Ottawa Bancorp, Inc. Announces Fourth Quarter and 2017 Results

OTTAWA, Ill., Feb. 05, 2018 (GLOBE NEWSWIRE) -- Ottawa Bancorp, Inc. (the “Company”) (Nasdaq:OTTW), the holding company for Ottawa Savings Bank, FSB (the “Bank”), announced a net loss of $0.5 million, or $0.14 per basic and diluted common share for the three months ended December 31, 2017, compared to net income of $0.2 million, or $0.06 per basic and diluted common share for the three months ended December 31, 2016. For the year ended December 31, 2017, net income was $0.8 million, or $0.25 per basic and diluted common share, compared to net income of $1.3 million, or $0.43 per basic common share and $0.42 per diluted common share for the year ended December 31, 2016. The fourth quarter and annual 2017 results were negatively impacted by a reduction in value of the Company’s net deferred tax assets which resulted in a charge of approximately $0.8 million, or $0.25 per basic and diluted common share, to income tax expense. This income tax adjustment resulted from the December 22, 2017 enactment of the Tax Cuts and Jobs Act (the “TCJA”), which lowered the corporate tax rate from 34 percent to 21 percent. Prior to the enactment of TCJA, the Company’s net deferred tax assets were valued based upon the projection of a 34 percent future tax benefit.

During the fourth quarter and year ended December 31, 2017, the Company experienced increased loan demand and a continued decrease in non-performing loans. Non-performing loans decreased from $5.0 million at December 31, 2016 to $2.0 million at September 30, 2017 and $1.6 million at December 31, 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 1.00% at September 30, 2017 and 0.73% at December 31, 2017.

Comparison of Results of Operations for the Three Months Ended December 31, 2017 and December 31, 2016

Net loss for the three months ended December 31, 2017 was $0.5 million compared to net income of $0.2 million for the three months ended December 31, 2016. The decrease in income of $0.7 million or 323.3%, was primarily attributed to an increase in income tax expense of $0.9 million, of which approximately $0.8 million resulted from the re-valuation of net deferred tax assets, and an increase in total other expenses of $0.1 million. The increases in expenses were partially off-set by increases in net interest income after provision for loan losses of $0.4 million and an approximately $35,000 increase in total other income.

Net interest income increased by $0.3 million, or 17.3%, to $2.2 million for the three months ended December 31, 2017, from $1.9 million for the three months ended December 31, 2016. Interest and dividend income increased $0.4 million, or 20.9%, primarily due to an increase in the average balances of interest-earning assets of $18.4 million. The increase in net interest income was partially off-set by an increase in interest expense as the average cost of funds increased 19 basis points to 0.72% for the three months ended December 31, 2017. The net interest margin increased 8.2% during the three months ended December 31, 2017 to 3.82% from 3.53%.

We recorded a provision for loan losses of approximately $0.1 million for both of the three-month periods ended December 31, 2017 and 2016. The allowance for loan losses was $2.5 million, or 1.15% of total gross loans at December 31, 2017 compared to $2.2 million, or 1.35% of gross loans at December 31, 2016. Net charge-offs during the fourth quarter of 2017 were $0.1 million compared to $0.2 million during the fourth quarter of 2016. General reserves were higher at December 31, 2017, when compared to December 31, 2016, as the balances in all loan categories increased during the twelve months ended December 31, 2017. These increases to the allowance were partially off-set by improvements in historical loss levels and changes in qualitative factors during the twelve months ended December 31, 2017, as compared to the same period in 2016. Additionally, specific reserves as of December 31, 2017 were lower than they were as of December 31, 2016, due to several credits being resolved during 2017 that had reserves as of December 31, 2016.

Total other income was approximately $0.5 million for both of the three-month periods ended December 31, 2017 and 2016.

Total other expense increased $0.1 million, or 7.1%, to $2.1 million for the three months ended December 31, 2017, as compared to the three months ended December 31, 2016. The increase was primarily due to losses on the sale of securities during the fourth quarter of 2017, higher legal and professional expenses, higher data processing expense, higher deposit insurance premium, and increased loan expense. The increases were partially off-set by lower other expenses during the fourth quarter of 2017.

We recorded income tax expense of $1.0 million and $0.1 million for the three months ended December 31, 2017 and 2016, respectively. The $0.9 million increase in income tax expense includes approximately $0.8 million from the re-valuation of net deferred tax assets and approximately $0.1 million resulting from the increase in net income before taxes of approximately $0.2 million.

Comparison of Results of Operations for the Years Ended December 31, 2017 and December 31, 2016

Net income for the year ended December 31, 2017 decreased $0.5 million, or 35.5%, to $0.8 million compared to net income of $1.3 million for the year ended December 31, 2016. The decrease was primarily attributed to an increase in income tax expense of $0.9 million, of which approximately $0.8 million resulted from the re-valuation of net deferred tax assets, and an increase in total other expenses of $0.9 million. The increases in expenses were partially off-set by increases in net interest income after provision for loan losses of $0.9 million and a $0.5 million increase in total other income.

Net interest income increased by $1.0 million, or 13.5%, to $8.6 million for the year ended December 31, 2017, from $7.6 million for the year ended December 31, 2016. Interest and dividend income increased $1.2 million, or 14.4%, primarily due to an increase in the average balances of interest-earning assets of $16.4 million. The increase in net interest income was partially off-set by an increase in interest expense as the average cost of funds increased 11 basis points to 0.60% for the year ended December 31, 2017. The net interest margin increased 5.2% during the year ended December 31, 2017 to 3.84% from 3.65%.

We recorded a provision for loan losses of $0.6 million and $0.4 million for the years ended December 31, 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 were approximately $0.3 million and $0.4 million for the years ended December 31, 2017 and 2016, respectively. The allowance for loan losses was $2.5 million, or 1.15% of total gross loans at December 31, 2017 compared to $2.2 million, or 1.35% of gross loans at December 31, 2016. General reserves were higher at December 31, 2017, when compared to December 31, 2016, as the balances in all loan categories increased during the twelve months ended December 31, 2017. These increases to the allowance were partially off-set by improvements in historical loss levels and changes in qualitative factors during the twelve months ended December 31, 2017, as compared to the same period in 2016. Additionally, specific reserves as of December 31, 2017 were lower than they were as of December 31, 2016, due to several credits being resolved during 2017 that had reserves as of December 31, 2016.

Total other income increased $0.5 million, to $2.2 million for the year ended December 31, 2017, as compared to the same period for 2016. The increase was primarily due to higher revenues related to mortgage banking activity, as gain on sale of loans, loan origination and servicing income increased.

Total other expense increased $0.9 million, or 12.7%, to $7.9 million for the year ended December 31, 2017, as compared to the year ended December 31, 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 $1.5 million and $0.6 million for the years ended December 31, 2017 and 2016, respectively. The $0.9 million increase in income tax expense includes approximately $0.8 million from the re-valuation of net deferred tax assets and approximately $0.1 million resulting from the increase in net income before taxes of approximately $0.5 million.

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

Total consolidated assets as of December 31, 2017 were $255.5 million, an increase of $25.3 million, or 11.0%, from $230.2 million at December 31, 2016. The increase was primarily due to an increase of $46.4 million in the net loan portfolio, off-set by decreases in securities available for sale of $18.5 million and decreases in cash and cash equivalents of $2.1 million.

Cash and cash equivalents decreased $2.1 million, or 35.2%, to $3.8 million at December 31, 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 $28.6 million exceeding cash provided by financing activities of $23.4 million and cash provided by operating activities of $3.1 million.

Securities available for sale decreased $18.5 million, or 41.6%, to $26.0 million at December 31, 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 $46.4 million to $207.0 million at December 31, 2017 compared to $160.6 million at December 31, 2016 primarily as a result of a $20.2 million increase in one-to-four family loans, a $8.5 million increase in non-residential real estate loans, and a $8.8 million increase in purchased auto loans. The Company also experienced growth in all other loan categories during the year ended December 31, 2017.

Total deposits increased $10.2 million, or 5.9%, to $182.8 million at December 31, 2017 from $172.5 million at December 31, 2016. At December 31, 2017 checking/money market accounts increased by $0.8 million, savings accounts increased by $2.0 million and certificates of deposit increased by $7.4 million as compared to December 31, 2016.

FHLB advances increased $14.0 million, to $15.1 million at December 31, 2017 compared to $1.1 million at December 31, 2016 to fund the loan growth experienced during the year ended December 31, 2017.

Total stockholders’ equity decreased approximately $35,000, but remained constant at $51.9 million at December 31, 2017 and 2016. The decrease reflects net income of $0.8 million for the year ended December 31, 2017, and an increase in other comprehensive income of $0.1 million related to an increase in the fair value of securities available for sale, partially off-set by dividends of $0.5 million paid to shareholders, $0.3 million to re-purchase and cancel outstanding shares and an approximately $0.2 million net decrease related to ESOP shares.

Annual Meeting of Stockholders

On February 5, 2018, the Company also announced that its annual meeting of stockholders will be held on Wednesday, May 16, 2018.

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
December 31, 2017 and 2016
(Unaudited)
2017 2016
Assets
Cash and due from banks$ 2,426,924 $ 3,916,559
Interest bearing deposits 1,423,872 2,030,090
Total cash and cash equivalents 3,850,796 5,946,649
Time deposits 250,000 250,000
Federal funds sold 939,000 1,690,000
Securities available for sale 26,045,675 44,560,680
Non-marketable equity securities 918,387 753,321
Loans, net of allowance for loan losses of $2,472,446 and $2,247,449 at December 31, 2017 and 2016, respectively 207,035,091 160,586,129
Loans held for sale 499,375 305,072
Premises and equipment, net 6,670,088 6,843,906
Accrued interest receivable 794,449 785,484
Foreclosed real estate 84,100 33,000
Deferred tax assets 1,869,490 2,593,786
Cash value of life insurance 2,293,800 2,245,578
Goodwill 649,869 649,869
Core deposit intangible 286,000 359,000
Other assets 3,308,734 2,558,910
Total assets$ 255,494,854 $ 230,161,384
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing$ 11,562,801 $ 9,974,536
Interest bearing 171,211,823 162,572,485
Total deposits 182,774,624 172,547,021
Accrued interest payable 661 224
FHLB advances 15,105,287 1,121,153
Other liabilities 4,511,347 3,748,953
Total liabilities 202,391,919 177,417,351
Commitments and contingencies
Redeemable common stock held by ESOP plan 1,202,014 807,629
Stockholders' Equity
Common stock, $.01 par value, 100,000,000 shares authorized; 3,451,802 and
3,467,402 shares issued at December 31, 2017 and 2016, respectively 34,521 34,674
Additional paid-in-capital 36,949,505 37,117,311
Retained earnings 17,746,070 17,455,472
Unallocated ESOP shares (1,754,632) (1,932,648)
Accumulated other comprehensive income 127,471 69,224
53,102,935 52,744,033
Less:
Maximum cash obligation related to ESOP shares (1,202,014) (807,629)
Total stockholders' equity 51,900,921 51,936,404
Total liabilities and stockholders' equity$ 255,494,854 $ 230,161,384

Ottawa Bancorp, Inc. & Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Years Ended
December 31, December 31,
2017 2016 2017 2016
Interest and dividend income:
Interest and fees on loans$ 2,386,333 $ 1,859,400 $ 8,677,914 $ 7,291,931
Securities:
Residential mortgage-backed and related securities 75,116 121,987 435,673 545,450
State and municipal securities 103,922 133,848 477,921 537,981
Dividends on non-marketable equity securities 6,930 6,235 12,084 11,453
Interest-bearing deposits 8,919 13,869 30,322 36,170
Total interest and dividend income 2,581,220 2,135,339 9,633,914 8,422,985
Interest expense:
Deposits 286,868 208,783 963,242 820,316
Borrowings 45,665 9,206 81,625 36,127
Total interest expense 332,533 217,989 1,044,867 856,443
Net interest income 2,248,687 1,917,350 8,589,047 7,566,542
Provision for loan losses 115,000 140,000 575,000 442,500
Net interest income after provision for loan losses 2,133,687 1,777,350 8,014,047 7,124,042
Other income:
Gain on sale of securities - - 98,230 8,418
Gain on sale of loans 174,394 179,124 696,754 509,440
Gain on sale of OREO 15,531 - 44,773 188,207
Gain on sale of repossessed assets 1,170 8,961 16,589 10,641
Loan origination and servicing income 171,197 124,956 633,984 364,142
Origination of mortgage servicing rights, net of amortization 16,573 23,184 71,978 65,617
Customer service fees 122,166 123,202 482,525 441,890
Income on bank owned life insurance 12,040 12,867 48,222 50,154
Other 26,711 32,127 115,755 110,012
Total other income 539,782 504,421 2,208,810 1,748,521
Other expenses:
Salaries and employee benefits 1,178,719 1,176,233 4,303,658 3,681,189
Directors fees 40,800 40,800 163,200 163,200
Occupancy 159,607 159,194 644,103 636,809
Deposit insurance premium 15,541 (13,963) 57,189 113,151
Legal and professional services 78,591 50,981 360,720 308,938
Data processing 158,627 143,068 593,871 529,665
Loss on sale of securities 72,175 - 127,344 3,261
Loan expense 189,443 162,291 592,531 446,963
Valuation adjustments and expenses on foreclosed real estate 1,753 3,930 11,937 104,569
Loss on sale of OREO - - - 4,716
Loss on sale of repossessed assets 1,629 4,876 1,903 4,876
Other 239,739 267,016 1,047,628 1,014,334
Total other expenses 2,136,624 1,994,426 7,904,084 7,011,671
Income before income tax expense 536,845 287,345 2,318,773 1,860,892
Income tax expense 1,000,417 79,731 1,504,749 599,794
Net (loss) income $ (463,572) $ 207,614 $ 814,024 $ 1,261,098
Basic (loss) earnings per share$ (0.14) $ 0.06 $ 0.25 $ 0.43
Diluted (loss) earnings per share$ (0.14) $ 0.06 $ 0.25 $ 0.42
Dividends per share$ 0.04 $ - $ 0.16 $ -

Ottawa Bancorp, Inc. & Subsidiary
Selected Financial Data and Ratios
(Unaudited)
At December 31,
At December 31,
2017
2016
(In thousands, except per share data)
Financial Condition Data:
Total Assets $255,495 $230,161
Loans, net (1) 207,035 160,586
Securities available for sale 26,046 44,561
Deposits 182,775 172,547
Stockholders' equity 51,901 51,936
Book value per common share $ 15.03 $ 14.98
Tangible book value per common share (2) $ 14.76 $ 14.69
(1) Net of loans in process, deferred loan (cost) fees and allowance for loan losses.
(2) Non-GAAP measure. Excludes intangible assets such as goodwill and core deposit intangible.
Three Months Ended
December 31,
Year Ended
December 31,
2017
2016
2017
2016
(In thousands, except per share data)
Operations Data:
Total interest and dividend income$ 2,581 $ 2,135 $9,634 $8,423
Total interest expense 332 217 1,045 856
Net interest income 2,249 1,918 8,589 7,567
Provision for loan losses 115 140 575 442
Total other income 540 504 2,209 1,748
Total other expense 2,137 1,994 7,904 7,012
Income tax expense 1,001 80 1,505 600
Net (loss) income$ (464) $ 208 $ 814 $1,261
Basic (loss) earnings per share $ (0.14) $ 0.06 $ 0.25 $ 0.43
Diluted (loss) earnings per share$ (0.14) $ 0.06 $ 0.25 $ 0.42
Dividends per share$ 0.04 $ - $ 0.16 $ -
At or for the
Three Months Ended
At or for the
Year Ended
December 31,
December 31,
2017
2016
2017
2016
Performance Ratios:
Return on average assets (0.73)% 0.36 % 0.34 % 0.56 %
Return on average stockholders' equity (3.54) 1.59 1.55 3.43
Average stockholders' equity to average assets 20.64 22.67 21.66 16.38
Stockholders' equity to total assets at end of period 20.31 22.57 20.31 22.57
Net interest rate spread (1) 3.66 3.40 3.70 3.57
Net interest margin (2) 3.82 3.53 3.84 3.65
Average interest-earning assets to average interest-bearing liabilities 127.12 132.47 128.39 119.12
Other expense to average assets 3.36 3.46 3.26 3.12
Efficiency ratio (3) 76.62 82.37 73.20 75.28
Dividend payout ratio (28.57) - 64.00 -
At December 31,
At December 31,
2017
2016
(unaudited)
Regulatory Capital Ratios (4):
Total risk-based capital (to risk-weighted assets) 22.54 % 26.76 %
Tier 1 core capital (to risk-weighted assets) 21.29 25.51
Common equity Tier 1 (to risk-weighted assets) 21.29 25.51
Tier 1 leverage (to adjusted total assets) 16.22 16.84
Asset Quality Ratios:
Net charge-offs to average gross loans outstanding 0.18 0.27
Allowance for loan losses to gross loans outstanding 1.15 1.35
Non-performing loans to gross loans (5) 0.73 3.00
Non-performing assets to total assets (5) 0.65 2.18
Other Data:
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 other noninterest expenses divided by the sum of net interest income and noninterest income.
(4) Ratios are for Ottawa Savings Bank, FSB.
(5) Non-performing loans and assets include accruing loans past due 90 days or more.

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

Source:Ottawa Bancorp, Inc.