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OTTAWA, Ill., Aug. 13, 2024 (GLOBE NEWSWIRE) -- Ottawa Bancorp, Inc. (the “Company”) (OTCQX: OTTW), the holding company for OSB Community Bank (the “Bank”), announced net loss of ($0.2) million, or $(0.08) per basic and diluted common share for the three months ended June 30, 2024, compared to net income of $0.5 million, or $0.22 per basic and diluted common share for the three months ended June 30, 2023. For the six months ended June 30, 2024, the Company announced net income of $0.1 million, or $0.02 per basic and diluted common share, compared to net income of $1.0 million, or $0.39 per basic and diluted common share for the six months ended June 30, 2023. During the current quarter, the Company executed a balance sheet management strategy designed to re-position the investment portfolio, generate additional liquidity and improve net interest income on a go-forward basis. Twenty-one investment securities were sold generating about $4 million of cash and a realized loss of $0.6 million. Proceeds were utilized to purchase more favorable investment securities and pay down higher cost wholesale funding. Additionally, the loan portfolio, net of allowance, decreased to $302.5 million as of June 30, 2024 from $312.2 million as of December 31, 2023 as originations of $20.3 million were lower than payoffs and payments. Non-performing loans were $5.0 million at June 30, 2024 and $4.8 million at December 31, 2023. Due to the decrease in the loan portfolio and the slight increase in non-performing loans, the ratio of non-performing loans to gross loans increased to 1.62% at June 30, 2024 from 1.52% at December 31, 2023.
As announced on May 29, 2024, the Company initiated its sixth stock repurchase program approved by the Board of Directors since the Company completed its second step conversion in 2016. Through June 30, 2024, the Company has repurchased a total of 965,467 shares of its common stock at an average price of $13.51 per share. Under the current repurchase plan, the Company has repurchased a total of 11,425 shares of its common stock at an average price of $11.72 per share.
“The negative earnings for the quarter were the direct result of the investment portfolio restructuring discussed above,” said Craig M. Hepner, President and Chief Executive Officer. “We felt the time was right to liquidate a number of under-performing investments in order to improve the structure and overall performance of the securities portfolio, allowing us to take advantage of the higher interest rate environment and improve earnings as we move forward. While we continued to experience an increase in our cost of funds during the second quarter, our interest revenue increased at faster pace, resulting in a slight improvement in our net interest margin during the quarter. We continue to closely monitor economic conditions and the performance of our loan portfolio, and I remain pleased with our overall asset quality.”
Mr. Hepner further stated, “In addition to implementing strategies to improve earnings, we are very happy that we were able to adopt and announce our sixth stock repurchase program since 2016 during the second quarter as a means of providing additional liquidity in our stock. The Board remains committed to executing strategies to maximize shareholder value.”
Comparison of Results of Operations for the Three Months Ended June 30, 2024 and June 30, 2023
Net loss for the three months ended June 30, 2024 was ($0.2) million compared to $0.5 million for the three months ended June 30, 2023. Total interest and dividend income was $4.0 million for the three months ended June 30, 2024 compared to $3.8 million for the three months ended June 30, 2023 due to an increase in the average yield on interest-earning assets. The yield on interest-earning assets increased by 0.30% to 4.78%. Interest expense was $0.3 million higher during the three months ended June 30, 2024 due to our average cost of funds increasing to 2.30% from 1.82% with the majority of that increase resulting from the higher interest rate environment. Interest expense was $1.8 million during the three months ended June 30, 2024 compared to $1.5 million during the three months ended June 30, 2023. Net interest income was $2.2 million for the three months ended June 30, 2024 compared to $2.4 million for the three months ended June 30, 2023. Net interest income after provision for loan losses decreased by $0.3 million to $2.2 million during the three months ended June 30, 2024 as compared to $2.5 million for the three months ended June 30, 2023. Total other income was comparable at $0.3 million for the three months ended June 30, 2024 and the three months ended June 30, 2023. Total other expenses increased by $0.7 million to $2.8 million as of June 30, 2024 compared to $2.1 million as of June 30, 2023. The increase was primarily the result of the net realized loss of $0.6 million on the sale of investment securities discussed above. Therefore, net income was $0.7 million lower for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.
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 initial analysis, a specific reserve of approximately $1.0 million was initially established for this relationship. After additional adjustments during the fourth quarter of 2022 which included some charge-offs and additional reserve requirements, this relationship as of December 31, 2022 had balances of $1.3 million with a specific reserve of $0.6 million. During 2023, we charged off $0.4 million against the reserve, the borrower paid off two loans, and the one additional loan in the relationship was downgraded to non-performing. There has been no activity in 2024 although management continues to work to resolve the matter. The relationship as of June 30, 2024 has balances of approximately $0.7 million with a specific reserve of $0.2 million. Based on collateral values, management does not believe additional reserves are required.
The Company recorded a recovery of approximately $40 thousand for the three months ended June 30, 2024. The decrease in the loan balances of $3.6 million during the period led to the decrease in the Allowance for Credit Losses (“ACL”) position. This compares to a recovery of approximately $133 thousand for the three months ended June 30, 2023. The ACL was $4.3 million, or 1.40% of total gross loans at June 30, 2024 compared to $4.9 million, or 1.52% of gross loans at June 30, 2023. Net recoveries during the second quarter of 2024 were approximately $2 thousand compared to net recoveries of $107 thousand during the second quarter of 2023. The current period adjustment to the ACL is the result of the quarterly calculation of Current Expected Credit Losses (CECL) which was adopted as of January 1, 2023. The necessary reserves on non-performing loans as of June 30, 2024 were lower than the required reserves as of June 30, 2023 as one of the new non-performing loans of $3.1 million is still accruing, and the workout of the troubled relationship identified in the third quarter of 2022 discussed above is progressing as planned.
The Company recorded an income tax benefit of $43 thousand for the three-month period ended June 30, 2024 as compared to income tax expense of $0.2 million for the three months ended June 30, 2023 as there was a pre-tax loss during the three months ended June 30, 2024 as compared to a pre-tax income in the three months ended June 30, 2023.
Comparison of Results of Operations for the Six Months Ended June 30, 2024 and June 30, 2023
Net income was $0.1 million for the six months ended June 30, 2024 compared to $1.0 million for the six months ended June 30, 2023. Total interest and dividend income was $7.9 million for the six months ended June 30, 2024 compared to $7.4 million for the six months ended June 30, 2023. Although earning assets decreased by $5.2 million, the average yield on interest-earning assets improved to 4.70% from 4.38% due primarily to the higher interest rate environment. Interest expense for the six months ended June 30, 2024 was $0.9 million higher due to the rising interest rates experienced during the past twelve months as cost of funds increased to 2.27% from 1.64% and a change in the mix of deposits to higher costing time deposits. Due to the increase in interest expense caused by higher rate environment and decrease in average balances, net interest income for the six months ended June 30, 2024 decreased to $4.4 million as compared to $4.9 million for the six months ended June 30, 2023. Total other income decreased by $0.1 million during the six months ended June 30, 2024 to $0.6 million as a result of the decline in value of the mortgage servicing rights portfolio. Other expense levels were $0.7 million higher, increasing to $4.9 million for the six months ended June 30, 2024 as compared to $4.2 million for the six months ended June 30, 2023. The increase was related to the net realized loss of $0.6 million on the sale of investment securities discussed above.
The Company recorded a recovery of $77 thousand for the six-month period ended June 30, 2024 to decrease the ACL position. This compares to an expense of $5 thousand for the six-month period ended June 30, 2023. Net recoveries during the six months ended June 30, 2024 were approximately $7 thousand compared to net recoveries of approximately $119 thousand during the six months ended June 30, 2023. The current period adjustment to the ACL is the result of the quarterly calculation of CECL which was adopted as of January 1, 2023.
We recorded income tax expense of approximately $48 thousand for the six months ended June 30, 2024 compared to $0.4 million for the six months ended June 30, 2023. This decrease is due primarily to lower pre-tax earnings in 2024 as compared to 2023.
Comparison of Financial Condition at June 30, 2024 and December 31, 2023
Total consolidated assets as of June 30, 2024 were $353.2 million, a decrease of $10.7 million, or 2.95%, from $363.9 million at December 31, 2023. The decrease was primarily due to a decrease of $9.7 million increase in the net loan portfolio, a decrease of $0.4 million in deferred tax assets, a decrease of $0.6 million in cash and cash equivalents, a decrease of $0.1 million in the securities available for sale and a decrease of $0.2 million in other assets. These decreases were partially offset by an increase in loans held for sale of $0.2 million and a $0.1 million increase in premises and equipment, net.
Cash and cash equivalents decreased $0.6 million, or 4.8%, to $12.8 million at June 30, 2024 from $13.4 million at December 31, 2023. The decrease in cash and cash equivalents was primarily the result of cash used in operating activities of $1.3 million and cash used in financing activities of $8.9 million exceeding cash provided by investing activities of $9.6 million.
Securities available for sale decreased $0.2 million, or 0.8%, to $18.6 million at June 30, 2024 from $18.8 million at December 31, 2023, as sales, paydowns, calls and maturities exceeded purchases of securities. Additionally, the valuation of the portfolio improved by $0.5 million due to the restructuring of the investment portfolio as discussed previously.
Net loans decreased $9.7 million, or 3.1%, to $302.5 million at June 30, 2024 compared to $312.2 million at December 31, 2023 primarily the result of a decrease of $4.9 million in one-to-four family, a decrease of $5.8 million in non-residential real estate loans, a decrease of $2.8 million in commercial loans and a decrease of $1.3 million in consumer loans. These decreases were partially offset by an increase of $5.2 million in multi-family loans. The allowance for credit losses on loans decreased by $70 thousand from December 31, 2023 to June 30, 2024.
Total deposits decreased $6.1 million, or 2.2%, to $275.0 million at June 30, 2024 from $281.1 million at December 31, 2023. During the six months ended June 30, 2024, interest-bearing checking accounts decreased by $10.4 million and non-interest-bearing accounts decreased by $0.8 million. Offsetting these decreases slightly, certificates of deposit increased by $1.1 million, money market accounts increased by $3.1 million and savings accounts increased by $0.9 million as compared to December 31, 2023.
FHLB advances decreased $1.9 million, or 6.4%, to $28.9 million at June 30, 2024 compared to $30.8 million at December 31, 2023.
Stockholders’ equity decreased $0.2 million, or 0.6%, to $41.4 million at June 30, 2024 from $41.6 million at December 31, 2023. The decrease reflects $0.4 million in cash dividends and other decreases totaling $0.3 million. The decreases were partially offset by a $0.4 million increase in other comprehensive income due to an increase in fair value of securities available for sale and net income of $0.1 million for the six months ended June 30, 2024.
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 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, our ability to pay future dividends and if so at what level, our ability to receive any required regulatory approval or non-objection for the payment of dividends from the Bank to the Company or from the Company to stockholders, and our efforts to maximize stockholder value, including our ability to execute any capital management strategies, such as the repurchase of shares of the Company’s common stock, and our ability to execute any controlled growth and balance sheet strategies designed to lower the cost of funds and enhance earnings and liquidity. 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 applicable law.
| Ottawa Bancorp, Inc. & Subsidiary | |||||||||||
| Consolidated Balance Sheets | |||||||||||
| June 30, 2024 and December 31, 2023 | |||||||||||
| (Unaudited) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Assets | |||||||||||
| Cash and due from banks | $ | 5,996,589 | $ | 3,511,709 | |||||||
| Interest bearing deposits | 6,759,805 | 9,884,710 | |||||||||
| Total cash and cash equivalents | 12,756,394 | 13,396,419 | |||||||||
| Securities available for sale | 18,636,275 | 18,781,463 | |||||||||
| Loans, net of allowance for credit losses of $4,300,826 and $4,370,934 | |||||||||||
| at June 30, 2024 and December 31, 2023, respectively | 302,510,977 | 312,181,918 | |||||||||
| Loans held for sale | 208,400 | - | |||||||||
| Premises and equipment, net | 6,087,057 | 5,998,742 | |||||||||
| Accrued interest receivable | 1,630,176 | 1,700,911 | |||||||||
| Deferred tax assets | 2,423,165 | 2,799,503 | |||||||||
| Cash value of life insurance | 2,743,415 | 2,717,888 | |||||||||
| Goodwill | 649,869 | 649,869 | |||||||||
| Core deposit intangible | 16,411 | 31,909 | |||||||||
| Other assets | 5,530,767 | 5,659,196 | |||||||||
| Total assets | $ | 353,192,906 | $ | 363,917,818 | |||||||
|
| |||||||||||
| Liabilities | |||||||||||
| Deposits: | |||||||||||
| Non-interest bearing | $ | 23,066,625 | $ | 23,839,628 | |||||||
| Interest bearing | 251,895,220 | 257,246,330 | |||||||||
| Total deposits | 274,961,845 | 281,085,958 | |||||||||
| Accrued interest payable | 785,821 | 320,238 | |||||||||
| FHLB advances | 28,893,000 | 30,750,000 | |||||||||
| Long term debt | 1,448,577 | 1,700,000 | |||||||||
| Allowance for credit losses on off-balance sheet credit exposures | 81,427 | 94,136 | |||||||||
| Other liabilities | 4,027,497 | 6,635,892 | |||||||||
| Total liabilities | 310,198,167 | 320,586,224 | |||||||||
| Commitments and contingencies | |||||||||||
| ESOP Repurchase Obligation | 1,583,522 | 1,691,975 | |||||||||
| Stockholders' Equity | |||||||||||
| Common stock, $.01 par value, 12,000,000 shares authorized; 2,533,790 and | |||||||||||
| 2,552,971 shares issued at June 30, 2024 and December 31, 2023, respectively | 25,338 | 25,529 | |||||||||
| Additional paid-in-capital | 24,496,125 | 24,738,476 | |||||||||
| Retained earnings | 21,314,870 | 21,798,054 | |||||||||
| Unallocated ESOP shares | (682,192 | ) | (682,192 | ) | |||||||
| Unallocated management recognition plan shares | (93,222 | ) | (103,417 | ) | |||||||
| Accumulated other comprehensive loss | (2,066,180 | ) | (2,444,856 | ) | |||||||
| 42,994,739 | 43,331,594 | ||||||||||
| Less: | |||||||||||
| ESOP Owned Shares | (1,583,522 | ) | (1,691,975 | ) | |||||||
| Total stockholders' equity | 41,411,217 | 41,639,619 | |||||||||
| Total liabilities and stockholders' equity | $ | 353,192,906 | $ | 363,917,818 | |||||||
| Ottawa Bancorp, Inc. & Subsidiary | |||||||||||||||
| Consolidated Statements of Operations | |||||||||||||||
| Three and Six Months Ended June 30, 2024 and 2023 | |||||||||||||||
| (Unaudited) | |||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
| June 30, | June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Interest and dividend income: | |||||||||||||||
| Interest and fees on loans | $ | 3,698,334 | $ | 3,669,838 | $ | 7,401,252 | $ | 7,113,373 | |||||||
| Securities: | |||||||||||||||
| Residential mortgage-backed and related securities | 76,395 | 82,540 | 155,068 | 151,634 | |||||||||||
| State and municipal securities | 18,577 | 12,705 | 37,177 | 42,612 | |||||||||||
| Dividends on non-marketable equity securities | 28,500 | 16,657 | 66,215 | 29,919 | |||||||||||
| Interest-bearing deposits | 145,375 | 52,090 | 208,916 | 86,647 | |||||||||||
| Total interest and dividend income | 3,967,181 | 3,833,830 | 7,868,628 | 7,424,185 | |||||||||||
| Interest expense: | |||||||||||||||
| Deposits | 1,548,857 | 1,301,577 | 3,069,745 | 2,302,243 | |||||||||||
| Borrowings | 211,953 | 149,699 | 429,993 | 261,127 | |||||||||||
| Total interest expense | 1,760,810 | 1,451,276 | 3,499,738 | 2,563,370 | |||||||||||
| Net interest income | 2,206,371 | 2,382,554 | 4,368,890 | 4,860,815 | |||||||||||
| Provision for (recovery of) credit losses - loans | (40,188 | ) | (132,417 | ) | (77,331 | ) | 5,083 | ||||||||
| Recovery of credit losses – off-balance sheet credit exposures | - | - | (12,709 | ) | - | ||||||||||
| Net interest income after provision for loan losses | 2,246,559 | 2,514,971 | 4,458,930 | 4,855,732 | |||||||||||
| Other income: | |||||||||||||||
| Gain on sale of loans | 45,754 | 45,683 | 64,365 | 63,652 | |||||||||||
| Loan origination and servicing income | 155,296 | 156,160 | 288,122 | 292,286 | |||||||||||
| Origination of mortgage servicing rights, net of amortization | (24,029 | ) | (5,208 | ) | (47,204 | ) | 55,025 | ||||||||
| Customer service fees | 110,272 | 115,734 | 215,397 | 219,757 | |||||||||||
| Increase in cash surrender value of life insurance | 12,980 | 12,354 | 25,527 | 24,063 | |||||||||||
| Gain on sale of foreclosed real estate | - | 5,653 | - | 5,653 | |||||||||||
| Other | 1,326 | 1,180 | 8,255 | 9,448 | |||||||||||
| Total other income | 301,599 | 331,556 | 554,462 | 669,884 | |||||||||||
| Other expenses: | |||||||||||||||
| Salaries and employee benefits | 1,166,594 | 1,193,914 | 2,348,152 | 2,380,007 | |||||||||||
| Directors’ fees | 45,000 | 45,000 | 85,000 | 90,000 | |||||||||||
| Occupancy | 156,080 | 153,569 | 313,101 | 314,043 | |||||||||||
| Deposit insurance premium | 32,902 | 35,626 | 74,702 | 60,769 | |||||||||||
| Legal and professional services | 217,444 | 84,066 | 335,491 | 162,687 | |||||||||||
| Data processing | 292,964 | 306,605 | 599,401 | 602,059 | |||||||||||
| Loss on sale of securities | 600,408 | - | 600,408 | - | |||||||||||
| Loan expense | 87,294 | 70,061 | 167,238 | 133,373 | |||||||||||
| Valuation adjustments and expenses on foreclosed real estate | - | 3,352 | - | 3,352 | |||||||||||
| Other | 195,332 | 209,444 | 379,531 | 419,922 | |||||||||||
| Total other expenses | 2,794,018 | 2,101,637 | 4,903,024 | 4,166,212 | |||||||||||
| Income (Loss) before income tax | (245,860 | ) | 744,890 | 110,368 | 1,359,404 | ||||||||||
| Income tax expense (benefit) | (42,919 | ) | 203,121 | 47,683 | 375,166 | ||||||||||
| Net income | $ | (202,941 | ) | $ | 541,769 | $ | 62,685 | $ | 984,238 | ||||||
| Basic earnings (losses) per share | $ | (0.08 | ) | $ | 0.22 | $ | 0.02 | $ | 0.39 | ||||||
| Diluted earnings (losses) per share | $ | (0.08 | ) | $ | 0.22 | $ | 0.02 | $ | 0 39 | ||||||
| Dividends per share | $ | 0.105 | $ | 0.113 | $ | 0.215 | $ | 0.222 | |||||||
|
| ||||||||||
| Selected Financial Data and Ratios | ||||||||||
| (Unaudited) | ||||||||||
| At or for the | At or for the | |||||||||
| Three Months Ended | Six Months Ended | |||||||||
| June 30, | June 30, | |||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||
| Performance Ratios: | ||||||||||
| Return on average assets (5) | (0.23 | ) | % | 0.60 | % | 0.03 | % | 0.55 | % | |
| Return on average stockholders' equity (5) | (2.05 | ) | 5.21 | 0.30 | 4.76 | |||||
| Average stockholders' equity to average assets | 11.40 | 11.48 | 11.44 | 11.46 | ||||||
| Stockholders' equity to total assets at end of period | 11.72 | 11.25 | 11.72 | 11.25 | ||||||
| Net interest rate spread (1) (5) | 2.48 | 2.66 | 2.43 | 2.75 | ||||||
| Net interest margin (2) (5) | 2.66 | 2.78 | 2.61 | 2.87 | ||||||
| Other expense to average assets | 0.80 | 0.59 | 1.38 | 1.15 | ||||||
| Efficiency ratio (3) | 111.45 | 77.42 | 99.61 | 75.32 | ||||||
| Dividend payout ratio | (134.79 | ) | 50.00 | 145.15 | 55.64 | |||||
| At or for the | At or for the | ||||||
| Six Months Ended | Twelve Months Ended | ||||||
| June 30, | December 31, | ||||||
| 2024 | 2023 | ||||||
| (unaudited) | |||||||
| Regulatory Capital Ratios (4): | |||||||
| Total risk-based capital (to risk-weighted assets) | 17.65 | % | 17.86 | % | |||
| Tier 1 core capital (to risk-weighted assets) | 16.40 | 16.61 | |||||
| Common equity Tier 1 (to risk-weighted assets) | 16.40 | 16.61 | |||||
| Tier 1 leverage (to adjusted total assets) | 11.78 | 12.29 | |||||
| Asset Quality Ratios: | |||||||
| Net charge-offs to average gross loans outstanding | 0.00 | 0.07 | |||||
| Allowance for credit losses on loans to gross loans outstanding | 1.40 | 1.38 | |||||
| Non-performing loans to gross loans (6) | 1.62 | 1.52 | |||||
| Non-performing assets to total assets (6) | 1.41 | 1.32 | |||||
| Other Data: | |||||||
| Book Value per common share | $16.34 | $16.32 | |||||
| Tangible Book Value per common share (7) | $16.08 | $16.05 | |||||
| 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. | |||||||
Contact:
Craig Hepner
President and Chief Executive Officer
(815) 366-5437