was adjusted negatively which led to the provision level for the quarter along with the growth in the loan portfolio. Net interest income after provision for loan losses was $2.4 million for the three months ended September 30, 2020 as compared to $2.2 million for the three months ended September 30, 2019. Total other income was $1.1 million for the three months ended September 30, 2020 compared to $1.0 million for the three months ended September 30, 2019. Total other expenses remained flat at $2.4 million for the three months ended September 30, 2020 and September 30, 2019.
   
Net interest income increased by $0.2 million, or 9.1%, to $2.5 million for the three months ended September 30, 2020, compared to $2.3 million for the three months ended September 30, 2019. Interest and dividend income were comparable between the periods while there was an increase in the average balances of interest-earning assets of $8.2 million between the periods. The yield on earning assets decreased from 4.45% for the three months ended September 30, 2019 to 4.21% for the three months ended September 30, 2020. This decrease was mostly offset by the growth in earning assets. Thus, interest and dividend income was comparable. Interest expense declined $0.3 million due to reduced rates as rates declined from 1.44% to 0.94% as of September 30, 2020 or a reduction of 50 basis points to 0.94%. The net interest margin increased 20 basis points during the three months ended September 30, 2020 to 3.45% from 3.25% during the three months ended September 30, 2019.

The Company recorded a provision for loan losses of $80,000 for the three-month period ended September 30, 2020 as compared to $0.1 million for the three months ended September 30, 2019. The allowance for loan losses was $3.5 million, or 1.34% of total gross loans at September 30, 2020 compared to $2.8 million, or 1.13% of gross loans at September 30, 2019. Net recoveries during the third quarter of 2020 were ($41,587) compared to $21,638 during the third quarter of 2019. General allocation of reserves were higher at September 30, 2020, when compared to September 30, 2019, primarily due to the balances in most loan categories increasing during the twelve months ended September 30, 2020. In addition, due to the anticipated impact of the COVID-19 pandemic on the local and national economies, a qualitative factor in the allowance calculation was adjusted negatively which led to the allowance for loan losses level for the third quarter of 2020. Even though non-performing loans decreased, the necessary reserves on non-performing loans as of September 30, 2020 were approximately $21,000 higher than they were as of September 30, 2019 due to the deterioration of some credits which necessitated higher specific allocation of reserves.

Total other income was $1.1 million for the three months ended September 30, 2020 as compared to $1.0 million for the three months ended September 30, 2019. Due to increased levels of originations in the one-to-four family residential loan category, gain on sale of loans increased by $0.1 million and loan origination and servicing income increased by $0.1 million. Offsetting these increases slightly were decreases in customer service fees and origination of mortgage servicing rights, net of amortization.

Total other expense was $2.4 million for both the three months ended September 30, 2020 and September 30, 2019.  There was an increase of $0.1 million in the salaries and employee benefits category. Salaries and employee benefits increased due to the higher commissions paid to mortgage loan originators and overtime paid to support staff to process the loan application volume during the period. These increases were partially offset by decreases in other expenses.

The Company recorded income tax expense of approximately $0.3 million for the three-month period ended September 30, 2020 as compared to $0.20 million for the three months ended September 30, 2019.

Comparison of Results of Operations for the Nine Months Ended September 30, 2020 and September 30, 2019

Net income was $1.6 million for the nine-month period ended September 30, 2020 compared to $1.4 million for the period ended September 30, 2019 or an increase of 18.3%.
   
Net interest income increased by $0.2 million, or 2.9%, to $7.2 million for the nine months ended September 30, 2020, from $7.0 million for the nine months ended September 30, 2019. Interest and dividend income decreased $0.1 million, or 1.5%, primarily due to a decrease of 31 basis points in the average yield on assets as it declined to 4.22% for the nine months ended September 30, 2020 from 4.53% for the nine months ended September 30, 2019. This decrease was partially offset by an increase in the average balances of interest-earning assets of $15.7 million. Interest expense decreased $0.3 million as the average cost of funds decreased 23 basis points to 1.11% for the nine months ended September 30, 2020 from 1.34% for the nine months ended September 30, 2019. Offsetting this decrease attributed to the rate reduction slightly was an increase of $12.2 million in average interest-bearing liabilities. Overall, interest expense decreased by $0.3 million to $2.0 million for the nine months ended September 30, 2020 as compared to $2.3 million for the nine months ended September 30, 2019. The net interest margin decreased by 11 basis points, or 3.2% during the nine months ended September 30, 2020 to 3.32% from 3.43% as the lower rates had a bigger negative impact on the yield on the earning asset portfolio.

We recorded a provision for loan losses of $0.7 million for the nine-month period ended September 30, 2020 as compared to $0.4 million for the nine-month period ended September 30, 2019. The allowance for loan losses was $3.5 million, or 1.34% of total gross loans at September 30, 2020 compared to $2.8 million, or 1.13% of gross loans at September 30, 2019. Net charge-offs during the first nine months of 2020 were $0.1 million compared to $0.3 million during the first nine months of 2019. General allocation of reserves were higher at September 30, 2020, when compared to September 30, 2019, primarily due to the balances in all loan categories increasing during the twelve months ended September 30, 2020. In addition, due to the anticipated impact of the COVID-19 pandemic on the local and national economies, qualitative factors in the allowance calculation were adjusted negatively which led to an increase in the allowance level. Even though non-performing loans decreased, the necessary reserves on non-performing loans as of September 30, 2020 were approximately $21,000 higher than they were as of September 30, 2019 due to the deterioration of some credits which necessitated a higher specific allocation of reserves.

Total other income was $2.6 million for the nine months ended September 30, 2020 as compared to $1.9 million for the nine months ended September 30, 2019. Due to increased levels of originations in the one to four family residential loan category, gain on sale of loans increased by $0.4 million and loan origination and servicing income increased by $0.3 million. There was a slight decrease in customer service fees of $0.1 million which slightly offset the increases.

Total other expense increased $0.2 million, or 3.3%, to $6.8 million for the nine months ended September 30, 2020, as compared to $6.6 million for the nine months ended September 30, 2019.  The increase was primarily due to increases in salaries and employee benefits of $0.4 million and an increase in data processing costs of $0.2 million. Data processing costs were elevated due to the enhancement of our infrastructure to support the implementation of our new core processing system. These increases were partially offset by lower costs in loan expense and other expense.  

We recorded income tax expense of approximately $0.6 million for the nine-month periods ended September 30, 2020 and $0.5 million for the nine-month period ended September 30, 2019.

Comparison of Financial Condition at September 30, 2020 and December 31, 2019

Total consolidated assets as of September 30, 2020 were $310.6 million, an increase of $10.1 million, or 3.4%, from $300.5 million at December 31, 2019.  The increase was primarily due to an increase of $4.8 million in cash and cash equivalents, an $8.9 million increase in the net loan portfolio, an increase in federal funds sold of $0.1 million and a $1.5 million increase in other assets. These increases were partially offset by a decrease in securities available for sale of $2.6 million, a decrease in time deposits of $1.3 million, and a decrease in loans held for sale of $1.2 million. Various other categories decreased by $0.1 million.

Cash and cash equivalents increased $4.8 million, or 80.0%, to $10.8 million at September 30, 2020 from $6.0 million at December 31, 2019. The increase in cash and cash equivalents was primarily a result of cash provided from financing activities of $9.9 million and cash provided from operating activities of $0.6 million exceeding cash used in investing activities of $5.7 million.

Securities available for sale decreased $2.6 million, or 10.6%, to $21.9 million at September 30, 2020 from $24.5 million at December 31, 2019, as paydowns, calls, and maturities exceeded new securities purchases.  

Net loans increased $8.9 million, or 3.6%, to $256.7 million at September 30, 2020 compared to $247.8 million at December 31, 2019 primarily as a result of a $0.9 million increase in one-to-four family loans, an increase of $1.7 million in multi-family loans, an increase of $8.5 million in non-residential real estate loans and a $6.4 million increase in commercial loans. The increases were offset by decreases of $3.7 million in consumer direct loans and $4.3 million in purchased auto loans. Additionally, the allowance for loan losses grew by $0.6 million.      

Total deposits increased $5.2 million, or 2.2%, to $241.6 million at September 30, 2020 from $236.3 million at December 31, 2019. For the nine months ended September 30, 2020, savings accounts increased by $4.4 million, non-interest bearing checking accounts increased by $7.8 million, interest-bearing checking accounts increased by $0.4 million and money market accounts increased by $0.5 million as compared to December 31, 2019. The increases were offset by decreases in certificates of deposit of $7.9 million as compared to December 31, 2019.

FHLB advances increased $8.5 million, or 93.4% to $17.6 million at September 30, 2020 compared to $9.1 million at December 31, 2019. The increase was related to the low rate environment and management extending out maturities to fund future loan growth.  

Stockholders’ equity decreased $1.8 million, or 3.6% to $48.9 million at September 30, 2020 from $50.7 million at December 31, 2019. The decrease reflects $2.0 million used to repurchase and cancel 183,672 outstanding shares of Company common stock, and $1.8 million in cash dividends. The decreases were partially offset by net income of $1.7 million for the nine months ended September 30, 2020, an increase of $0.2 million in other comprehensive income due to an increase in fair value of securities available for sale and proceeds from stock options exercised, equity incentive plan shares issued and the allocation of ESOP shares totaling $0.1 million.     

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, 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 under applicable law.

Contact:
Craig Hepner
President and Chief Executive Officer
[phone]

Ottawa Bancorp, Inc. & Subsidiary
Consolidated Balance Sheets
September 30, 2020 and December 31, 2019
(Unaudited)
	September 30,				December 31,
		2020				2019
Assets
Cash and due from banks	$	8,454,253			$	5,272,925
Interest bearing deposits		2,381,108				765,486
Total cash and cash equivalents		10,835,361				6,038,411
Time deposits		250,000				1,483,500
Federal funds sold		4,331,000				4,185,000
Securities available for sale		21,863,460				24,515,759
Loans, net of allowance for loan losses of $3,499,106 and $2,937,632
at September 30, 2020 and December 31, 2019, respectively		256,711,611				247,775,814
Loans held for sale		-				1,225,526
Premises and equipment, net		6,385,706				6,517,922
Accrued interest receivable		923,572				875,104
Foreclosed real estate		18,000				-
Deferred tax assets		1,573,898				1,743,161
Cash value of life insurance		2,428,186				2,389,530
Goodwill		649,869				649,869
Core deposit intangible		141,497				169,999
Other assets		4,500,050				2,962,101
Total assets	$	310,612,210			$	300,531,696
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing	$	21,414,725			$	13,664,986
Interest bearing		220,147,306				222,648,518
Total deposits		241,562,031				236,313,504
Accrued interest payable		113,727				8,146
FHLB advances		17,559,431				9,068,030
Other liabilities		2,478,428				4,431,141
Total liabilities		261,713,617				249,820,821
Stockholders' Equity
Common stock, $.01 par value, 12,000,000 shares authorized; 2,984,314 and 3,159,494
shares issued at September 30, 2020 and December 31, 2019, respectively		29,843				31,594
Additional paid-in-capital		30,901,459				32,845,639
Retained earnings		18,799,210				18,938,633
Unallocated ESOP shares		(1,303,245	)			(1,398,600	)
Unallocated management recognition plan shares		(71,759	)			(30,944	)
Accumulated other comprehensive income		543,085				324,553
Total stockholders' equity		48,898,593				50,710,875
Total liabilities and stockholders' equity	$	310,612,210			$	300,531,696

Ottawa Bancorp, Inc. & Subsidiary
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2020 and 2019
(Unaudited)
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
			2020			2019			2020			2019
Interest and dividend income:
Interest and fees on loans		$	2,887,455		$	2,878,874		$	8,619,115		$	8,591,812
Securities:
Residential mortgage-backed and related securities			55,146			67,217			183,556			223,536
State and municipal securities			92,169			101,169			282,731			299,190
Dividends on non-marketable equity securities			8,216			6,387			21,505			19,098
Interest-bearing deposits			12,902			81,905			72,343			181,452
Total interest and dividend income			3,055,888			3,135,552			9,179,250			9,315,088
Interest expense:
Deposits			476,017			774,630			1,770,563			2,055,165
Borrowings			77,730			68,413			205,554			209,559
Total interest expense			553,747			843,043			1,976,117			2,264,724
Net interest income			2,502,141			2,292,509			7,203,133			7,050,364
Provision for loan losses			80,000			105,000			660,000			405,000
Net interest income after provision for loan losses			2,422,141			2,187,509			6,543,133			6,645,364
Other income:
Gain on sale of loans			471,560			370,387			1,042,358			628,678
Gain on sale of securities, net			-			-			857			-
Loan origination and servicing income			390,014			291,677			942,785			646,068
Origination of mortgage servicing rights, net of amortization			66,205			111,316			140,713			98,581
Customer service fees			89,383			129,831			279,233			370,776
Increase in cash surrender value of life insurance			13,054			11,565			38,656			35,411
Gain/(Loss) on sale of repossessed assets, net			4,552			4,182			20,883			11,978
Other			50,088			42,532			109,036			88,478
Total other income			1,084,856			961,490			2,574,521			1,879,970
Other expenses:
Salaries and employee benefits			1,467,248			1,393,099			4,090,350			3,679,948
Directors fees			30,000			43,000			120,000			129,000
Occupancy			163,754			171,352			491,671			499,362
Deposit insurance premium			16,500			2,000			33,000			33,565
Legal and professional services			121,289			105,469			327,155			303,402
Data processing			232,240			186,462			706,982			521,905
Loan expense			164,359			201,404			420,811			538,439
Valuation adjustments and expenses on foreclosed real estate			555			20,418			1,503			32,421
Other			221,501			302,536			668,012			901,287
Total other expenses			2,417,446			2,425,740			6,859,484			6,639,329
Income before income tax expense			1,089,551			723,259			2,258,170			1,886,005
Income tax expense			294,135			178,343			626,533			506,407
Net income		$	795,416		$	544,916		$	1,631,637		$	1,379,598
Basic earnings per share		$	0.27		$	0.18		$	0.55		$	0.44
Diluted earnings per share		$	0.27		$	0.18		$	0.55		$	0.44
Dividends per share		$	0.085		$	0.063		$	0.624		$	0.563

Ottawa Bancorp, Inc. & Subsidiary
Selected Financial Data and Ratios
(Unaudited)
								At September 30,			At December 31,
								2020			2019
								(In thousands, except per share data)
Financial Condition Data:
Total Assets								$310,612			$300,532
Loans, net (1)									256,711			247,776
Securities available for sale									21,863			24,516
Deposits									241,562			236,314
Stockholders' Equity									48,899			50,711
Book Value per common share								$16.39			$16.05
Tangible Book Value per common share (2)								$16.12			$15.79
(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,
			2020			2019			2020			2019
		(In thousands, except per share data)						(In thousands, except per share data)
Operations Data:
Total interest and dividend income		$3,056			$3,136			$9,179			$9,315
Total interest expense			554			843			1,976			2,265
Net interest income			2,502			2,293			7,203			7,050
Provision for loan losses			80			105			660			405
Total other income			1,085			961			2,575			1,880
Total other expense			2,417			2,426			6,859			6,639
Income tax expense			294			178			627			506
Net income		$796			$545			$1,632			$1,380
Basic earnings per share		$0.27			$0.18			$0.55			$0.44
Diluted earnings per share		$0.27			$0.18			$0.55			$0.44
Dividends per share		$0.085			$0.063			$0.624			$0.559
		At or for the						At or for the
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
			2020			2019			2020			2019
Performance Ratios:
Return on average assets (5)			1.03	%		0.72	%		0.70	%		0.63	%
Return on average stockholders' equity (5)			6.48			3.70			4.53			3.13
Average stockholders' equity to average assets			15.84			19.56			15.52			19.97
Stockholders' equity to total assets at end of period			15.74			16.55			15.74			16.55
Net interest rate spread (1) (5)			3.27			3.01			3.11			3.19
Net interest margin (2) (5)			3.45			3.25			3.32			3.43
Average interest-earning assets to average interest-bearing liabilities			122.70			120.57			122.24			121.92
Other expense to average assets			0.78			0.80			2.22			2.26
Efficiency ratio (3)			67.38			74.55			70.15			74.34
Dividend payout ratio			31.38			35.00			106.36			127.95

						At or for the		At or for the
						Nine Months Ended		Twelve Months Ended
						September 30,		December 31,
						2020		2019
						(unaudited)
Regulatory Capital Ratios (4):
Total risk-based capital (to risk-weighted assets)						20.97	%	22.21	%
Tier 1 core capital (to risk-weighted assets)						19.72		20.96
Common equity Tier 1 (to risk-weighted assets)						19.72		20.96
Tier 1 leverage (to adjusted total assets)						14.55		15.00
Asset Quality Ratios:
Net charge-offs to average gross loans outstanding						0.12		0.11
Allowance for loan losses to gross loans outstanding						1.34		1.17
Non-performing loans to gross loans (6)						0.68		0.90
Non-performing assets to total assets (6)						0.59		0.75
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.