Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Ottawa Savings Bancorp, Inc.Financial_Report.xls
EX-31.1 - CERTIFICATION - Ottawa Savings Bancorp, Inc.dex311.htm
EX-32.1 - CERTIFICATION - Ottawa Savings Bancorp, Inc.dex321.htm
EX-31.2 - CERTIFICATION - Ottawa Savings Bancorp, Inc.dex312.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 000-51367

 

 

OTTAWA SAVINGS BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

United States   20-3074627

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

925 LaSalle Street

Ottawa, Illinois 61350

(Address of principal executive offices)

(815) 433-2525

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year,

if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer   ¨    Accelerated Filer   ¨
Non-Accelerated Filer   ¨  (Do not check if a smaller reporting company)    Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding as of August 10, 2011

Common Stock, $0.01 par value   2,119,673

 

 

 


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

FORM 10-Q

For the quarterly period ended June 30, 2011

INDEX

 

          Page
Number
 

PART I – FINANCIAL INFORMATION

  

        Item 1

  

Financial Statements

     3   

        Item 2

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     21   

        Item 3

  

Quantitative and Qualitative Disclosures about Market Risk

     29   

        Item 4

  

Controls and Procedures

     30   

PART II – OTHER INFORMATION

  

        Item 1

  

Legal Proceedings

     30   

        Item 1A

  

Risk Factors

     30   

        Item 2

  

Unregistered Sales of Equity Securities and Use of Proceeds

     30   

        Item 3

  

Defaults upon Senior Securities

     30   

        Item 4

  

[Removed and Reserved]

     30   

        Item 5

  

Other Information

     30   

        Item 6

  

Exhibits

     31   

SIGNATURES

     32   

 

2


Table of Contents

Part I – Financial Information

ITEM 1 – FINANCIAL STATEMENTS

OTTAWA SAVINGS BANCORP, INC.

Consolidated Balance Sheets

June 30, 2011 and December 31, 2010

(Unaudited)

 

     June 30,
2011
    December 31,
2010
 

Assets

    

Cash and due from banks

   $ 2,615,753      $ 1,604,000   

Interest bearing deposits

     3,585,343        2,774,835   
  

 

 

   

 

 

 

Total cash and cash equivalents

     6,201,096        4,378,835   

Federal funds sold

     1,337,000        5,016,000   

Securities held to maturity (fair value of $16 and $18 at June 30, 2011 and December 31, 2010, respectively)

     16        18   

Securities available for sale

     31,710,459        32,462,702   

Non-marketable equity securities

     2,534,952        2,534,952   

Loans, net of allowance for loan losses of $3,996,884 and $4,703,362 at June 30, 2011 and December 31, 2010, respectively

     130,412,176        135,350,904   

Premises and equipment, net

     6,923,078        7,044,780   

Accrued interest receivable

     711,752        751,769   

Foreclosed real estate

     685,339        1,333,766   

Deferred tax asset

     2,424,495        2,398,525   

Cash value of life insurance

     1,540,833        1,523,690   

Prepaid FDIC premiums

     482,280        656,646   

Other assets

     1,379,798        1,674,233   
  

 

 

   

 

 

 

Total assets

   $ 186,343,274      $ 195,126,820   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities

    

Deposits:

    

Non-interest bearing

   $ 4,329,981      $ 3,536,364   

Interest bearing

     157,620,771        167,295,090   
  

 

 

   

 

 

 

Total deposits

     161,950,752        170,831,454   

Accrued interest payable

     22,987        51,750   

Other liabilities

     2,423,785        2,408,722   
  

 

 

   

 

 

 

Total liabilities

     164,397,524        173,291,926   
  

 

 

   

 

 

 

Commitments and contingencies

    

Redeemable common stock held by ESOP plan

     210,269        148,292   
  

 

 

   

 

 

 

Stockholders’ Equity

    

Common stock, $.01 par value, 12,000,000 shares authorized;
2,224,911 shares issued

     22,249        22,249   

Additional paid-in-capital

     8,752,321        8,734,122   

Retained earnings

     14,505,154        14,374,230   

Unallocated ESOP shares

     (432,446     (457,884

Unearned management recognition plan shares

     (129,564     (168,639

Accumulated other comprehensive income

     433,087        535,867   
  

 

 

   

 

 

 
     23,150,801        23,039,945   

Less:

    

Treasury shares, at cost, 105,238 shares

     (1,205,051     (1,205,051

Maximum cash obligation related to ESOP shares

     (210,269     (148,292
  

 

 

   

 

 

 

Total stockholders’ equity

     21,735,481        21,686,602   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 186,343,274      $ 195,126,820   
  

 

 

   

 

 

 

See accompanying notes to these unaudited consolidated financial statements.

 

3


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Consolidated Statements of Operations

Three and Six Months Ended June 30, 2011 and 2010

(Unaudited)

 

     Three Months Ended
June 30,
   

Six Months Ended

June 30,

 
     2011     2010     2011     2010  

Interest and dividend income:

        

Interest and fees on loans

   $ 1,973,044      $ 2,190,749      $ 3,927,496      $ 4,376,162   

Securities:

        

Mortgage-backed and related securities

     244,783        230,030        477,785        479,705   

U.S. agency securities

     18,362        79,343        45,789        139,150   

Municipal bonds

     6,835        —          6,835        —     

Dividends on non-marketable equity securities

     579        —          1,170        —     

Interest-bearing deposits

     1,765        2,035        2,873        4,550   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and dividend income

     2,245,368        2,502,157        4,461,948        4,999,567   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits

     652,744        872,880        1,338,998        1,813,069   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     652,744        872,880        1,338,998        1,813,069   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     1,592,624        1,629,277        3,122,950        3,186,498   

Provision for loan losses

     1,033,260        833,074        1,421,520        1,080,574   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     559,364        796,203        1,701,430        2,105,924   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income:

        

Gain (loss) on sale and call of securities

     275,139        (1,984     276,474        (422

Gain on sale of loans

     307        12,370        7,778        21,102   

Origination of mortgage servicing rights, net of amortization

     (7,691     2,324        (9,643     3,687   

Customer service fees

     74,420        65,142        142,556        131,805   

Income on bank owned life insurance

     8,804        8,071        17,143        13,940   

Other

     108,148        14,027        129,952        26,462   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     459,127        99,950        564,260        196,574   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expenses:

        

Salaries and employee benefits

     399,786        705,540        796,933        1,137,261   

Directors fees

     21,000        21,009        42,000        42,018   

Occupancy

     117,936        125,481        237,640        251,099   

Deposit insurance premium

     87,123        111,410        182,939        183,594   

Legal and professional services

     60,171        81,953        121,803        143,461   

Data processing

     71,689        74,100        147,146        142,666   

Expenses on foreclosed real estate

     90,543        44,147        118,876        67,669   

Loss (gain) on sale of foreclosed real estate

     101,817        (33,751     78,965        20,311   

Loss on sale of repossessed assets

     1,032        2,007        12,830        2,200   

Other

     149,414        149,749        280,767        264,083   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

     1,100,511        1,281,645        2,019,899        2,254,362   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (82,020     (385,492     245,791        48,136   

Income tax (benefit) expense

     (85,154     (146,701     30,110        11,489   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 3,134      $ (238,791   $ 215,681      $ 36,647   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings (losses) per share

   $ 0.00      $ (0.12   $ 0.10      $ 0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings (losses) per share

   $ 0.00      $ (0.12   $ 0.10      $ 0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends per share

   $ 0.05      $ 0.05      $ 0.10      $ 0.10   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to these unaudited consolidated financial statements.

 

4


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Consolidated Statements of Comprehensive Income (Loss)

Three and Six Months Ended June 30, 2011 and 2010

(Unaudited)

 

    

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
     2011     2010     2011     2010  

Comprehensive income (loss):

        

Net income (loss)

   $ 3,134      $ (238,791   $ 215,681      $ 36,647   

Other comprehensive income, net of tax:

        

Unrealized gain on securities available for sale arising during period, net of income taxes

     98,442        217,357        79,693        223,644   

Reclassification adjustment for (gains) losses included in net income, net of tax expense

     (181,592     1,309        (182,473     278   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

   $ (80,016   $ (20,125   $ 112,901      $ 260,569   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to these unaudited consolidated financial statements.

 

5


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2011 and 2010

(Unaudited)

 

     2011     2010  

Cash Flows from Operating Activities

    

Net income

   $ 215,681      $ 36,647   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     121,702        121,239   

Provision for loan losses

     1,421,520        1,080,574   

Provision for deferred income taxes

     26,978        (332,396

Net amortization of premiums and discounts on securities

     174,214        59,661   

(Gain) loss on sale of available for sale securities

     (276,474     422   

Origination of mortgage loans held for sale

     (495,830     (1,661,806

Proceeds from sale of mortgage loans held for sale

     503,608        1,682,908   

Gain on sale of loans, net

     (7,778     (21,102

Origination of mortgage servicing rights, net of amortization

     9,643        (3,687

Amortization of prepaid FDIC insurance premiums

     174,366        169,100   

Loss on sale of foreclosed real estate

     78,965        20,311   

Loss on sale of repossessed assets

     12,830        2,200   

ESOP compensation expense

     18,290        21,562   

MRP compensation expense

     39,075        34,565   

Compensation expense on RRP options granted

     25,347        21,645   

Increase in cash surrender value of life insurance

     (17,143     (13,940

Change in assets and liabilities:

    

Decrease (increase) in accrued interest receivable

     40,017        (20,397

Decrease in other assets

     256,408        122,978   

Decrease in accrued interest payable and other liabilities

     (81,691     (55,786
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,239,728        1,264,698   
  

 

 

   

 

 

 

Cash Flows from Investing Activities

    

Securities available for sale:

    

Purchases

     (9,088,380     (15,132,247

Sales, calls, maturities and paydowns

     9,787,155        7,283,215   

Securities held to maturity:

    

Paydowns and sales

     2        696,568   

Net decrease in loans

     3,878,148        5,394,669   

Net decrease in federal funds sold

     3,679,000        2,343,000   

Proceeds from sale of foreclosed real estate

     264,513        84,162   

Proceeds from sale of repossessed assets

     27,554        23,728   

Purchase of premise and equipment

     —          (2,122
  

 

 

   

 

 

 

Net cash provided by investing activities

     8,547,992        690,973   
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Net (decrease) increase in deposits

     (8,880,702     544,807   

Cash dividends paid

     (84,757     (84,292
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (8,965,459     460,515   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     1,822,261        2,416,186   

Cash and cash equivalents:

    

Beginning

     4,378,835        2,972,792   
  

 

 

   

 

 

 

Ending

   $ 6,201,096      $ 5,388,978   
  

 

 

   

 

 

 

(Continued)

See accompanying notes to these unaudited consolidated financial statements.

 

6


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2011 and 2010

(Unaudited)

 

(Continued)

 

     2011     2010  

Supplemental Disclosures of Cash Flow Information

    

Cash payments for:

    

Interest paid to depositors

   $ 1,367,761      $ 1,869,252   

Income taxes, net of refunds received

     (244,351     543,909   

Supplemental Schedule of Noncash Investing and Financing Activities

    

Real estate acquired through or in lieu of foreclosure

     937,045        1,056,038   

Other assets acquired in settlement of loans

     12,000        14,928   

Sale of foreclosed real estate through loan origination

     1,313,689        582,872   

Increase (decrease) in liability arising from ESOP put option

     61,977        (22,290

See accompanying notes to these unaudited consolidated financial statements.

 

7


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

NOTE 1 – NATURE OF BUSINESS

Ottawa Savings Bancorp, Inc. (the “Company”) was incorporated under the laws of the United States on July 11, 2005, for the purpose of serving as the holding company of Ottawa Savings Bank (the “Bank”), as part of the Bank’s conversion from a mutual to a stock form of organization. The Company is a publicly traded banking company with assets of $186.3 million at June 30, 2011 and is head quartered in Ottawa, Illinois.

In 2005, the Board of Directors of the Bank unanimously adopted a plan of conversion providing for the conversion of the Bank from an Illinois chartered mutual savings bank to a federally chartered stock savings bank and the purchase of all of the common stock of the Bank by the Company. The depositors of the Bank approved the plan at a meeting held in 2005.

In adopting the plan, the Board of Directors of the Bank determined that the conversion was advisable and in the best interests of its depositors and the Bank. The conversion was completed in 2005 when the Company issued 1,223,701 shares of common stock to Ottawa Savings Bancorp MHC (a mutual holding company), and 1,001,210 shares of common stock to the public. As of June 30, 2011, Ottawa Savings Bancorp MHC holds 1,223,701 shares of common stock, representing 57.7% of the Company’s common shares outstanding.

The Bank’s business is to attract deposits from the general public and use those funds to originate and purchase one-to-four family, multi-family and non-residential real estate, construction, commercial and consumer loans, which the Bank primarily holds for investment. The Bank has continually diversified its products to meet the needs of the community.

NOTE 2 – BASIS OF PRESENTATION

The consolidated financial statements presented in this quarterly report include the accounts of the Company and the Bank. The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and predominant practices followed by the financial services industry, and are unaudited. In the opinion of the Company’s management, all adjustments, consisting of normal recurring adjustments, which the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows have been recorded. The interim financial statements should be read in conjunction with the audited financial statements and accompanying notes of the Company for the year ended December 31, 2010. Certain amounts in the accompanying financial statements and footnotes for 2010 have been reclassified with no effect on net income or stockholders’ equity to be consistent with the 2011 classifications. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

NOTE 3 – USE OF ESTIMATES

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Changes in these estimates and assumptions are considered reasonably possible and may have a material impact on the consolidated financial statements and, thus, actual results could differ from the amounts reported and disclosed herein.

At June 30, 2011, there were no material changes in the Company’s significant accounting policies from those disclosed in the Form 10-K filed with the Securities and Exchange Commission on March 30, 2011.

NOTE 4 – CRITICAL ACCOUNTING POLICIES

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the allowance for loan losses to be our critical accounting policy.

 

8


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

Allowance for Loan Losses. For all portfolio segments, the allowance for loan losses is an amount necessary to absorb known and inherent losses that are both probable and reasonably estimable through a provision for loan losses charged to earnings. Loan losses, for all portfolio segments, are charged against the allowance when management believes the uncollectability of a loan balance has been confirmed. Subsequent recoveries, if any, are credited to the allowance. For all portfolio segments, the allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review by portfolio segment of the collectability of the loans in light of historical experience over the most recent eight quarters with heavier weighting given to most recent quarters, the nature and volume of the loan portfolio, adverse situations that may affect each borrower’s ability to repay, the estimated value of any underlying collateral and prevailing economic conditions. This actual loss experience is supplemented with other economic factors based on risks present for each portfolio segment. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

NOTE 5 – EARNINGS PER SHARE

Basic earnings per share is based on net income divided by the weighted average number of shares outstanding during the period, including allocated and committed-to-be-released Employee Stock Ownership Plan (“ESOP”) shares and vested Management Recognition Plan (“MRP”) shares. Diluted earnings per share show the dilutive effect, if any, of additional common shares issuable under stock options and awards.

 

     Three Months ended
June 30,
    Six Months ended
June 30,
 
     2011     2010     2011     2010  

Net income (loss) available to common stockholders

   $ 3,134      $ (238,791   $ 215,681      $ 36,647   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic potential common shares:

        

Weighted average shares outstanding

     2,119,673        2,121,045        2,119,673        2,121,045   

Weighted average unallocated ESOP shares

     (44,083     (49,166     (44,711     (49,798

Weighted average unvested MRP shares

     (10,036     (20,939     (10,036     (20,939
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted average shares outstanding

     2,065,554        2,050,940        2,064,926        2,050,308   

Dilutive potential common shares:

        

Weighted average unrecognized compensation on MRP shares

     10,509        13,543        9,460        13,776   

Weighted average RRP options outstanding **

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Dilutive weighted average shares outstanding

     2,076,063        2,064,483        2,074,386        2,064,084   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings (losses) per share

   $ 0.00      $ (0.12   $ 0.10      $ 0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings (losses) per share

   $ 0.00      $ (0.12   $ 0.10      $ 0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** The effect of share options was not included in the calculation of diluted earnings per share because to do so would have been anti-dilutive.

NOTE 6 – EMPLOYEE STOCK OWNERSHIP PLAN

On July 11, 2005, the Company adopted an ESOP for the benefit of substantially all employees. Upon adoption of the ESOP, the ESOP borrowed $763,140 from the Company and used those funds to acquire 76,314 shares of the Company’s stock in the initial public offering at a price of $10.00 per share.

Shares purchased by the ESOP with the loan proceeds are held in a suspense account and are allocated to ESOP participants on a pro rata basis as principal and interest payments are made by the ESOP to the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Company’s discretionary contributions to the ESOP and earnings on the ESOP assets. Annual principal and interest payments of approximately $77,000 are to be made by the ESOP.

 

9


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

As shares are released from collateral, the Company will report compensation expense equal to the current market price of the shares, and the shares will become outstanding for earnings-per-share (“EPS”) computations. Dividends on allocated ESOP shares reduce retained earnings, and dividends on unallocated ESOP shares reduce accrued interest.

A terminated participant or the beneficiary of a deceased participant who received a distribution of employer stock from the ESOP has the right to require the Company to purchase such shares at their fair market value any time within 60 days of the distribution date. If this right is not exercised, an additional 60 day exercise period is available in the year following the year in which the distribution is made and begins after a new valuation of the stock has been determined and communicated to the participant or beneficiary. At June 30, 2011, 26,820 shares at a fair value of $7.84 have been classified as mezzanine capital.

The following table reflects the status of the shares held by the ESOP:

 

     June 30,
2011
    December 31,
2010
 

Shares allocated

     33,069        30,526   

Shares withdrawn from the plan

     (6,249     (2,280

Unallocated shares

     43,245        45,788   
  

 

 

   

 

 

 

Total ESOP shares

     70,065        74,034   
  

 

 

   

 

 

 

Fair value of unallocated shares

   $ 339,041      $ 240,387   
  

 

 

   

 

 

 

NOTE 7 – INVESTMENT SECURITIES

The amortized cost and fair values of securities, with gross unrealized gains and losses, follows:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

June 30, 2011:

           

Held to Maturity

           

Residential mortgage-backed securities

   $ 16       $ —         $ —         $ 16   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for Sale

           

U.S. agency securities

   $ 4,007,826       $ 49,744       $ —         $ 4,057,570   

Municipal bonds

     1,827,149         19,322         —           1,846,471   

Residential mortgage-backed securities

     25,219,291         618,885         31,758         25,806,418   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 31,054,266       $ 687,951       $ 31,758       $ 31,710,459   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2010:

           

Held to Maturity

           

Residential mortgage-backed securities

   $ 18       $ —         $ —         $ 18   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for Sale

           

U.S. agency securities

   $ 5,510,013       $ 58,517       $ —         $ 5,568,530   

Residential mortgage-backed securities

     26,140,769         819,903         66,500         26,894,172   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 31,650,782       $ 878,420       $ 66,500       $ 32,462,702   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

The amortized cost and fair value at June 30, 2011, by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or prepaid without penalties. Therefore, stated maturities of mortgage-backed securities are not disclosed.

 

     Securities Held to Maturity      Securities Available for Sale  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

Due within one year

   $ —         $ —         $ 1,007,826       $ 1,021,410   

Due after one year through five years

     —           —           2,000,000         2,036,160   

Due after five years through ten years

     —           —           1,819,345         1,829,658   

Due after ten years

     —           —           1,007,804         1,016,813   

Residential mortgage-backed securities

     16         16         25,219,291         25,806,418   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

   $ 16       $ 16       $ 31,054,266       $ 31,710,459   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table reflects securities with gross unrealized losses for less than 12 months and for 12 months or more at June 30, 2011 and December 31, 2010:

 

     Less than 12 Months      12 Months or More      Total  
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 

June 30, 2011:

                 

Securities Available for Sale

                 

Residential mortgage-backed securities

   $ 3,596,549       $ 31,758       $ —         $ —         $ 3,596,549       $ 31,758   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2010:

                 

Securities Available for Sale

                 

Residential mortgage-backed securities

   $ 6,506,639       $ 66,500       $ —         $ —         $ 6,506,639       $ 66,500   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability to retain and whether it is not more likely than not the Company will be required to sell its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports.

At June 30, 2011, two securities had unrealized losses with an aggregate depreciation of .88% from the Company’s amortized cost basis. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell these securities and it is not more likely than not the Company will be required to sell this security before recovery of the amortized cost basis, which may be maturity, the Company does not consider these investments to be other than temporarily impaired at June 30, 2011.

Proceeds from the sales of securities were $4.1 million and $67,283 for the three months ended June 30, 2011 and 2010, respectively. There was $275,139 in gross realized gains for the three months ended June 30, 2011 and no gross realized gains for the three months ended June 30, 2010. There were no gross realized losses for the three months ended June 30, 2011 and $1,984 in gross realized losses for the three months ended June 30, 2010. The tax provision (benefit) applicable to these net realized gains and losses amounted to $93,547 and $(675), respectively.

Proceeds from the sales of securities were $4.1 million and $1.6 million for the six months ended June 30, 2011 and 2010, respectively. There was $276,474 and $24,367 in gross realized gains for the six months ended June 30, 2011 and 2010, respectively. There were no gross realized losses for the six months ended June 30, 2011 and $24,789 in gross realized losses for the six months ended June 30, 2010. The tax provision (benefit) applicable to these net realized gains and losses amounted to $93,547 and $(143), respectively.

 

11


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

NOTE 8 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

On July 21, 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This new accounting guidance under FASB ASC 310, Receivables, requires disclosure of additional information about the credit quality of an entity’s financing receivables and the allowance for credit losses.

The new guidance only relates to financial statement disclosures and does not affect the Company’s financial condition or results of operations. The following disclosures incorporate the new guidance.

Loans

The components of loans, net of deferred loan costs (fees), are as follows:

 

     June 30,
2011
    December 31,
2010
 

Mortgage loans:

    

One-to-four family residential loans

   $ 89,814,632      $ 90,986,542   

Multi-family residential loans

     6,343,033        6,477,260   
  

 

 

   

 

 

 

Total mortgage loans

     96,157,665        97,463,802   

Other loans:

    

Non-residential loans

     20,393,516        22,000,554   

Commercial loans

     12,064,138        14,952,672   

Consumer direct

     788,207        978,816   

Purchased auto

     5,005,534        4,658,422   
  

 

 

   

 

 

 

Total other loans

     38,251,395        42,590,464   
  

 

 

   

 

 

 

Gross loans

     134,409,060        140,054,266   

Less: Allowance for loan losses

     (3,996,884     (4,703,362
  

 

 

   

 

 

 

Loans, net

   $ 130,412,176      $ 135,350,904   
  

 

 

   

 

 

 

Purchases of loans receivable, segregated by class of loans for the periods indicated were as follows:

 

     Three Months ended
June 30,
     Six Months ended
June 30,
 
     2011      2010      2011      2010  

Purchased auto

   $ 1,006,217       $ —         $ 1,509,744       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,006,217       $ —         $ 1,509,744       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net (charge-offs) / recoveries, segregated by class of loans for the periods indicated, were as follows:

 

    

Three Months ended

June 30,

   

Six Months ended

June 30,

 
     2011     2010     2011     2010  

One-to-four family

   $ (556,242   $ (335,527   $ (820,026   $ (535,476

Multi-family

     —          —          —          —     

Non-residential

     (1,278,462     (44,341     (1,296,725     (78,088

Commercial

     —          —          —          —     

Consumer direct

     4,475        1        (10,525     1,040   

Purchased auto

     1,362        (1,686     (722     (5,374
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs)/recoveries

   $ (1,828,867   $ (381,553   $ (2,127,998   $ (617,898
  

 

 

   

 

 

   

 

 

   

 

 

 

 

12


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2011 and 2010:

 

     One-to-Four Family     Multi-family     Non-residential     Commercial     Consumer Direct     Purchased Auto     Total  

June 30, 2011

              

Balance at beginning of period

   $ 2,221,131      $ 38,754      $ 2,315,397      $ 180,401      $ 12,117      $ 24,691      $ 4,792,491   

Provision charged to income

     723,418        179,857        170,671        (39,034     (1,095     (557     1,033,260   

Loans charged off

     (557,377     —          (1,306,775     —          —          —          (1,864,152

Recoveries of loans previously charged off

     1,135        —          28,313        —          4,475        1,362        35,285   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 2,388,307      $ 218,611      $ 1,207,606      $ 141,367      $ 15,497      $ 25,496      $ 3,996,884   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2010

              

Balance at beginning of period

   $ 2,036,430      $ 57,915      $ 893,206      $ 460,878      $ 14,751      $ 62,679      $ 3,525,859   

Provision charged to income

     557,342        (3,270     293,836        (7,387     (326     (7,121     833,074   

Loans charged off

     (337,447     —          (44,341     —          —          (1,745     (383,533

Recoveries of loans previously charged off

     1,639        —          —          —          1        340        1,980   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 2,257,964      $ 54,645      $ 1,142,701      $ 453,491      $ 14,426      $ 54,153      $ 3,977,380   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2011 and 2010:

 

     One-to-Four Family     Multi-family     Non-residential     Commercial     Consumer Direct     Purchased Auto     Total  

June 30, 2011

              

Balance at beginning of year

   $ 2,425,217      $ 106,059      $ 1,879,877      $ 226,859      $ 24,916      $ 40,434      $ 4,703,362   

Provision charged to income

     783,116        112,552        624,454        (85,492     1,106        (14,216     1,421,520   

Loans charged off

     (821,161     —          (1,325,038     —          (15,000     (3,697     (2,164,896

Recoveries of loans previously charged off

     1,135        —          28,313        —          4,475        2,975        36,898   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 2,388,307      $ 218,611      $ 1,207,606      $ 141,367      $ 15,497      $ 25,496      $ 3,996,884   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2010

              

Balance at beginning of year

   $ 2,059,483      $ 55,340      $ 1,192,853      $ 119,824      $ 17,983      $ 69,221      $ 3,514,704   

Provision charged to income

     734,238        (695     27,936        333,667        (4,597     (9,975     1,080,574   

Loans charged off

     (537,396     —          (78,088     —          —          (13,883     (629,367

Recoveries of loans previously charged off

     1,639        —          —          —          1,040        8,790        11,469   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 2,257,964      $ 54,645      $ 1,142,701      $ 453,491      $ 14,426      $ 54,153      $ 3,977,380   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

13


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

The following table presents the recorded investment in loans and the related allowances allocated by portfolio segment and based on impairment method as of June 30, 2011 and December 31, 2010:

 

     One-to-four
Family
     Multi-family      Nonresidential      Commercial      Consumer Direct      Purchased Auto      Total  

June 30, 2011

                    

Loans individually evaluated for impairment

   $ 7,967,896       $ 562,001       $ 4,575,652       $ —         $ 19,547       $ 3,365       $ 13,128,461   

Loans collectively evaluated for impairment

     81,846,736         5,781,032         15,817,864         12,064,138         768,660         5,002,169         121,280,599   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 89,814,632       $ 6,343,033       $ 20,393,516       $ 12,064,138       $ 788,207       $ 5,005,534       $ 134,409,060   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Period-end allowance allocated to:

                    

Loans individually evaluated for impairment

   $ 1,326,760       $ 176,780       $ 960,974       $ —         $ 8,897       $ —         $ 2,473,411   

Loans collectively evaluated for impairment

     1,061,547         41,831         246,632         141,367         6,600         25,496         1,523,473   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ 2,388,307       $ 218,611       $ 1,207,606       $ 141,367       $ 15,497       $ 25,496       $ 3,996,884   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2010

                    

Loans individually evaluated for impairment

   $ 8,664,644       $ 562,135       $ 6,203,960       $ 259,394       $ 30,859       $ —         $ 15,720,992   

Loans collectively evaluated for impairment

     82,321,898         5,915,125         15,796,594         14,693,278         947,957         4,658,422         124,333,274   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 94,728,800       $ 5,502,744       $ 23,398,440       $ 16,866,179       $ 1,450,759       $ 3,767,411       $ 140,054,266   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Period-end allowance allocated to:

                    

Loans individually evaluated for impairment

   $ 1,612,783       $ —         $ 1,571,243       $ 32,779       $ 17,565       $ —         $ 3,234,370   

Loans collectively evaluated for impairment

     812,434         106,059         308,634         194,080         7,351         40,434         1,468,992   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ 2,425,217       $ 106,059       $ 1,879,877       $ 226,859       $ 24,916       $ 40,434       $ 4,703,362   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.

The following table presents loans individually evaluated for impairment, by class of loans, as of June 30, 2011 and December 31, 2010:

 

     Unpaid Contractual
Principal Balance
     Recorded
Investment With
No Allowance
     Recorded
Investment With
Allowance
     Total Recorded
Investment
     Related
Allowance
     3 Month Average
Recorded
Investment
     6 Month Average
Recorded
Investment
 

June 30, 2011

                    

One-to-four family

   $ 8,155,809       $ 1,305,924       $ 6,661,972       $ 7,967,896       $ 1,326,760       $ 8,107,833       $ 8,410,608   

Multi-family

     562,001         —           562,001         562,001         176,780         562,001         562,023   

Non-residential

     5,860,102         720,973         3,854,679         4,575,652         960,974         5,588,641         5,835,129   

Commercial

     —           —           —           —           —           84,789         147,593   

Consumer direct

     19,547         —           19,547         19,547         8,897         12,856         26,408   

Purchased auto

     3,365         3,365         —           3,365         —           1,122         561   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 14,600,824       $ 2,030,262       $ 11,098,199       $ 13,128,461       $ 2,473,411       $ 14,357,242       $ 14,982,322   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2010

                    

One-to-four family

   $ 8,664,644       $ 2,843,409       $ 5,821,235       $ 8,664,644       $ 1,612,783         

Multi-family

     562,135         562,135         —           562,135         —           

Non-residential

     6,203,960         424,033         5,779,927         6,203,960         1,571,243         

Commercial

     259,394         192,109         67,285         259,394         32,779         

Consumer direct

     30,859         9,758         21,101         30,859         17,565         

Purchased auto

     —           —           —           —           —           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

Total

   $ 15,720,992       $ 4,031,444       $ 11,689,548       $ 15,720,992       $ 3,234,370         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

14


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

For the three and six months ended June 30, 2011, the Company recognized no interest income on impaired loans. Additionally, on a cash basis the Company recognized no interest income on impaired loans for the three and six months ended June 30, 2011.

At June 30, 2011, there were 69 impaired loans totaling approximately $13.1 million, compared to 78 impaired loans totaling approximately $15.7 million at December 31, 2010. The decrease in impaired loans was primarily due to a $1.3 million charge-off on an impaired non-residential loan, resulting from the receipt of an updated appraisal on the underlying collateral and seven previously impaired one-to-four family loans totaling $962,000 that based on payment performance guidelines were returned to accrual status and upgraded to special mention.

The impaired loans at June 30, 2011 include $3.8 million of loans whose terms have been modified in troubled debt restructurings compared to $4.8 million at December 31, 2010. The decrease in impaired loans whose terms have been modified in troubled debt restructurings is primarily the result of the same seven loans described above with a balance of $962,000 that were returned to accrual status and upgraded to special mention. Additionally, another such loan of $248,000 was partially charged-off, the property moved to OREO and subsequently sold. Of the remaining restructurings, one in the amount of $703,000 is performing in accordance with its modified terms and has been returned to accrual status, while the remaining restructured loans are being monitored as they have not attained per accounting guidelines the performance requirements for the set time period to achieve being placed on accrual status.

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual status, by class of loans, as of June 30, 2011 and December 31, 2010:

 

     Nonaccrual      Loans Past Due
Over 90 Days Still
Accruing
 

June 30, 2011

     

One-to-four family

   $ 7,572,578       $ 31,324   

Multi-family

     554,780         —     

Non-residential

     468,783         329,146   

Commercial

     —           —     

Consumer direct

     19,270         1,631   

Purchased auto

     3,365         —     
  

 

 

    

 

 

 

Total

   $ 8,618,776       $ 362,101   
  

 

 

    

 

 

 
     Nonaccrual      Loans Past Due
Over 90 Days Still
Accruing
 

December 31, 2010

     

One-to-four family

   $ 4,023,022       $ —     

Multi-family

     —           —     

Non-residential

     1,248,038         —     

Commercial

     19,882         —     

Consumer direct

     —           —     

Purchased auto

     —           —     
  

 

 

    

 

 

 

Total

   $ 5,290,942       $ —     
  

 

 

    

 

 

 

 

15


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

The following table presents the aging of the recorded investment in loans, by class of loans, as of June 30, 2011 and December 31, 2010:

 

     Loans 30-59 Days
Past Due
     Loans 60-89 Days
Past Due
     Loans 90 or More
Days Past Due
     Total Past Due
Loans
     Current Loans      Total Loans  

June 30, 2011

                 

One-to-four family

   $ 2,818,995       $ 1,264,758       $ 5,147,532       $ 9,231,285       $ 80,583,347       $ 89,814,632   

Multi-family

     —           —           554,780         554,780         5,788,253         6,343,033   

Non-residential

     237,876         —           760,303         998,179         19,395,337         20,393,516   

Commercial

     99,951         —           —           99,951         11,964,187         12,064,138   

Consumer direct

     —           —           1,631         1,631         786,576         788,207   

Purchased auto

     7,445         —           3,365         10,810         4,994,724         5,005,534   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,164,267       $ 1,264,758       $ 6,467,611       $ 10,896,636       $ 123,512,424       $ 134,409,060   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Loans 30-59 Days
Past Due
     Loans 60-89 Days
Past Due
     Loans 90 or More
Days Past Due
     Total Past Due
Loans
     Current Loans      Total Loans  

December 31, 2010

                 

One-to-four family

   $ 4,083,411       $ 2,175,839       $ 4,023,022       $ 10,282,272       $ 80,704,270       $ 90,986,542   

Multi-family

     562,135         —           —           562,135         5,915,125         6,477,260   

Non-residential

     1,134,028         183,456         1,248,038         2,565,522         19,435,032         22,000,554   

Commercial

     —           —           19,882         19,882         14,932,790         14,952,672   

Consumer direct

     18,282         —           —           18,282         960,534         978,816   

Purchased auto

     14,961         23,376         —           38,337         4,620,085         4,658,422   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,812,817       $ 2,382,671       $ 5,290,942       $ 13,486,430       $ 126,567,836       $ 140,054,266   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. For commercial and non-residential real estate loans, the Company’s credit quality indicator is internally assigned risk ratings. Each commercial loan is assigned a risk rating upon origination. The risk rating is reviewed annually, at a minimum, and on as needed basis depending on the specific circumstances of the loan.

For residential real estate loans, multi-family, consumer direct and purchased auto loans, the Company’s credit quality indicator is performance determined by delinquency status. Delinquency status is updated regularly by the Company’s loan system for real estate loans, multi-family and consumer direct loans. The Company receives monthly reports on the delinquency status of the purchased auto loan portfolio from the servicing company.

The Company uses the following definitions for risk ratings:

 

   

Pass – loans classified as pass are of a higher quality and do not fit any of the other “rated” categories below (e.g. special mention, substandard or doubtful). The likelihood of loss is considered remote.

 

   

Special Mention – loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

   

Substandard – loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

   

Doubtful – loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

   

Not Rated – loans in this bucket are not evaluated on an individual basis.

 

 

16


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

As of June 30, 2011 and December 31, 2010, the risk category of loans by class is as follows:

 

     Pass      Special Mention      Substandard      Doubtful      Not rated  

June 30, 2011

              

One-to-four family

   $ —         $ 2,852,822       $ 7,967,896       $ —         $ 78,993,914   

Multi-family

     —           —           562,001         —           5,781,032   

Non-residential

     15,295,476         522,388         4,575,652         —           —     

Commercial

     10,513,319         1,550,819         —           —           —     

Consumer direct

     —           6,487         19,547         —           762,173   

Purchased auto

     —           —           3,365         —           5,002,169   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,808,795       $ 4,932,516       $ 13,128,461       $ —         $ 90,539,288   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Pass      Special Mention      Substandard      Doubtful      Not rated  

December 31, 2010

              

One-to-four family

   $ —         $ 3,376,464       $ 8,664,644       $ —         $ 78,945,434   

Multi-family

     —           200,376         562,135         —           5,714,749   

Non-residential

     15,160,601         635,993         6,203,960         —           —     

Commercial

     10,730,612         3,962,666         259,394         —           —     

Consumer direct

     —           35,212         30,859         —           912,745   

Purchased auto

     —           —           —           —           4,658,422   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,891,213       $ 8,210,711       $ 15,720,992       $ —         $ 90,231,350   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 9 – STOCK COMPENSATION

Total stock-based compensation expense for the six months ended June 30, 2011 and 2010, was approximately $64,000 and $56,000, respectively. In accordance with FASB ASC 718, Compensation-Stock Compensation, compensation expense is recognized on a straight-line basis over the grantees’ vesting period or to the grantees’ retirement eligibility date, if earlier. The increase in stock-based compensation expense was due to the options and shares granted to the Company’s CEO in November of 2010. For the six months ended June 30, 2011 and 2010, the Company did not grant additional options or shares under the MRP.

NOTE 10 – RECENT ACCOUNTING DEVELOPMENTS

In July 2010, the FASB issued ASU No. 2010-20, Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (Topic 310). The guidance significantly expanded the disclosures that the Company must make about the credit quality of financing receivables and the allowance for credit losses. The objectives of the enhanced disclosures are to provide financial statement users with additional information about the nature of credit risks inherent in the Company’s financing receivables, how credit risk is analyzed and assessed when determining the allowance for credit losses, and the reasons for the change in the allowance for credit losses. The disclosures as of the end of the reporting period were effective for the Company’s interim and annual periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period were effective for the Company’s interim and annual periods beginning on or after December 15, 2010. The adoption of this accounting guidance significantly expanded existing disclosure requirements but did not have an impact on the Company’s financial position, results of operations and cash flows.

In January 2011, the FASB issued ASU No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in ASU No. 2011-01, temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, for public entities. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. The adoption of ASU No. 2011-01 did not have a material impact on our consolidated financial position or results of operations.

In April 2011, the FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, including factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibits creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial

 

17


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

difficulties. A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2011-01. The provisions of ASU No. 2011-02 will be effective for the Company’s reporting period ending September 30, 2011 and will be applied retrospectively to the beginning of the annual period of adoption. The adoption of ASU No. 2011-02 is not expected to have a material impact on our consolidated financial position or results of operations.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in ASU No. 2011-04 are to be applied prospectively. The guidance publishes convergence standards on fair value measurement and disclosures. The effective date for adoption is for interim and annual periods beginning after December 15, 2011. The adoption of ASU No. 2011-04 is not expected to have a material impact on our consolidated financial position or results of operations.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The objective of ASU No. 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This guidance eliminated the option of presenting components of comprehensive income as a part of the statement of changes in stockholder’s equity. They must be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. The effective date for adoption is for interim and annual periods beginning after December 15, 2011. The adoption of ASU No. 2011-05 is not expected to have a material impact on our consolidated financial position or results of operations.

NOTE 11 – FAIR VALUE MEASUREMENT AND DISCLOSURE

FASB ASC Topic 810, Fair Value Measurements and Disclosures, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and is not adjusted for transaction costs. This guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement inputs) and the lowest priority to unobservable inputs (Level 3 measurement inputs). The three levels of the fair value hierarchy under FASB ASC 820 are described below:

Basis of Fair Value Measurement:

 

   

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets.

 

   

Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices in markets that are not active, quoted prices for similar assets, or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset.

 

   

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Securities Available for Sale

Securities classified as available for sale are recorded at fair value on a recurring basis using pricing obtained from an independent pricing service. Where quoted market prices are available in an active market, securities are classified within Level 1. The Company has no securities classified within Level 1. If quoted market prices are not available, the pricing service estimates the fair values by using pricing models or quoted prices of securities with similar characteristics. For these securities, the inputs used by the pricing service to determine fair value consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and bonds’ terms and conditions, among other things resulting in classification within Level 2. Level 2 securities include obligations of U.S. government corporations and agencies, municipal bonds, and mortgage-backed securities. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3. The Company has no securities classified within Level 3.

Foreclosed Assets

Foreclosed assets consisting of foreclosed real estate and repossessed assets, are adjusted to fair value less estimated costs to sell upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of cost or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company

 

18


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

records the foreclosed asset as non-recurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as non-recurring Level 3.

Impaired Loans

Impaired loans are evaluated and adjusted to the lower of carrying value or fair value less estimated costs to sell at the time the loan is identified as impaired. Impaired loans are carried at the lower of cost or fair value. Fair value is measured based on the value of the collateral securing these loans. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as non-recurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as non-recurring Level 3.

The Company did not have any transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy during the second quarter of 2011.

The tables below present the recorded amount of assets measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010.

 

                          Total  
June 30, 2011    Level 1      Level 2      Level 3      Fair Value  

U.S. agency securities available for sale

   $ —         $ 4,057,570       $ —         $ 4,057,570   

Municipal Bonds

     —           1,846,471         —           1,846,471   

Residential mortgage-backed securities available for sale

     —           25,806,418         —           25,806,418   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 31,710,459       $ —         $ 31,710,459   
  

 

 

    

 

 

    

 

 

    

 

 

 
                          Total  
December 31, 2010    Level 1      Level 2      Level 3      Fair Value  

U.S. agency securities available for sale

   $ —         $ 5,568,530       $ —         $ 5,568,530   

Residential mortgage-backed securities available for sale

     —           26,894,172         —           26,894,172   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 32,462,702       $ —         $ 32,462,702   
  

 

 

    

 

 

    

 

 

    

 

 

 

The tables below present the recorded amount of assets measured at fair value on a non-recurring basis at June 30, 2011 and December 31, 2010.

 

                          Total  
June 30, 2011    Level 1      Level 2      Level 3      Fair Value  

Foreclosed assets

   $ —         $ 613,913       $ 71,426       $ 685,339   

Impaired loans, net

     —           4,419,939         6,235,111         10,655,050   
                          Total  
December 31, 2010    Level 1      Level 2      Level 3      Fair Value  

Foreclosed assets

   $ —         $ 1,266,121       $ 96,029       $ 1,362,150   

Impaired loans, net

     —           7,073,738         5,412,884         12,486,622   

 

19


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

The following information presents estimated fair value of the Company’s financial instruments as of June 30, 2011 and December 31, 2010.

 

     June 30, 2011      December 31, 2010  
     Carrying      Fair      Carrying      Fair  
     Amount      Value      Amount      Value  

Financial Assets:

           

Cash and cash equivalents

   $ 6,201,096       $ 6,201,096       $ 4,378,835       $ 4,378,835   

Federal funds sold

     1,337,000         1,337,000         5,016,000         5,016,000   

Securities available for sale

     34,245,411         34,245,411         34,997,654         34,997,654   

Accrued interest receivable

     711,752         711,752         751,769         751,769   

Loans

     130,412,176         130,683,000         135,350,904         142,074,000   

Mortgage servicing rights

     173,722         173,722         183,365         183,365   

Financial Liabilities:

           

Deposits

     161,950,752         163,321,000         170,831,454         174,933,000   

Accrued interest payable

     22,987         22,987         51,750         51,750   

The following methods and assumptions were used by the Bank in estimating the fair value of financial instruments:

Cash and Cash Equivalents: The carrying amounts reported in the balance sheets for cash and cash equivalents approximate fair values.

Federal Funds Sold: The carrying amounts reported in the balance sheets for federal funds sold approximate fair values.

Securities: The Company obtains fair value measurements of available for sale securities from an independent pricing service. See Note 11 - Fair Value Measurement and Disclosure for further detail on how fair values of marketable securities are determined. The carrying value of non-marketable equity securities approximates fair value.

Loans: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans (for example, fixed rate commercial real estate and rental property mortgage loans and commercial and industrial loans) are estimated using discounted cash flow analysis, based on market interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. Fair values for impaired loans are estimated using underlying collateral values, where applicable.

Accrued Interest Receivable and Payable: The carrying amounts of accrued interest receivable and payable approximate fair values.

Mortgage Servicing Rights: The carrying amounts of mortgage servicing rights approximate their fair values.

Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Loan Commitments: Commitments to extend credit were evaluated and fair value was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter-parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The Bank does not charge fees to enter into these agreements. As of June 30, 2011 and December 31, 2010, the fair value of the commitments is immaterial in nature.

 

20


Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

 

 

In addition, other assets and liabilities of the Bank that are not defined as financial instruments, such as property and equipment are not included in the above disclosures. Also, non-financial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill and similar items.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of the financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and footnotes appearing in Part I, Item 1 of this document.

FORWARD-LOOKING INFORMATION

Statements contained in this report that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “plan,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future. The Company cautions readers of this report that a number of important factors could cause the Company’s actual results subsequent to June 30, 2011 to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to, fluctuations in market rates of interest and loan and deposit pricing, changes in the securities or financial market, a deterioration of general economic conditions either nationally or locally, delays in obtaining the necessary regulatory approvals, our ability to consummate proposed transactions in a timely manner, legislative or regulatory changes that adversely affect our business, adverse developments or changes in the composition of our loan or investment portfolios, significant increases in competition, changes in real estate values, difficulties in identifying attractive acquisition opportunities or strategic partners to complement our Company’s approach and the products and services the Company offers, the possible dilutive effect of potential acquisitions or expansion, and our ability to raise new capital as needed and the timing, amount and type of such capital raises. These risks and uncertainties should be considered in evaluating forward-looking statements.

GENERAL

The Bank is a community and customer-oriented savings bank. The Bank’s business has historically consisted of attracting deposits from the general public and using those funds to originate one-to-four family residential loans, consumer loans and other loans. The Bank completed its reorganization pursuant to its Plan of Conversion on July 11, 2005, upon which the Bank converted from an Illinois-chartered mutual savings bank to a federally-chartered mutual savings bank, and on that same date, converted from a federally-chartered mutual savings bank to a federally-chartered stock savings bank, all of the outstanding stock of which was issued to the Company. As part of the reorganization, the Company issued 1,001,210 shares to the public and 1,223,701 shares to Ottawa Savings Bancorp MHC, a mutual holding company.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2011 AND DECEMBER 31, 2010

The Company’s total assets decreased $8.8 million, or 4.5%, to $186.3 million at June 30, 2011, from $195.1 million at December 31, 2010 due primarily to a decrease in loans caused by a combination of normal attrition, pay-downs, loan charge-offs and strategic initiatives to reduce lending exposure. Specifically, the decrease is the result of the following: a decrease in loans of $4.9 million; a decrease in federal funds sold of $3.7 million; a decrease in premises and equipment of $122,000, due primarily to depreciation; a decrease in securities available for sale of $752,000 due primarily to sales of instruments; a decrease in foreclosed real estate of $648,000, as properties were sold; a decrease in other assets of $294,000; a decrease to prepaid FDIC insurance premiums of $174,000; and a decrease in accrued interest receivable of $40,000. The decreases were partially offset by an increase in cash and cash equivalents of $1.8 million and an increase in deferred tax assets of $26,000.

 

21


Table of Contents

Cash and cash equivalents increased $1.8 million, or 41.6%, to $6.2 million at June 30, 2011 from $4.4 million at December 31, 2010 primarily as a result of cash provided by investing and operating activities slightly exceeding the cash used in financing activities.

Securities available for sale decreased $752,000, or 2.3%, to $31.7 million at June 30, 2011 from $32.5 million at December 31, 2010. The decrease was primarily the result of purchases of $9.1 million offset by $9.8 million in sales, calls, maturities and pay-downs.

Loans, net of the allowance for loan losses, decreased $4.9 million, or 3.7%, to $130.4 million at June 30, 2011 from $135.4 million at December 31, 2010. The decrease in loans, net of the allowance for loan losses, was primarily caused by a combination of normal attrition, pay-downs, loan charge-offs and strategic initiatives to reduce lending exposure, offset by a decrease in the allowance for loan losses of $706,000. The Company is focusing its lending efforts on customers based primarily in its local market.

Foreclosed real estate decreased $648,000, or 48.6%, to $685,000 at June 30, 2011 from $1.3 million at December 31, 2010. The decrease was primarily due to the sale of 15 properties valued at $1.6 million, offset by the addition of 12 properties valued at $937,000 acquired through loan foreclosures due to the continued stress the economic environment has placed on the Company’s customers.

Other assets comprised primarily of prepaid expenses, deferred director compensation accounts, and auto loan repossessions decreased $294,000, or 17.6%, to $1.4 million at June 30, 2011 from $1.7 million at December 31, 2010. The decrease in other assets was primarily due to the April 2011 receipt of a 2008 tax refund of approximately $399,000, offset by a 2010 state tax refund receivable of approximately $49,000. The prepaid FDIC premiums decreased $174,000, or 26.6%, at June 30, 2011 as a result of the amortization of the prepaid FDIC premiums for the first two quarters of 2011.

Total deposits decreased $8.9 million, or 5.2%, to $162.0 million at June 30, 2011 from $170.8 million at December 31, 2010. The decrease is primarily due to decreases in certificates of deposit of $9.4 million, which includes a decrease of $6.6 million related to the CDARS program, as the Company decided to focus on in-market deposits. Checking accounts, money market accounts and passbook savings accounts increased $564,000, or 1.2%, at June 30, 2011 from December 31, 2010 due primarily to customers moving funds into non-term products as they wait for a better rate environment.

Other liabilities increased $15,000, or 0.6%, to $2.4 million at June 30, 2011 from $2.4 million at December 31, 2010. The increase was primarily due to increases in escrow payable of $99,000, deferred gains of $68,000 on the sale of OREO properties, and an increase of $35,000 in SERP payable. The increases were primarily offset by a decrease in accounts payable of $170,000, of which most is attributable to the final separation payment to the Company’s former CEO paid in January of 2011.

Equity increased $49,000, or 0.2%, to $21.7 million at June 30, 2011 from $21.7 million at December 31, 2010. The increase in equity is primarily related to net income of $216,000 offset by an increase of $62,000 in the maximum cash obligation related to ESOP shares.

The continuing state of economic uncertainty continues to affect our asset quality. We have witnessed a decrease in the market values of homes in our market area in general and also on specific properties held as collateral. In addition, high unemployment locally continues to affect some of our borrowers’ ability to timely repay their obligations to the Company.

The Company’s nonperforming assets consist of non-accrual loans and foreclosed real estate. Loans are generally placed in non-accrual status when it is apparent all of the contractual payments (i.e. principal and interest) will not be received; however, they may be placed in non-accrual status sooner if management has significant doubt as to the collection of all amounts due. Interest previously accrued but uncollected is reversed and charged against interest income.

 

22


Table of Contents

The following table summarizes nonperforming assets at June 30, 2011 and December 31, 2010.

 

     June 30,      December 31,  
     2011      2010  
     (In Thousands)  

Non-accrual:

  

One-to-four family

   $ 7,573       $ 4,023   

Multi-family

     555         —     

Non-residential real estate

     469         1,248   

Commercial

     —           20   

Consumer direct

     19         —     

Purchased auto

     3         —     
  

 

 

    

 

 

 

Total non-accrual loans

     8,619         5,291   

Past due greater than 90 days and still accruing:

     

One-to-four family

     31         —     

Non-residential real estate

     329      

Consumer direct

     2         —     
  

 

 

    

 

 

 

Total nonperforming loans

     8,981         5,291   

Foreclosed real estate

     685         1,334   

Other repossessed assets

     —           28   
  

 

 

    

 

 

 

Total nonperforming assets

   $ 9,666       $ 6,653   
  

 

 

    

 

 

 

The table below presents selected asset quality ratios at June 30, 2011 and December 31, 2010.

 

     June 30,     December 31,  
     2011     2010  

Allowance for loan losses as a percent of gross loans receivable

     2.90     3.35

Allowance for loan losses as a percent of total nonperforming loans

     44.51     88.89

Nonperforming loans as a percent of gross loans receivable

     6.52     3.77

Nonperforming loans as a percent of total assets

     4.82     2.71

Nonperforming assets as a percent of total assets

     5.19     3.40

COMPARISON OF RESULTS OF OPERATION FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010

General. Net income for the three months ended June 30, 2011 was $3,000 compared to a net loss of $239,000 for the three months ended June 30, 2010.

Net Interest Income. The following table summarizes interest and dividend income and interest expense for the three months ended June 30, 2011 and 2010.

 

     Three Months Ended  
     June 30,  
     2011      2010      $ change     % change  
     (Dollars in thousands)  

Interest and dividend income:

          

Interest and fees on loans

   $ 1,973       $ 2,191       $ (218     (9.95 )% 

Securities:

          

Residential mortgage-backed and related securities

     245         230         15        6.52   

U.S. agency securities

     18         79         (61     (77.22

Municipal bonds

     7         —           7        100.00   

Dividends on non-marketable equity securities

     1         —           1        100.00   

Interest-bearing deposits

     2         2         —          —     
  

 

 

    

 

 

    

 

 

   

Total interest and dividend income

     2,246         2,502         (256     (10.23
  

 

 

    

 

 

    

 

 

   

Interest expense:

          

Deposits

     653         873         (220     (25.20
  

 

 

    

 

 

    

 

 

   

Total interest expense

     653         873         (220     (25.20
  

 

 

    

 

 

    

 

 

   

Net interest income

   $ 1,593       $ 1,629       $ (36     (2.21 )% 
  

 

 

    

 

 

    

 

 

   

 

23


Table of Contents

The following table presents for the periods indicated the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances are monthly average balances. Non-accruing loans have been included in the table as loans carrying a zero yield. The amortization of loan fees is included in computing interest income; however, such fees are not material.

 

     Three Months Ended June 30,  
     2011     2010  
                   AVERAGE                   AVERAGE  
     AVERAGE             YIELD/     AVERAGE             YIELD/  
     BALANCE      INTEREST      COST     BALANCE      INTEREST      COST  
     (Dollars in thousands)  

Interest-earning assets

                

Loans receivable, net (1)

   $ 131,418       $ 1,973         6.01   $ 143,445       $ 2,191         6.11

Securities, net (2)

     32,622         270         3.31     34,986         309         3.54

Non-marketable equity securities

     2,535         1         0.09     2,535         —           0.00

Interest-bearing deposits

     7,181         2         0.10     6,378         2         0.13
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets

     173,756         2,246         5.17     187,344         2,502         5.34

Interest-bearing liabilities

                

Money Market accounts

   $ 21,705       $ 36         0.67   $ 23,694       $ 73         1.23

Passbook accounts

     13,918         5         0.13     12,172         10         0.34

Certificates of Deposit accounts

     115,045         608         2.11     128,671         782         2.43

Checking accounts

     11,329         4         0.15     10,483         8         0.29
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     161,997         653         1.61     175,020         873         2.00
     

 

 

         

 

 

    

NET INTEREST INCOME

      $ 1,593            $ 1,629      
     

 

 

         

 

 

    

NET INTEREST RATE SPREAD (3)

           3.56           3.35
        

 

 

         

 

 

 

NET INTEREST MARGIN (4)

           3.67           3.48
        

 

 

         

 

 

 

RATIO OF AVERAGE INTEREST-EARNING ASSETS TO AVERAGE INTEREST-BEARING LIABILITIES

           107.26           107.04
        

 

 

         

 

 

 

 

(1) Amount is net of deferred loan origination (costs) fees, undisbursed loan funds, unamortized discounts and allowance for loan losses and includes non-performing loans.
(2) Includes unamortized discounts and premiums.
(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average interest-earning assets.

The following table summarizes the changes in net interest income due to rate and volume for the three months ended June 30, 2011 and 2010. The column “Net” is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates. The variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume.

 

     Three Months Ended June 30,  
     2011 Compared to 2010  
     Increase (Decrease) Due to  
     VOLUME     RATE     NET  
     (Dollars in Thousands)  

Interest and dividends earned on

      

Loans receivable, net

   $ (181   $ (37   $ (218

Securities, net

     (19     (20     (39

Non-marketable equity securities

     —          1        1   

Interest-bearing deposits

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total interest-earning assets

   $ (200   $ (56   $ (256
  

 

 

   

 

 

   

 

 

 

Interest expense on

      

Money Market accounts

   $ (3   $ (34   $ (37

Passbook accounts

     1        (6     (5

Certificates of Deposit accounts

     (72     (102     (174

Checking

     —          (4     (4
  

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     (74     (146     (220
  

 

 

   

 

 

   

 

 

 

Change in net interest income

   $ (126   $ 90      $ (36
  

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

Net interest income decreased $36,000, or 2.3%, to $1.6 million for the three months ended June 30, 2011 compared to $1.6 million for the three months ended June 30, 2010. Interest and dividend income decreased due to the decline in average interest earning assets of $13.6 million and the yield decreasing on interest earning assets from 5.34% to 5.17%. The decline in the loan portfolio contributed to a significant amount of the decline in earning assets. The yield on the investment portfolio and the loan portfolio continued to decline as the low rate environment continued during the second quarter of 2011. This decline in interest income was partially offset by a $220,000, or 25.5%, reduction in interest expense. The cost of funds declined 0.39 basis points or 19.5% for the second quarter of 2011 compared to the second quarter of 2010, due to the continued low rate environment. Additionally, the average balance of interest bearing liabilities declined by $13.0 million or 7.4%.

Provision for Loan Losses. Management recorded a loan loss provision of $1.0 million for the three months ended June 30, 2011, compared to $833,000 for the three months ended June 30, 2010. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect each borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. Although the Company believes that it uses the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, the Company’s regulatory authorities, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such an agency may require the Company to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. Based on its review at June 30, 2011, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable.

Other Income. The following table summarizes other income for the three months ended June 30, 2011 and 2010.

 

     Three months ended  
     June 30,  
     2011     2010     $ change     % change  
     (Dollars in thousands)  

Other income:

        

Gain on sale of securities

   $ 275      $ (2   $ 277        13,850.00

Gain on sale of loans

     —          13        (13     (100.00

Origination of mortgage servicing rights, net of amortization

     (7     2        (9     (450.00

Customer service fees

     74        65        9        13.85   

Income on bank owned life insurance

     9        8        1        12.50   

Other

     108        14        94        671.43   
  

 

 

   

 

 

   

 

 

   

Total other income

   $ 459      $ 100      $ 359        359.00
  

 

 

   

 

 

   

 

 

   

The increase in total other income was primarily due to gains on the sale of four securities during the second quarter of 2011. In addition, other elements of other income include an interest receipt of approximately $90,000 on the 2008 tax refund received during the second quarter of 2011. During the second quarter of 2011, the demand for new mortgage loans declined slightly over 2010 levels resulting in fewer opportunities to refinance loans which could be sold to Freddie Mac, and causing the amortization of mortgage servicing rights to slightly exceed the origination of mortgage servicing rights.

Other Expenses. The following table summarizes other expenses for the three months ended June 30, 2011 and 2010.

 

     Three months ended  
     June 30,  
     2011     2010     $ change     % change  
     (Dollars in thousands)  

Other expenses:

        

Salaries and employee benefits

   $ 400      $ 706      $ (306     (43.34 )% 

Directors fees

     21        21        —          —     

Occupancy

     118        125        (7     (5.60

Deposit insurance premium

     87        111        (24     (21.62

Legal and professional services

     60        82        (22     (26.83

Data processing

     72        74        (2     (2.70

Valuation adjustments and expenses on foreclosed real estate

     91        44        47        106.82   

Loss (gain) on sale of foreclosed real estate

     102        (34     136        400.00   

Loss on sale of repossessed assets

     1        2        (1     (50.00

Other

     149        150        (1     (0.67
  

 

 

   

 

 

   

 

 

   

Total other expenses

   $ 1,101      $ 1,281      $ (180     (14.05 )% 
  

 

 

   

 

 

   

 

 

   

Efficiency ratio (1)

     53.65     74.09    

 

(1) Computed as other expenses divided by the sum of net interest income and other income.

 

25


Table of Contents

The decrease in other expenses was primarily due to the decrease in salaries and employee benefits as a result of a decrease in compensation expenses relating to changes in personnel from June 2010 to June 2011 due to the departure of the Company’s former CEO in May of 2010. Deposit insurance premiums decreased primarily due to a shrinking deposit base. The decreases were offset by the sale of foreclosed real estate which resulted in losses of $102,000 during the second quarter of 2011 as compared to the second quarter of 2010, when such sales resulted in gains of $34,000.

Income Taxes. The Company recorded an income tax benefit of $85,000 and $147,000 for the three months ended June 30, 2011 and 2010, respectively. The difference in income taxes for the periods is due to the differences in pre-tax income for the applicable periods and an increase in the Sate of Illinois tax rate for 2011. During the three months ended June 30, 2011, the Company re-valued its deferred tax assets due to the State of Illinois income tax rate increase, thus, increasing the state deferred income taxes and decreasing state income tax expense for the period.

COMPARISON OF RESULTS OF OPERATION FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

General. Net income for the six months ended June 30, 2011 was $216,000 compared to $37,000 for the six months ended June 30, 2010.

Net Interest Income. The following table summarizes interest and dividend income and interest expense for the six months ended June 30, 2011 and 2010.

 

     Six Months Ended  
     June 30,  
     2011      2010      $ change     % change  
     (Dollars in thousands)  

Interest and dividend income:

          

Interest and fees on loans

   $ 3,927       $ 4,376       $ (449     (10.26 )% 

Securities:

          

Residential mortgage-backed and related securities

     478         480         (2     (0.42

U.S. agency securities

     46         139         (93     (66.91

Municipal bonds

     7         —           7        100.00   

Dividends on non-marketable equity securities

     1         —           1        100.00   

Interest-bearing deposits

     3         4         (1     (25.00
  

 

 

    

 

 

    

 

 

   

Total interest and dividend income

     4,462         4,999         (537     (10.74
  

 

 

    

 

 

    

 

 

   

Interest expense:

          

Deposits

     1,339         1,813         (474     (26.14
  

 

 

    

 

 

    

 

 

   

Total interest expense

     1,339         1,813         (474     (26.14
  

 

 

    

 

 

    

 

 

   

Net interest income

   $ 3,123       $ 3,186       $ (63     (1.98 )% 
  

 

 

    

 

 

    

 

 

   

 

26


Table of Contents

The following table presents for the periods indicated the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances are monthly average balances. Non-accruing loans have been included in the table as loans carrying a zero yield. The amortization of loan fees is included in computing interest income; however, such fees are not material.

 

     Six Months Ended June 30,  
     2011     2010  
                   AVERAGE                   AVERAGE  
     AVERAGE             YIELD/     AVERAGE             YIELD/  
     BALANCE      INTEREST      COST     BALANCE      INTEREST      COST  
     (Dollars in thousands)  

Interest-earning assets

                

Loans receivable, net (1)

   $ 132,503       $ 3,927         5.93   $ 144,977       $ 4,376         6.04

Securities, net (2)

     31,821         531         3.33     33,112         619         3.74

Non-marketable equity securities

     2,535         1         0.09     2,535         —           0.00

Interest-bearing deposits

     6,979         3         0.08     8,187         4         0.10
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets

     173,838         4,462         5.13     188,811         4,999         5.30

Interest-bearing liabilities

                

Money Market accounts

   $ 21,364       $ 73         0.68   $ 24,623       $ 178         1.45

Passbook accounts

     13,794         10         0.14     11,876         19         0.32

Certificates of Deposit accounts

     116,604         1,247         2.14     130,236         1,599         2.46

Checking accounts

     10,987         9         0.16     10,149         17         0.34
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     162,749         1,339         1.65     176,884         1,813         2.05
     

 

 

         

 

 

    

NET INTEREST INCOME

      $ 3,123            $ 3,186      
     

 

 

         

 

 

    

NET INTEREST RATE SPREAD (3)

           3.49           3.25
        

 

 

         

 

 

 

NET INTEREST MARGIN (4)

           3.59           3.37
        

 

 

         

 

 

 

RATIO OF AVERAGE INTEREST-EARNING ASSETS TO AVERAGE INTEREST-BEARING LIABILITIES

           106.81           106.74
        

 

 

         

 

 

 

 

(1) Amount is net of deferred loan origination (costs) fees, undisbursed loan funds, unamortized discounts and allowance for loan losses and includes non-performing loans.
(2) Includes unamortized discounts and premiums.
(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average interest-earning assets.

The following table summarizes the changes in net interest income due to rate and volume for the six months ended June 30, 2011 and 2010. The column “Net” is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates. The variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume.

 

     Six Months Ended June 30,  
     2011 Compared to 2010  
     Increase (Decrease) Due to  
     VOLUME     RATE     NET  
     (Dollars in Thousands)  

Interest and dividends earned on

      

Loans receivable, net

   $ (370   $ (79   $ (449

Securities, net

     (22     (66     (88

Non-marketable equity securities

     —          1        1   

Interest-bearing deposits

     —          (1     (1
  

 

 

   

 

 

   

 

 

 

Total interest-earning assets

   $ (392   $ (145   $ (537
  

 

 

   

 

 

   

 

 

 

Interest expense on

      

Money Market accounts

   $ (11   $ (94   $ (105

Passbook accounts

     1        (10     (9

Certificates of Deposit accounts

     (146     (206     (352

Checking

     1        (9     (8
  

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     (155     (319     (474
  

 

 

   

 

 

   

 

 

 

Change in net interest income

   $ (237   $ 174      $ (63
  

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

Net interest income decreased $63,000, or 2.0%, to $3.1 million for the six months ended June 30, 2011 compared to $3.2 million for the six months ended June 30, 2010. Interest and dividend income decreased due to the decline in average interest earning assets of $15.0 million and the yield decreasing on interest earning assets from 5.30% to 5.13%. The decrease in total loans in the loan portfolio contributed to a significant amount of the decline in earning assets. The yield on the investment portfolio and the loan portfolio continued to decline as the low rate environment continued during the first two quarters of 2011. This decline in interest income was partially offset by a $474,000, or 26.15%, reduction in interest expense. The cost of funds declined 0.40 basis points or 19.5% for the six months ended June 30, 2011 compared to the six months ended June 30, 2010, due to the continued low rate environment. Additionally, the average balance of interest bearing liabilities declined by $14.1 million or 8.0%.

Provision for Loan Losses. Management recorded a loan loss provision of $1.4 million for the six months ended June 30, 2011, compared to $1.1 million for the six months ended June 30, 2010. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect each borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions Although the Company believes that it uses the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, the Company’s regulatory authorities, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such an agency may require the Company to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. Based on its review at June 30, 2011, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable.

Other Income. The following table summarizes other income for the six months ended June 30, 2011 and 2010.

 

     Six months ended
June 30,
 
     2011     2010      $ change     % change  
     (Dollars in thousands)  

Other income:

         

Gain on sale of securities

   $ 276      $ —         $ 276        100.00

Gain on sale of loans

     8        21         (13     (61.90

Origination of mortgage servicing rights, net of amortization

     (10     4         (14     (350.00

Customer service fees

     143        132         11        8.33   

Income on bank owned life insurance

     17        14         3        21.43   

Other

     130        26         104        400.00   
  

 

 

   

 

 

    

 

 

   

Total other income

   $ 564      $ 197       $ 367        186.29
  

 

 

   

 

 

    

 

 

   

The increase in total other income was primarily due to gains on the sale of four securities during the second quarter of 2011. In addition, other elements of other income include an interest payment of approximately $90,000 on the 2008 tax refund received during the second quarter of 2011. During the first two quarters of 2011, the demand for new mortgage loans declined slightly over 2010 levels resulting in fewer opportunities to refinance loans which could be sold to Freddie Mac, and causing the amortization of mortgage servicing rights to slightly exceed the origination of mortgage servicing rights.

Other Expenses. The following table summarizes other expenses for the six months ended June 30, 2011 and 2010.

 

     Six months ended  
     June 30,  
     2011     2010     $ change     % change  
     (Dollars in thousands)  

Other expenses:

        

Salaries and employee benefits

   $ 797      $ 1,137      $ (340     (29.90 )% 

Directors fees

     42        42        —          —     

Occupancy

     237        251        (14     (5.58

Deposit insurance premium

     183        184        (1     (0.54

Legal and professional services

     122        143        (21     (14.69

Data processing

     147        143        4        2.80   

Valuation adjustments and expenses on foreclosed real estate

     119        68        51        75.00   

Loss on sale of foreclosed real estate

     79        20        59        295.00   

Loss on sale of repossessed assets

     13        2        11        550.00   

Other

     281        264        17        6.44   
  

 

 

   

 

 

   

 

 

   

Total other expenses

   $ 2,020      $ 2,254      $ (234     (10.38 )% 
  

 

 

   

 

 

   

 

 

   

Efficiency ratio (1)

     54.79     66.63    

 

(1) Computed as other expenses divided by the sum of net interest income and other income.

 

28


Table of Contents

The decrease in other expenses was primarily due to the decrease in salaries and employee benefits as a result of a decrease in compensation expenses relating to changes in personnel from June 2010 to June 2011 due to the departure of the Company’s former CEO in May of 2010. The decreases were offset by the sale of foreclosed real estate which resulted in losses of $79,000 during the first two quarters of 2011 as compared to the first two quarters of 2010, when such sales resulted in losses of $20,000. Additionally, valuation adjustments and expenses on foreclosed real estate increased to $119,000 during 2011 as compared to $68,000 for 2010.

Income Taxes. The Company recorded an income tax expense of $30,000 and $11,000 for the six months ended June 30, 2011 and 2010, respectively. The difference in income taxes for the periods is due to the differences in pre-tax income for the applicable periods and an increase in the Sate of Illinois tax rate for 2011. During the six months ended June 30, 2011, the Company re-valued its deferred tax assets due to the State of Illinois income tax rate increase, thus, increasing the state deferred income taxes and decreasing state income tax expense for the period.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity. Liquidity management for the Bank is measured and monitored on both a short and long-term basis, allowing management to better understand and react to emerging balance sheet trends. After assessing actual and projected cash flow needs, management seeks to obtain funding at the most economical cost to the Bank. Our primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed and related securities, and other short-term investments, and funds provided from operations. While scheduled payments from amortization of loans and mortgage-backed related securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. We invest excess funds in short-term interest-earning assets, including federal funds sold, which enable us to meet lending requirements or long-term investments when loan demand is low.

At June 30, 2011 the Bank had outstanding commitments to originate $1.5 million in loans, unfunded lines of credit of $9.4 million, unfunded commitments on construction loans of $31,000, and a commitment to purchase $2.5 million in auto loans. In addition, as of June 30, 2011, the total amount of certificates of deposit that were scheduled to mature in the next 12 months was $46.8 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as FHLBC advances, in order to maintain our level of assets. Alternatively, we could reduce our level of liquid assets, such as our cash and cash equivalents. In addition, the cost of such deposits may be significantly higher if market interest rates are higher at the time of renewal. As of June 30, 2011, the Bank had $46.9 million of available credit from the Federal Home Loan Bank of Chicago, based on 20 times the amount of our capital stock in the Federal Home Loan Bank of Chicago. There were no Federal Home Loan Bank advances outstanding at June 30, 2011. In addition, as of June 30, 2011, the Bank had $5.0 million of available credit from Bankers Bank of Wisconsin to purchase Federal Funds.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders and for any repurchased shares of its common stock. Whether dividends are declared, and the timing and amount of any dividends declared, is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making. The Company’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year, without the receipt of prior approval from the regulatory agencies but with prior notice to the regulatory agencies, cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. At June 30, 2011, the Company had cash and cash equivalents of $220,000.

Capital. The Bank is required to maintain regulatory capital sufficient to meet Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of at least 4.0%, 4.0% and 8.0%, respectively. The Bank exceeded each of its capital requirements with ratios at June 30, 2011 of 10.18%, 16.66% and 17.94%, respectively, compared to ratios at December 31, 2010 of 9.57%, 15.88% and 17.17%, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

For the six months ended June 30, 2011, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This Item is not applicable as the Company is a smaller reporting company.

 

29


Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information to be included in the Company’s periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

In addition, there have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

ITEM 1 - LEGAL PROCEEDINGS

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business that, in the aggregate, are believed by management to be material to the financial condition and results of operations of the Company.

ITEM 1A - RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results. As of June 30, 2011, the risk factors of the Company have not changed materially from those reported in the Company’s Annual Report on Form 10-K. However, the risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 - [REMOVED AND RESERVED]

ITEM 5 - OTHER INFORMATION

Not applicable.

 

30


Table of Contents

ITEM 6 - EXHIBITS

 

Exhibit
No.

  

Description

  3.1    Certificate of Incorporation of Ottawa Savings Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to Company’s Registration Statement on Form SB-2, No. 333-123455, filed on May 3, 2005, as amended)
  3.2    Bylaws of Ottawa Savings Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to Company’s Registration Statement on Form SB-2, No. 333-123455, filed on May 3, 2005, as amended)
31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101    The following materials from the Ottawa Savings Bancorp, Inc. Quarterly Report on form 10-Q for the quarter ended June 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Financial Condition, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes.

 

31


Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  OTTAWA SAVINGS BANCORP, INC.
  Registrant
Date: August 12, 2011  

/s/ Jon L. Kranov

  Jon L. Kranov
  President and Chief Executive Officer
  (Principal Executive Officer)
Date: August 12, 2011  

/s/ Marc N. Kingry

  Marc N. Kingry
  Chief Financial Officer
  (Principal Financial Officer)

 

32