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Ottawa Bancorp, Inc. Announces Third Quarter 2017 Results

OTTAWA, Ill., Oct. 31, 2017 (GLOBE NEWSWIRE) -- Ottawa Bancorp, Inc. (the “Company”) (Nasdaq:OTTW), the holding company for Ottawa Savings Bank, FSB (the “Bank”), announced net income of $0.5 million, or $0.14 per basic and diluted common share for the three months ended September 30, 2017, compared to net income of $0.4 million, or $0.15 per basic and diluted common share for the three months ended September 30, 2016. The third quarter results were positively impacted by increased loan demand and a continued decrease in non-performing loans. Non-performing loans decreased from $5.0 million at December 31, 2016 to $2.3 million at June 30, 2017 and $2.0 million at September 30, 2017, which in addition to loan growth, improved the ratio of non-performing loans to gross loans from 3.00% at December 31, 2016 to 1.24% at June 30, 2017 and 1.00% at September 30, 2017.

Comparison of Results of Operations for the Three Months Ended September 30, 2017 and September 30, 2016

Net income for the three months ended September 30, 2017 increased $34,000, or 8.0%, to $455,000 compared to net income of $421,000 for the three months ended September 30, 2016. The increase was primarily attributed to an increase in net interest income after provision for loan losses of $67,000, a $136,000 increase in total other income, and a $68,000 decrease in income tax expense, partially offset by an increase of $238,000 in other expenses.

Net interest income increased by $0.3 million, or 13.2%, to $2.2 million for the three months ended September 30, 2017, from $1.9 million for the three months ended September 30, 2016. Interest and dividend income increased $0.3 million, or 14.1%, primarily due to an increase in the average balances of interest-earning assets of $6.8 million. The increase in net interest income was partially off-set by a slight increase in interest expense as the average cost of funds increased 15 basis points to 0.61% for the three months ended September 30, 2017. The increase in cost of funds was partially off-set by a decrease in the average balance of interest-bearing liabilities of $17.8 million during the three months ended September 30, 2017. The average balance of interest-bearing liabilities was temporarily inflated at September 30, 2016, due to $50.1 million of funds received late in the third quarter for the subscription and community offerings for shares of Company common stock in connection with the Bank’s second-step conversion completed on October 11, 2016. The net interest margin increased 10.1% during the three months ended September 30, 2017 to 3.83%.

We recorded a provision for loan losses of $0.2 million and $25,000 for the three months ended September 30, 2017 and 2016, respectively. The increase in provision expense was primarily due to increases in the loan portfolio, and therefore the need to increase the provision for loan losses. Additionally, net charge-offs during the third quarter of 2017 were $84,000 compared to $5,000 during the third quarter of 2016. The allowance for loan losses was $2.4 million or 1.19% of total gross loans at September 30, 2017 compared to $2.3 million, or 1.45%, at September 30, 2016. General reserves were higher at September 30, 2017 when compared to September 30, 2016, as the balances in all loan categories increased during the twelve months ended September 30, 2017. These increases were partially off-set by improvements in historical loss levels and changes in qualitative factors during the twelve months ended September 30, 2017, as compared to the same period in 2016. Additionally, specific reserves as of September 30, 2017 were lower than they were as of September 30, 2016, due to several large credits being resolved during 2017 that had larger reserves as of September 30, 2016.

Non-interest income increased $0.1 million, to $0.6 million for the three months ended September 30, 2017, as compared to the same period for 2016. The increase was primarily due to higher revenues related to mortgage banking activity. There was also an increase in the gain on sale of securities, but this was off-set by a decline in the gain on sale of foreclosed real estate.

Non-interest expense increased $0.2 million, or 13.7%, to $2.0 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. The increase was primarily due to higher salaries and employee benefits as additional mortgage loan originators and staff were added to support loan growth. Loan expense increased due to the increase in loan originations.

We recorded income tax expense of $155,000 and $223,000 for the three months ended September 30, 2017 and 2016, respectively.

Comparison of Results of Operations for the Nine Months Ended September 30, 2017 and September 30, 2016

Net income for the nine months ended September 30, 2017 increased $0.2 million, or 21.3%, to $1.3 million compared to net income of $1.1 million for the nine months ended September 30, 2016. The increase was primarily attributed to an increase in net interest income after provision for loan losses of $0.5 million and a $0.4 million increase in other income, partially offset by an increase of $0.7 million in other expenses.

Net interest income increased by $0.7 million, or 12.2%, to $6.3 million for the nine months ended September 30, 2017, from $5.6 million for the nine months ended September 30, 2016. Interest and dividend income increased $0.8 million, or 12.2%, primarily due to an increase in the average balances of interest-earning assets of $15.8 million and a 3.9% increase in the yield on interest-earning assets to 4.27%. The increase in net interest income was partially off-set by an increase in interest expense as the average cost of funds increased eight basis points to 0.56% for the nine months ended September 30, 2017. The increase in cost of funds was slightly off-set by a decrease in the average balance of interest-bearing liabilities of $7.0 million during the nine months ended September 30, 2017. The average balance of interest-bearing liabilities was temporarily inflated at September 30, 2016, due to $50.1 million of funds received late in the third quarter as a result of the subscription and community offerings for shares of Company common stock in connection with the Bank’s second-step conversion completed on October 11, 2016. The net interest margin increased 4.1% during the nine months ended September 30, 2017 to 3.84%.

We recorded a provision for loan losses of $0.5 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively. The increase in provision expense was primarily due to increases in the loan portfolio, and therefore the need to increase the provision for loan losses. Additionally, net charge-offs during the nine months ended September 2017 were $0.3 million compared to $0.2 million during the same period of 2016. The allowance for loan losses was $2.4 million, or 1.19% of total loans, at September 30, 2017 compared to $2.3 million, or 1.45% of total loans, at September 30, 2016. General reserves were higher at September 30, 2017 when compared to September 30, 2016, as the balances in all loan categories increased during the twelve months ended September 30, 2017. These increases were partially off-set by improvements in historical loss levels and changes in qualitative factors during the twelve months ended September 30, 2017, as compared to the same period in 2016. Additionally, specific reserves as of September 30, 2017 were lower than they were as of September 30, 2016, due to several large credits being resolved during 2017 that had larger reserves as of September 30, 2016.

Non-interest income increased $0.4 million, to $1.7 million for the nine months ended September 30, 2017, as compared to the same period for 2016. The increase was primarily due to higher revenues related to mortgage banking activity.

Non-interest expense increased $0.8 million, or 15.0%, to $5.8 million for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. The increase was primarily due to higher salaries and employee benefits as additional mortgage loan originators and staff were added to support loan growth. Loan expense increased due to the increase in loan originations.

We recorded income tax expense of $0.5 million for both the nine months ended September 30, 2017 and 2016, respectively.

Comparison of Financial Condition at September 30, 2017 and December 31, 2016

Total consolidated assets as of September 30, 2017 were $245.7 million, an increase of $15.6 million, or 6.8%, from $230.2 million at December 31, 2016. The increase was primarily due to an increase of $30.2 million in the net loan portfolio, off-set by decreases in securities available for sale of $14.4 million and decreases in cash and cash equivalents of $3.0 million.

Cash and cash equivalents decreased $3.0 million, or 50.6%, to $2.9 million at September 30, 2017 from $5.9 million at December 31, 2016. The decrease in cash and cash equivalents was primarily a result of cash used in investing activities of $18.5 million exceeding cash provided by financing activities of $13.9 million and cash provided by operating activities of $1.6 million.

Securities available for sale decreased $14.4 million, or 32.3%, to $30.2 million at September 30, 2017 from $44.6 million at December 31, 2016, as paydowns, sales, calls, and maturities exceeded new securities purchases. Cash proceeds from the sale of securities were used to fund the loan growth, as the yield earned on the loan originations was higher than those earned in the security portfolio.

Net loans increased by $30.2 million to $190.8 million at September 30, 2017 compared to $160.6 million at December 31, 2016 primarily as a result of a $14.6 million increase in one-to-four family loans, a $7.4 million increase in non-residential real estate loans, and a $6.2 million increase in purchased auto loans. The Company also experienced growth in most other loan categories during the nine months ended September 30, 2017.

Total deposits increased $6.3 million, or 3.7%, to $178.9 million at September 30, 2017 from $172.5 million at December 31, 2016. At September 30, 2017 checking/money market accounts increased by $3.7 million, savings accounts increased by $1.8 million and certificates of deposit increased by $0.8 million as compared to December 31, 2016.

FHLB advances increased $8.0 million, to $9.1 million at September 30, 2017 compared to $1.1 million at December 31, 2016 to fund the loan growth experienced during the nine months ended September 30, 2017.

Total stockholders’ equity increased $1.0 million, or 1.9%, to $52.9 million at September 30, 2017 from $51.9 million at December 31, 2016. The increase is primarily a result of net income of $1.3 million for the nine months ended September 30, 2017, and an increase in other comprehensive income of $0.2 million related to an increase in the fair value of securities available for sale, partially off-set by dividends of $0.4 million paid to shareholders and an approximately $0.1 million net decrease related to ESOP shares.

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.

Safe-Harbor

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, and market disruptions. 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
September 30, 2017 and December 31, 2016
(Unaudited)
September 30, December 31,
2017 2016
Assets
Cash and due from banks$ 2,093,049 $ 3,916,559
Interest bearing deposits 845,235 2,030,090
Total cash and cash equivalents 2,938,284 5,946,649
Time deposits 250,000 250,000
Federal funds sold 3,705,000 1,690,000
Securities available for sale 30,176,272 44,560,680
Non-marketable equity securities 752,221 753,321
Loans, net of allowance for loan losses of $2,366,245 and $2,247,449
at September 30, 2017 and December 31, 2016, respectively 190,754,189 160,586,129
Loans held for sale 659,099 305,072
Premises and equipment, net 6,725,000 6,843,906
Accrued interest receivable 781,619 785,484
Foreclosed real estate 83,500 33,000
Deferred tax assets 2,505,692 2,593,786
Cash value of life insurance 2,281,760 2,245,578
Goodwill 649,869 649,869
Core deposit intangible 303,818 359,000
Other assets 3,165,409 2,558,910
Total assets$ 245,731,732 $ 230,161,384
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing$ 12,693,586 $ 9,974,536
Interest bearing 166,196,571 162,572,485
Total deposits 178,890,157 172,547,021
Accrued interest payable 3,693 224
FHLB advances 9,114,999 1,121,153
Other liabilities 3,711,694 3,748,953
Total liabilities 191,720,543 177,417,351
Commitments and contingencies
Redeemable common stock held by ESOP plan 1,098,101 807,629
Stockholders' Equity
Common stock, $.01 par value, 12,000,000 shares authorized; 3,469,402 and 3,467,402
shares issued at September 30, 2017 and December 31, 2016, respectively 34,694 34,674
Additional paid-in-capital 37,181,196 37,117,311
Retained earnings 18,340,443 17,455,472
Unallocated ESOP shares (1,799,136) (1,932,648)
Accumulated other comprehensive income 253,992 69,224
54,011,189 52,744,033
Less:
Maximum cash obligation related to ESOP shares (1,098,101) (807,629)
Total stockholders' equity 52,913,088 51,936,404
Total liabilities and stockholders' equity$ 245,731,732 $ 230,161,384


Ottawa Bancorp, Inc. & Subsidiary
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Interest and dividend income:
Interest and fees on loans$2,204,397 $1,857,478 $6,291,581 $5,432,531
Securities:
Residential mortgage-backed and related securities 98,541 122,919 360,557 423,463
State and municipal securities 116,431 133,429 373,999 404,133
Dividends on non-marketable equity securities 1,812 1,058 5,154 5,218
Interest-bearing deposits 5,357 11,903 21,403 22,301
Total interest and dividend income 2,426,538 2,126,787 7,052,694 6,287,646
Interest expense:
Deposits 247,897 205,843 676,374 611,533
Borrowings 20,564 15,181 35,624 26,921
Total interest expense 268,461 221,024 711,998 638,454
Net interest income 2,158,077 1,905,763 6,340,696 5,649,192
Provision for loan losses 210,000 25,000 460,000 302,500
Net interest income after provision for loan losses 1,948,077 1,880,763 5,880,696 5,346,692
Other income:
Gain on sale of securities 77,028 - 98,230 8,418
Gain on sale of loans 205,375 142,646 522,360 330,316
Gain on sale of foreclosed real estate 5,182 76,759 29,242 188,207
Gain on sale of repossessed assets 1,123 - 15,419 1,680
Loan origination and servicing income 159,078 102,652 462,787 239,186
Origination of mortgage servicing rights, net of amortization 21,293 14,879 55,405 42,433
Customer service fees 123,288 118,761 360,359 318,688
Income on bank owned life insurance 11,999 12,560 36,182 37,287
Other 28,940 29,269 89,044 77,885
Total other income 633,306 497,526 1,669,028 1,244,100
Other expenses:
Salaries and employee benefits 1,047,416 840,038 3,124,939 2,504,956
Directors fees 40,800 40,800 122,400 122,400
Occupancy 158,716 171,425 484,496 477,615
Deposit insurance premium 15,437 37,122 41,648 127,114
Legal and professional services 92,007 83,012 282,129 257,957
Data processing 144,137 130,864 435,244 386,597
Loss on sale of securities 47,603 - 55,169 3,261
Loan expense 152,645 124,851 403,088 284,672
Valuation adjustments and expenses on foreclosed real estate 2,662 31,703 10,184 100,639
Loss on sale of OREO 336 4,716 336 4,716
Loss on sale of repossessed assets - - 274 -
Other 269,710 269,245 807,889 747,318
Total other expenses 1,971,469 1,733,776 5,767,796 5,017,245
Income before income tax expense 609,914 644,513 1,781,928 1,573,547
Income tax expense 155,163 223,251 504,332 520,063
Net income $454,751 $421,262 $1,277,596 $1,053,484
Basic earnings per share$0.14 $0.15 $0.39 $0.37
Diluted earnings per share$0.14 $0.15 $0.39 $0.36
Dividends per share$0.04 $ - $0.12 $ -


Ottawa Bancorp, Inc. & Subsidiary
Selected Financial Data and Ratios
(Unaudited)
At September 30, At December 31,
2017 2016
(In thousands, except per share data)
Financial Condition Data:
Total Assets $245,732 $230,161
Loans, net (1) 190,754 160,586
Securities available for sale 30,176 44,561
Deposits 178,890 172,547
Stockholders' Equity 52,913 51,936
Book Value per common share $15.25 $14.98
Tangible Book Value per common share$14.98 $14.69
(1) Net of loans in process, deferred loan (cost) fees and allowance for loan losses.


Nine Months Ended
September 30,
Three Months Ended,
September 30,
2017 2016 2017 2016
(In thousands, except per share data)
Operations Data:
Total interest and dividend income$2,426 $2,127 $7,053 $6,288
Total interest expense 268 221 712 639
Net interest income 2,158 1,906 6,341 5,649
Provision for loan losses 210 25 460 303
Other income 633 498 1,669 1,244
Other expense 1,971 1,734 5,768 5,017
Income tax expense 155 223 504 520
Net income$455 $422 $1,278 $1,053
Basic earnings per share $0.14 $0.15 $0.39 $0.37
Diluted earnings per share$0.14 $0.15 $0.39 $0.36
Dividends per share$0.04 $ - $0.12 $ -

At or for the
Three Months Ended
At or for the
Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Performance Ratios:
Return on average assets0.74%0.71% 0.71% 0.63%
Return on average stockholders' equity 3.44 5.18 3.24 4.43
Average stockholders' equity to average assets21.65 13.69 22.01 14.22
Stockholders' equity to total assets at end of period21.53 11.54 21.53 11.54
Net interest rate spread (1)3.69 3.43 3.72 3.63
Net interest margin (2)3.83 3.48 3.84 3.69
Average interest-earning assets to average interest-bearing liabilities128.94 113.55 128.98 115.02
Other expense to average assets0.81 0.73 2.42 2.25
Efficiency ratio (3)70.62 72.13 72.01 72.78
Dividend payout ratio28.57 - 30.77 -


At September 30,
2017
At December 31,
2016
(unaudited)
Regulatory Capital Ratios (4):
Total risk-based capital (to risk-weighted assets) 24.11%26.76
Tier 1 core capital (to risk-weighted assets) 22.86 25.51
Common equity Tier 1 (to risk-weighted assets) 22.86 25.51
Tier 1 leverage (to adjusted total assets) 17.07 16.84
Asset Quality Ratios:
Net charge-offs to average gross loans outstanding 0.25 0.27
Allowance for loan losses to gross loans outstanding 1.19 1.35
Non-performing loans to gross loans (5) 1.00 3.00
Non-performing assets to total assets (5) 0.85 2.18
Other Data:
Number of full-service offices 3 3

Contact:
Jon Kranov
President and Chief Executive Officer
(815) 366-5436

Source:Ottawa Bancorp, Inc.