OTTW Ottawa Savings Bancorp Inc

Ottawa Bancorp, Inc. (the “Company”) (OTCQX: OTTW), the holding company for Ottawa Savings Bank, FSB (the “Bank”), announced net income of $0.7 million, or $0.26 per basic and diluted common share for the three months ended June 30, 2021, compared to net income of $0.8 million, or $0.25 per basic and diluted common share for the three months ended June 30, 2020. For the six months ended June 30, 2021, the Company announced net income of $1.3 million, or $0.46 per basic and diluted common share, compared to net income of $0.8 million, or $0.27 per basic and diluted common share for the six months ended June 30, 2020. During the second quarter of 2021, the Company experienced an increase in loan originations which drove growth in the loan portfolio. The loan portfolio, net of allowance, increased to $280.8 million as of June 30, 2021 from $255.1 million as of December 31, 2020. Non-performing loans increased from $1.3 million at December 31, 2020 to $1.5 million at June 30, 2021, resulting in the ratio of non-performing loans to gross loans increasing from 0.51% at December 31, 2020 to 0.54% at June 30, 2021.   Additionally, through June 30, 2021, the Company has repurchased a total of 596,585 shares of its common stock at an average price of $12.95 per share as part of the four stock repurchase programs approved by the Board since 2016.

Craig Hepner, President and Chief Executive Officer of the Company, said “I am extremely pleased with the Company’s results of operation during the second quarter of 2021 and for the first six months of the year. We’ve realized solid asset growth fueled by strong loan demand and organic deposit growth. We’ve been able to leverage the low interest rate environment to significantly reduce our cost of funds and maintain relatively strong margins. We continue to focus on reducing our reliance on time deposits in favor of less costly core demand deposit accounts.”

“As previously announced, we have applied for regulatory approval to convert the Bank from a federal savings bank to an Illinois state chartered commercial bank. We currently expect that the charter conversion will be completed by the end of the third quarter. We believe that the charter conversion will provide the Bank with the added flexibility needed to continue to execute on our strategic plan and enable us to continue to build shareholder value over time,” said Mr. Hepner.   

Comparison of Results of Operations for the Three Months Ended June 30, 2021 and June 30, 2020

Net income for the three-months ended June 30, 2021 was $0.7 million compared to $0.8 million for the three months ended June 30, 2020. Total interest and dividend income was $3.2 million for the three months ended June 30, 2021 as compared to $3.0 million for the three months ended June 30, 2020. Interest expense was $0.2 million lower during the three months ended June 30, 2021.   In addition, a provision for loan losses of $75,000 was taken during the three months ended June 30, 2021 as compared to $130,000 for the three months ended June 30, 2020.   During 2020, with the anticipated impact of the COVID-19 pandemic on the local and national economies, qualitative factors were adjusted negatively which led to the elevated provision levels in 2020. In 2021, with the economy continuing to improve, the qualitative factors were adjusted slightly more favorably which led to more normalized provision levels but the growth in the loan portfolio resulted in the increased provisional level incurred. Net interest income after provision for loan losses improved to $2.7 million for the three months ended June 30, 2021 as compared to $2.2 million for the three months ended June 30, 2020.   Total other income decreased from $1.1 million for the three months ended June 30, 2020, to $0.8 million for the three months ended June 30, 2021. This decrease of $0.3 million from the three months ended June 30, 2021 was primarily due to slightly lower loan origination levels for one-to-four family loans during the second quarter which resulted in a corresponding decrease in gain on sale of loans and loan origination and servicing income. Total other expenses rose to $2.5 million for the three months ended June 30, 2021 from $2.3 million for the three months ended June 30, 2020. The increase is primarily due to salaries and employee benefits increasing by $0.2 million as commissions on loan production were higher during the second quarter of 2021.     Net interest income increased by $0.4 million, or 17.4%, to $2.8 million during the three months ended June 30, 2021 compared to $2.4 million during the three months ended June 30, 2020. Interest and dividend income increased by $0.2 million during the three months ended June 30, 2021 as the average balance of interest-earning assets increased by $20.5 million. The increase in interest and dividend income was slightly offset by a decline in the yield on earning assets from 4.10% for the three months ended June 30, 2020 to 4.04% for the three months ended June 30, 2021.   Additionally, there was a decrease in interest expense as the average cost of funds decreased 46 basis points to 0.60% during the three months ended June 30, 2021. The net interest margin increased 31 basis points during the three months ended June 30, 2021 to 3.55% from 3.24% during the three months ended June 30, 2020.

The Company recorded a provision for loan losses of $75,000 for the three months ended June 30, 2021 as compared to $130,000 for the three months ended June 30, 2020. The allowance for loan losses was $3.6 million or 1.27% of total gross loans at June 30, 2021 compared to $3.5 million or 1.30% of gross loans at June 30, 2020. Net charge-offs (recoveries) during the second quarter of 2021 were $(21,438) compared to $26,902 during the second quarter of 2020. General allocation of reserves was higher at June 30, 2021, when compared to June 30, 2020, primarily due to an increase in the balances of most loan categories during the twelve months ended June 30, 2021. In addition, due to the anticipated impact of the COVID-19 pandemic on the local and national economies, qualitative factors were adjusted negatively in 2020 which led to the allowance for loan losses level for the second quarter of 2020. Although non-performing loans increased, the necessary reserves on non-performing loans as of June 30, 2021 were approximately $44,000 lower than they were as of June 30, 2020 due to the improvement of some credits and the fact that some of the non-performing loans that were added required little or no specific allocation of reserves when compared to those loans that were removed.

Total other income was $0.8 million for the three months ended June 30, 2021 as compared to $1.1 million for the three months ended June 30, 2020. Due to lower levels of loan originations for the one-to-four family residential loan category, gain on sale of loans decreased by $0.2 million and loan origination and servicing income decreased by $0.1 million. Additionally, the origination of mortgage servicing rights, net of amortization, decreased slightly. Offsetting these decreases were slight increases in customer service fees and gain on sale of repossessed assets.

Total other expenses were $2.5 million for the three months ended June 30, 2021 as compared to $2.3 million for the three months ended June 30, 2020.  There was an increase of $0.2 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.  

The Company recorded income tax expense of approximately $0.3 million for the three-months ended June 30, 2021 as compared to $0.3 million for the three months ended June 30, 2020.

Comparison of Results of Operations for the Six Months Ended June 30, 2021 and June 30, 2020

Net income was $1.3 million for the six-month period ended June 30, 2021 compared to net income of $0.8 million for the six-month period ended June 30, 2020. Total interest and dividend income was $6.1 million for both the six-month periods ended June 30, 2021 and June 30, 2020. Interest expense was $0.6 million lower during the six months ended June 30, 2021. In addition, a provision for loan losses of $0.1 million was taken during the six months ended June 30, 2021 as compared to $0.6 million for the six months ended June 30, 2020. During 2020, with the anticipated impact of the COVID-19 pandemic on the local and national economies, qualitative factors were adjusted negatively which led to the elevated provision levels in 2020. In 2021, with the economy continuing to improve, the qualitative factors were adjusted slightly more favorably which led to more normalized provision levels, but the growth in the loan portfolio resulted in the increased provision level incurred. Net interest income after provision for loan losses improved to $5.1 million during the six months ended June 30, 2021 as compared to $4.1 million during the six months ended June 30, 2020. Total other income decreased from $1.5 million during the six months ended June 30, 2020 to $1.4 million during the six months ended June 30, 2021. This decrease of $0.1 million was primarily due to slightly 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. Total other expenses rose to $4.7 million for the six months ended June 30, 2021 from $4.4 million for the six months ended June 30, 2020. This increase was primarily due to salaries and employee benefits increasing by $0.3 million as commissions on loan production were higher during the six months ended June 30, 2021.       Net interest income increased by $0.5 million, or 11.6%, to $5.2 million for the six months ended June 30, 2021 from $4.7 million for the six months ended June 30, 2020. Interest and dividend income was comparable at $6.1 million for the periods. There was a decrease of 21 basis points in the average yield on assets which declined to 4.02% for the six months ended June 30, 2021 from 4.23% for the six months ended June 30, 2020.   This decrease was offset by an increase in the average balance of interest-earning assets of $13.3 million. Additionally, there was a decrease in interest expense as the average cost of funds decreased by 51 basis points to 0.69% for the six months ended June 30, 2021 from 1.20% for the six months ended June 30, 2020. Average interest-bearing liabilities grew by $9.2 million during the six months ended June 30, 2021 which partially offset the savings due to the lower rate environment. Overall interest expense fell to $0.8 million during the six-month period ended June 30, 2021 as compared to $1.4 million during the six-month period ended June 30, 2020. Overall, the net interest margin increased by 21 basis points, or 6.5% during the six months ended June 30, 2021 to 3.46% from 3.25% as the lower rates on interest-bearing liabilities led to the expansion in margin as the yield on the earning-asset portfolio was not impacted as significantly by the lower rates environment.

We recorded a provision for loan losses of $0.1 million for the six-month period ended June 30, 2021 as compared to $0.6 million for the sixth-month period ended June 30, 2020. The allowance for loan losses was $3.6 million or 1.27% of total gross loans at June 30, 2021 compared to $3.5 million or 1.30% of gross loans at June 30, 2020. Net charge-offs (recoveries) during the first six months of 2021 were $(21,299) compared to $56,938 during the first six months of 2020. General allocation of reserves was higher at June 30, 2021 when compared to June 30, 2020, primarily due to the balances in most loan categories increasing during the twelve months ended June 30, 2021. In addition, due to the anticipated impact of the COVID-19 pandemic on the local and national economies, qualitative factors were adjusted negatively during 2020 which led to an increase in the allowance level.   Although non-performing loans increased, the necessary reserves on non-performing loans as of June 30, 2021 were approximately $44,000 lower than they were as of June 30, 2020 due to the improvement of some credits and the fact that some of the non-performing loans added required little to no specific allocation of reserves when compared to those loans that were removed.

Total other income was $1.4 million for the six months ended June 30, 2021 as compared to $1.5 million for the six months ended June 30, 2020. Although there were increased levels of originations for the one to four family residential loan category, gain on sale of loans decreased by $0.1 million.  

Total other expense increased by $0.3 million, or 6.5%, to $4.7 million for the six months ended June 30, 2021, as compared to $4.4 million for the six months ended June 30, 2020.  The increase was primarily due to higher salaries and employee benefits due to the commissions paid to loan originators pertaining to the elevated levels of loan originations and overtime for staff to process the loan applications.

We recorded income tax expense of approximately $0.5 million during the six-month period ended June 30, 2021 as compared to $0.3 million during the six month period ended June 30, 2020.

Comparison of Financial Condition at June 30, 2021 and December 31, 2020

Total consolidated assets as of June 30, 2021 were $330.5 million, an increase of $22.9 million, or 7.4%, from $307.6 million at December 31, 2020.  The increase was primarily due to an increase of $0.5 million in cash and cash equivalents, a $25.7 million increase in the net loan portfolio, a $0.6 million increase in other assets and a $0.3 million increase in federal funds sold. These increases were partially offset by a decrease in securities available for sale of $1.1 million and a decrease in time deposits of $2.9 million. Various other categories decreased by $0.2 million.

Cash and cash equivalents increased by $0.5 million, or 5.2%, to $10.9 million at June 30, 2021 from $10.4 million at December 31, 2020. The increase in cash and cash equivalents was primarily the result of cash provided from financing activities of $21.4 million and cash provided by operating activities of $1.4 million exceeding cash used in investing activities of $22.3 million.

Securities available for sale decreased by $1.1 million, or 5.8%, to $17.6 million at June 30, 2021 from $18.7 million at December 31, 2020, as paydowns, calls, and maturities exceeded new securities purchases.  

Net loans increased by $25.7 million, or 10.1%, to $280.8 million at June 30, 2021 compared to $255.1 million at December 31, 2020 primarily as a result of an increase of $15.1 million in one-to-four family loans, an increase of $4.1 million in multi-family loans, an increase of $10.7 million in non-residential real estate loans and a $0.4 million increase in commercial loans. These increases were offset by decreases of $2.1 million in consumer direct loans and $2.4 million in purchased auto loans. Additionally, the allowance for loan losses grew by $0.1 million.   

Total deposits increased $23.2 million, or 9.8%, to $259.3 million at June 30, 2021 from $236.1 million at December 31, 2020. During the six months ended June 30, 2021, savings accounts increased by $2.4 million, non-interest bearing checking accounts increased by $4.6 million, interest bearing checking accounts increased by $8.0 million, certificates of deposit increased by $5.5 million and money market accounts increased by $2.7 million as compared to December 31, 2020.

FHLB advances remained comparable at $17.5 million between June 30, 2021 and December 31, 2020.  

Stockholders’ equity decreased $0.9 million, or 1.9%, to $47.3 million at June 30, 2021 from $48.2 million at December 31, 2020. The decrease reflects $0.4 million used to repurchase and cancel 33,100 outstanding shares of Company common stock, a decrease of $0.1 million in other comprehensive income due to a decrease in fair value of securities available for sale and $1.3 million in cash dividends paid. Additionally, the ESOP shares cash obligation increased by $0.5 million. These were partially offset by net income of $1.3 million for the six months ended June 30, 2021 along with the 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 to be reported under the rules and regulations of the Securities and Exchange Commission. 

Ottawa Bancorp, Inc. & Subsidiary
Consolidated Balance Sheets
June 30, 2021 and December 31, 2020
(Unaudited)
	June 30,				December 31,
		2021				2020
Assets
Cash and due from banks	$	5,056,495			$	4,793,872
Interest bearing deposits		5,857,476				5,581,139
Total cash and cash equivalents		10,913,971				10,375,011
Time deposits		250,000				3,232,500
Federal funds sold		3,828,000				3,486,000
Securities available for sale		17,626,315				18,711,631
Loans, net of allowance for loan losses of $3,625,450 and $3,497,150
at June 30, 2021 and December 31, 2020, respectively		280,790,166				255,103,054
Premises and equipment, net		6,288,407				6,312,256
Accrued interest receivable		827,683				972,602
Foreclosed Real Estate		77,265				107,100
Deferred tax assets		1,729,822				1,666,339
Cash value of life insurance		2,627,440				2,603,046
Goodwill		649,869				649,869
Core deposit intangible		112,994				131,996
Other assets		4,766,848				4,234,003
Total assets	$	330,488,780			$	307,585,407
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing	$	22,875,171			$	18,285,211
Interest bearing		236,377,856				217,774,806
Total deposits		259,253,027				236,060,017
Accrued interest payable		56,463				54,851
FHLB advances		17,536,698				17,548,560
Other liabilities		4,866,623				4,731,352
Total liabilities		281,712,811				258,394,780
Commitments and contingencies
ESOP Repurchase Obligation		1,461,946				957,167
Stockholders' Equity
Common stock, $.01 par value, 12,000,000 shares authorized; 2,924,465 and 2,949,324
shares issued at June 30, 2021 and December 31, 2020, respectively		29,244				29,491
Additional paid-in-capital		30,042,863				30,415,091
Retained earnings		19,508,939				19,457,092
Unallocated ESOP shares		(1,069,272	)			(1,132,842	)
Unallocated management recognition plan shares		(114,245	)			(62,070	)
Accumulated other comprehensive income		378,440				483,865
		48,775,969				49,190,627
Less:
ESOP Owned Shares		(1,461,946	)			(957,167	)
Total stockholders' equity		47,314,023				48,233,460
Total liabilities and stockholders' equity	$	330,488,780			$	307,585,407

Ottawa Bancorp, Inc. & Subsidiary
Consolidated Statements of Operations
Three and Six Months Ended June 30 2021 and 2020
(Unaudited)
		Three Months Ended						Six Months Ended
		June 30,						June 30,
			2021			2020			2021			2020
Interest and dividend income:
Interest and fees on loans		$	3,051,210		$	2,822,580		$	5,846,598		$	5,731,660
Securities:
Residential mortgage-backed and related securities			39,153			61,180			80,595			128,411
State and municipal securities			67,682			94,618			135,606			190,562
Dividends on non-marketable equity securities			8,469			6,698			17,140			13,288
Interest-bearing deposits			4,509			19,293			10,681			59,411
Total interest and dividend income			3,171,023			3,004,369			6,090,620			6,123,362
Interest expense:
Deposits			326,540			563,727			702,677			1,294,546
Borrowings			57,003			65,928			143,526			127,824
Total interest expense			383,543			629,655			846,203			1,422,370
Net interest income			2,787,480			2,374,714			5,244,417			4,700,992
Provision for loan losses			75,000			130,000			125,000			580,000
Net interest income after provision for loan losses			2,712,480			2,244,714			5,119,417			4,120,992
Other income:
Gain on sale of loans			345,029			463,730			518,842			570,797
Gain on sale of securities, net			-			-			-			857
Gain on sale of repossessed assets, net			5,118			300			6,074			16,331
Loan origination and servicing income			258,336			437,814			563,943			552,771
Origination of mortgage servicing rights, net of amortization			52,374			84,951			61,990			74,508
Customer service fees			97,440			83,011			187,774			189,850
Increase in cash surrender value of life insurance			11,893			12,904			24,394			25,602
Other			21,768			21,273			46,788			58,949
Total other income			791,958			1,103,983			1,409,805			1,489,665
Other expenses:
Salaries and employee benefits			1,561,034			1,358,457			2,909,426			2,623,102
Directors fees			38,750			47,000			78,750			90,000
Occupancy			157,981			149,392			305,695			327,917
Deposit insurance premium			18,000			16,500			36,178			16,500
Legal and professional services			92,468			101,244			171,677			205,866
Data processing			284,235			251,468			508,531			474,742
Loan expense			107,676			122,102			295,394			256,452
Valuation adjustments and expenses on foreclosed real estate			7,712			389			9,714			948
Other			212,953			234,846			416,966			446,511
Total other expenses			2,480,809			2,281,398			4,732,331			4,442,038
Income before income tax expense			1,023,629			1,067,299			1,796,891			1,168,619
Income tax expense			275,017			317,035			480,591			332,398
Net income		$	748,612		$	750,264		$	1,316,300		$	836,221
Basic earnings per share		$	0.26		$	0.25		$	0.46		$	0.27
Diluted earnings per share		$	0.26		$	0.25		$	0.46		$	0.27
Dividends per share		$	0.10		$	0.08		$	0.44		$	0.63

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,
		2021		2020		2021		2020
Performance Ratios:
Return on average assets (5)		0.90	%	0.49	%	0.82	%	0.55	%
Return on average stockholders' equity (5)		6.65		2.66		5.37		2.90
Average stockholders' equity to average assets		13.57		18.30		15.23		18.99
Stockholders' equity to total assets at end of period		14.32		15.89		14.32		15.89
Net interest rate spread (1) (5)		3.44		3.04		3.34		3.03
Net interest margin (2) (5)		3.55		3.24		3.46		3.25
Average interest-earning assets to average interest-bearing liabilities		122.92		123.15		122.85		122.01
Other expense to average assets		0.75		0.72		1.47		1.43
Efficiency ratio (3)		69.29		65.33		71.12		71.62
Dividend payout ratio		37.86		33.31		95.88		177.77

						At or for the			At or for the
						Six Months Ended			Twelve Months Ended
						June 30,			December 31,
							2021			2020
						(unaudited)
Regulatory Capital Ratios (4):
Total risk-based capital (to risk-weighted assets)							21.08	%		20.39	%
Tier 1 core capital (to risk-weighted assets)							19.82			19.14
Common equity Tier 1 (to risk-weighted assets)							19.82			19.14
Tier 1 leverage (to adjusted total assets)							13.74			14.26
Asset Quality Ratios:
Net charge-offs to average gross loans outstanding							(0.16)			0.18
Allowance for loan losses to gross loans outstanding							1.27			1.35
Non-performing loans to gross loans (6)							0.54			0.51
Non-performing assets to total assets (6)							0.50			0.47
Other Data:
Book Value per common share						$16.18			$16.33
Tangible Book Value per common share (7)						$15.92			$16.07
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.