Ottawa Bancorp, Inc. Announces Fourth Quarter and Fiscal 2022 Results

OTTAWA, Ill., Feb. 06, 2023 (GLOBE NEWSWIRE) -- Ottawa Bancorp, Inc. (the “Company”) (OTCQX: OTTW), the holding company for OSB Community Bank (the “Bank”), announced net income of $0.6 million, or $0.22 per basic and diluted common share for the three months ended December 31, 2022, compared to net income of $0.8 million, or $0.28 per basic and diluted common share for the three months ended December 31, 2021. For the year ended December 31, 2022, the Company announced net income of $2.5 million, or $0.96 per basic and diluted common share, compared to net income of $2.90 million, or $1.03 per basic and diluted common share for the year ended December 31, 2021. The loan portfolio, net of allowance, increased to $307.8 million as of December 31, 2022 from $283.9 million as of December 31, 2021. Non-performing loans increased from $1.6 million at December 31, 2021 to $2.3 million at December 31, 2022, which caused the ratio of non-performing loans to gross loans to increase from 0.57% at December 31, 2021 to 0.73% at December 31, 2022.   Additionally, through December 31, 2022, the Company has repurchased a total of 954,042 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 Company’s Board since 2016.

Craig Hepner, President and Chief Executive Officer of the Company, said “We continue to manage through the higher interest rate environment, and in spite of a significant increase in our cost of funds throughout 2022, I’m pleased to report that our net interest margin has remained relatively constant as asset yields have improved as well. While the higher rate environment resulted in a substantial decline in mortgage origination volume during 2022, other areas of lending remained strong throughout the year, resulting in positive growth in the overall loan portfolio.” Mr. Hepner added, “The impaired loan relationship that was identified in the third quarter unfortunately had a substantial negative impact on earnings for 2022, however, we believe that we have this relationship fully reserved for at year-end as we continue to work to resolve the relationship. Overall asset quality has remained strong throughout the year, and we continue to closely monitor our asset quality levels as we manage through current economic conditions.”

Comparison of Results of Operations for the Three Months Ended December 31, 2022 and December 31, 2021

Net income for the three months ended December 31, 2022 was $0.6 million compared to net income of $0.8 million for the three months ended December 31, 2021. Total interest and dividend income was $3.6 million for the three months ended December 31, 2022 compared to $3.1 million at December 31, 2021. Interest expense was $0.8 million during the three months ended December 31, 2022 as compared to $0.3 million for the three months ended December 31, 2021. Net interest income was comparable at $2.8 million for the three months ended December 31, 2022 and December 31, 2021.

In 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 initially established for this relationship. During the three months ended December 31, 2022, a charge-off of approximately $0.6 million was taken on several loans related to this relationship after we determined that the collateral on these loans did not support the balance. These losses were properly reserved for during the previous quarter. Additionally, during the fourth quarter, there was additional information about the deterioration of the credit that resulted in additional specific reserves of $0.4 million being recorded. During the three months ended December 31, 2022, there were three loans with balances of $0.5 million in this relationship in which the balance was paid in full. These loans had specific reserves of $0.1 million. This relationship as of December 31, 2022 has balances of $1.3 million remaining with a specific reserve of $0.6 million.

Net interest income after provision for loan losses was $2.4 million for the three months ended December 31, 2022 as compared to $2.8 million for the three months ended December 31, 2021.   Total other income was $0.5 million for the three months ended December 31, 2022 compared to $0.8 million for the three months ended December 31, 2021. This decrease of $0.3 million for the three months ended December 31, 2022 was primarily due to lower loan origination levels for one-to-four family loans during the fourth 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 origination of mortgage servicing rights, net of amortization. Total other expenses were $2.1 million for the three months ended December 31, 2022 compared to $2.4 million for the three months ended December 31, 2021. The decrease was primarily due to a $0.2 million decline in compensation-related costs in the area of mortgage loan origination as a result of the reduction in mortgage volume in 2022 from 2021 levels.    Other expenses also declined about $0.1 million.
   
The Company recorded $0.4 million of provision for loan losses for the three-month period ended December 31, 2022 as compared to $25,000 provision for loan losses for the three months ended December 31, 2021. The allowance for loan losses was $4.3 million, or 1.38% of total gross loans at December 31, 2022 compared to $3.6 million, or 1.27% of gross loans at December 31, 2021. Net charge offs during the fourth quarter of 2022 were $566,036 compared to recoveries of ($1,533) during the fourth quarter of 2021.

The Company recorded income tax expense of $0.2 million for the three-month period ended December 31, 2022 as compared to $0.4 million for the three months ended December 31, 2021 as pre-tax income was lower during the three months ended December 31, 2022.

Comparison of Results of Operations for the Year Ended December 31, 2022 and December 31, 2021

Net income was $2.5 million for the year ended December 31, 2022 compared to $2.9 million for the year ended December 31, 2021, which is a decrease of 14.7%. Total interest and dividend income was $13.2 million for the year ended December 31, 2022 compared to $12.4 million for the year ended December 31, 2021. Interest expense for 2022 was $0.4 million higher due to the rising interest rates experienced during the year. Due to the growth in interest and dividend income, net interest income increased $0.4 million to $11.3 million as compared to $10.9 million for 2021.   Total other income decreased by $1.2 million during 2022 to $1.8 million as a result of the lower volume for mortgage loan originations in 2022 which resulted in a corresponding decrease in gain on sale of loans and loan origination and servicing income of $1.0 million.   Other expense levels were $1.1 million lower, decreasing to $8.5 million for the year ended December 31, 2022 as compared to $9.6 million for the year ended December 31, 2021. The decrease in other expense was the result of salaries and employee benefits decreasing by $1.0 million, loan expense decreasing by $0.2 million, other expense decreasing by $0.1 million and legal and professional services decreasing by $0.1 million. These decreases were slightly offset by increases in director fees, occupancy and data processing fees totaling about $0.1 million.
   
The Company recorded a provision for loan losses of $1.1 million for the twelve-month period ended December 31, 2022 as compared to $0.2 million for the twelve-month period ended December 31, 2021. Net charge-offs during the year ended 2022 were $486,839 compared to recoveries of $(10,994) during the year ended 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. As of December 31, 2022, this relationship now has a balance of $1.3 million with a specific reserve of $0.6 million. This relationship accounted for the majority of the provision taken during 2022.
  
We recorded income tax expense of $1.0 million for the year ended December 31, 2022 and $1.2 million for the year ended December 31, 2021 primarily due to pre-tax earnings being lower in 2022.

Comparison of Financial Condition at December 31, 2022 and December 31, 2021

Total consolidated assets as of December 31, 2022 were $357.8 million, an increase of $15.3 million, or 4.5%, from $342.5 million at December 31, 2021.  The increase was primarily due to an increase of $23.9 million increase in the net loan portfolio, a $4.3 million increase in cash and cash equivalents and a $0.9 increase in deferred tax assets.   These increases were partially offset by a decrease in federal funds sold of $1.7 million, a decrease of $11.8 million in securities available for sale, a decrease in loans held for sale of $0.4 million and a $0.2 decrease in premises and equipment, net.

Cash and cash equivalents increased $4.3 million, or 66.7%, to $10.9 million at December 31, 2022 from $6.5 million at December 31, 2021. The increase in cash and cash equivalents was primarily a result of cash provided by operating activities of $2.0 million and cash provided by financing activities of $16.4 million exceeding cash used in investing activities of $14.1 million.

Securities available for sale decreased $11.8 million, or 36.1%, to $20.9 million at December 31, 2022 from $32.7 million at December 31, 2021, as paydowns, calls, and maturities and sales exceeded purchases of securities. During 2022, there were sales of securities of $3.3 million that generated a loss of approximately $13,000. Additionally, the valuation of the portfolio due to market conditions declined by $3.6 million.

Net loans increased $23.9 million, or 8.4%, to $307.8 million at December 31, 2022 compared to $283.9 million at December 31, 2021 primarily the result of an increase of $13.4 million in one-to-four family loans, an increase of $2.9 million in multi-family loans, an increase of $15.9 million in non-residential real estate loans and a $0.2 million increase in commercial loans. The increases were offset by decreases of $3.3 million in consumer direct loans and $4.6 million in purchased auto loans.   The allowance for loan losses increased by $0.7 million from December 31, 2021 to December 31, 2022.

Total deposits increased $17.0 million, or 6.2%, to $290.1 million at December 31, 2022 from $273.1 million at December 31, 2021. For the year ended December 31, 2022, savings accounts increased by $0.7 million, interest-bearing checking accounts increased by $5.9 million and certificates of deposit increased by $10.9 million while non-interest bearing checking accounts decreased by $0.2 million and money market accounts decreased by $0.2 million as compared to December 31, 2022.

FHLB advances increased $2.2 million, or 13.5% to $18.7 million at December 31, 2022 compared to $16.5 million at December 31, 2021 to fund loan growth.

Stockholders’ equity decreased $4.7 million, or 10.3% to $41.3 million at December 31, 2022 from $46.0 million at December 31, 2021. The decrease reflects $3.6 million used to repurchase and cancel 249,457 outstanding shares of Company common stock, $1.1 million in cash dividends, a $2.5 million decrease in other comprehensive income due to a decrease in fair value of securities available for sale and other decreases totaling $0.1 million. The decreases were partially offset by net income of $2.5 million for the year ended December 30, 2022.

Annual Meeting of Stockholders

On February 6, 2023 the Company also announced that its annual meeting of stockholders will be held on Wednesday, May 17, 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, 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 under applicable law.

Ottawa Bancorp, Inc. & Subsidiary
Consolidated Balance Sheets
December 31, 2022 and December 31, 2021
(Unaudited)
	December 31,				December 31,
		2022				2021
Assets
Cash and due from banks	$	10,338,273			$	5,266,361
Interest bearing deposits		524,427				1,249,947
Total cash and cash equivalents		10,862,700				6,516,308
Time deposits		250,000				250,000
Federal funds sold		55,000				1,716,000
Securities available for sale		20,898,175				32,700,414
Loans, net of allowance for loan losses of $4,301,307 and $3,640,145
at December 31, 2022 and December 31, 2021, respectively		307,750,228				283,877,203
Loans held for sale		-				403,920
Premises and equipment, net		6,163,630				6,331,188
Accrued interest receivable		1,309,931				1,007,399
Deferred tax assets		2,652,355				1,793,910
Cash value of life insurance		2,672,025				2,649,941
Goodwill		649,869				649,869
Core deposit intangible		67,567				100,326
Other assets		4,515,880				4,528,862
Total assets	$	357,847,360			$	342,525,340
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing	$	22,649,512			$	22,898,814
Interest bearing		267,431,407				250,152,124
Total deposits		290,080,919				273,050,938
Accrued interest payable		93,942				48,825
FHLB advances		18,750,000				16,524,555
Long Term Debt		2,100,000				-
Other liabilities		3,534,549				4,860,206
Total liabilities		314,559,410				294,484,524
Commitments and Contingencies ESOP Repurchase Obligation		2,016,139				2,066,911
Stockholders' Equity
Common stock, $.01 par value, 12,000,000 shares authorized; 2,561,406 and 2,818,517
shares issued at December 31, 2022 and December 31, 2021, respectively		25,613				28,185
Additional paid-in-capital		24,847,455				28,473,180
Retained earnings		21,861,151				20,536,121
Unallocated ESOP shares		(815,766	)			(949,340	)
Unallocated management recognition plan shares		(150,663	)			(99,352	)
Accumulated other comprehensive income		(2,479,840	)			52,022
		43,287,950				48,040,816
Less:
ESOP Owned Shares		(2,016,139	)			(2,066,911	)
Total stockholders' equity		41,271,811				45,973,905
Total liabilities and stockholders' equity	$	357,847,360			$	342,525,340

Ottawa Bancorp, Inc. & Subsidiary
Consolidated Statements of Operations
Three Months and Year Ended December 31, 2022 and 2021
(Unaudited)
		Three Months Ended							Year Ended
		December 31,							December 31,
			2022			2021				2022			2021
Interest and dividend income:
Interest and fees on loans		$	3,429,290		$	2,969,101			$	12,642,349		$	11,906,772
Securities:
Residential mortgage-backed and related securities			72,658			68,993				313,240			204,046
State and municipal securities			28,611			74,368				161,593			263,212
Dividends on non-marketable equity securities			20,427			8,714				49,318			34,186
Interest-bearing deposits			26,296			4,518				59,172			21,330
Total interest and dividend income			3,577,282			3,125,694				13,225,672			12,429,546
Interest expense:
Deposits			708,463			273,400				1,615,157			1,266,314
Borrowings			94,898			53,906				279,357			272,709
Total interest expense			803,361			327,306				1,894,514			1,539,023
Net interest income			2,773,921			2,798,388				11,331,158			10,890,523
Provision for loan losses			418,000			25,000				1,148,000			150,000
Net interest income after provision for loan losses			2,355,921			2,773,388				10,183,158			10,740,523
Other income:
Gain on sale of loans			20,354			115,871				196,015			895,341
Loan origination and servicing income			135,126			290,015				758,859			1,149,174
Origination of mortgage servicing rights, net of amortization			253,778			235,131				263,859			326,083
Customer service fees			103,810			102,649				458,507			393,174
Increase in cash surrender value of life insurance			2,859			11,174				22,084			46,895
Gain on sale of repossessed assets, net			-			(7,791	)			-			(7,791	)
Gain (Loss) on sale of foreclosed real estate			-			14,334				-			18,390
Other			24,979			39,415				52,702			134,918
Total other income			540,906			800,798				1,752,026			2,956,184
Other expenses:
Salaries and employee benefits			1,191,032			1,421,998				4,904,943			5,907,034
Directors fees			42,000			35,000				177,000			148,750
Occupancy			165,174			166,852				651,399			624,468
Deposit insurance premium			21,381			25,736				85,229			76,913
Legal and professional services			79,078			96,688				302,504			360,120
Data processing			301,755			297,237				1,150,203			1,077,576
Loss on sale of securities			-			-				13,291			-
Loan expense			97,596			91,534				333,210			500,256
Valuation adjustments and expenses on foreclosed real estate			-			(844	)			-			15,859
Other			222,643			287,308				864,079			927,446
Total other expenses			2,120,659			2,421,509				8,481,858			9,638,422
Income before income tax expense			776,168			1,152,677				3,453,326			4,058,285
Income tax expense			230,070			392,718				976,653			1,154,564
Net income		$	546,098		$	759,959			$	2,476,673		$	2,903,721
Basic earnings per share		$	0.22		$	0.28			$	0.96		$	1.03
Diluted earnings per share		$	0.22		$	0.28			$	0.96		$	1.03
Dividends per share		$	0.115		$	0.105			$	0.447		$	0.649

Ottawa Bancorp, Inc. & Subsidiary
Selected Financial Data and Ratios
(Unaudited)
	At or for the				At or for the
	Three Months Ended				Year Ended
	December 31,				December 31,
	2022		2021		2022		2021
Performance Ratios:
Return on average assets (5)	0.65	%	0.89	%	0.71	%	0.87	%
Return on average stockholders' equity (5)	5.26		6.27		5.77		5.94
Average stockholders' equity to average assets	12.32		14.17		12.28		14.71
Stockholders' equity to total assets at end of period	11.53		13.59		11.53		13.59
Net interest rate spread (1) (5)	3.30		3.39		3.41		3.39
Net interest margin (2) (5)	3.38		3.48		3.48		3.50
Other expense to average assets	0.60		0.71		2.40		2.89
Efficiency ratio (3)	63.41		67.27		64.68		69.40
Dividend payout ratio	50.88		38.21		47.66		62.84

	At or for the			At or for the
	Year Ended			Year Ended
	December 31,			December 31,
		2022			2021
	(unaudited)
Regulatory Capital Ratios (4):
Total risk-based capital (to risk-weighted assets)		18.63	%		19.58		%
Tier 1 core capital (to risk-weighted assets)		17.38			18.32
Common equity Tier 1 (to risk-weighted assets)		17.38			18.32
Tier 1 leverage (to adjusted total assets)		12.47			13.27
Asset Quality Ratios:
Net charge-offs to average gross loans outstanding		0.17			(0.02	)
Allowance for loan losses to gross loans outstanding		1.38			1.27
Non-performing loans to gross loans (6)		0.73			0.57
Non-performing assets to total assets (6)		0.64			0.48
Other Data:
Book Value per common share	$16.11			$16.53
Tangible Book Value per common share (7)	$15.83			$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 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.
(7) Non-GAAP measure. Excludes goodwill and core deposit intangible.

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