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
(815) 366-5437