<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number 0-24118
OTTAWA FINANCIAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 38-3172166
-------- ----------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
245 Central Avenue, Holland, Michigan 49423
--------------------------------------------
(Address of principal executive offices)
616-393-7000
------------
(Registrant's telephone number, including area code)
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
----- -----
<TABLE>
<S> <C>
Class:
Common stock, $.01 par value As of July 29, 1997, there were 4,910,853 shares outstanding.
</TABLE>
<PAGE> 2
OTTAWA FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
PART I - FINANCIAL INFORMATION
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-Q as referenced below:
Page
----
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition........................3
Consolidated Statements of Operations.................................4
Consolidated Statements of Cash Flows...............................5-6
Notes to the Consolidated Financial Statements........................7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................8-13
Part II - Other Information
OTHER INFORMATION..........................................................14
SIGNATURES.................................................................14
EXHIBIT INDEX..............................................................15
2
<PAGE> 3
PART 1 OTTAWA FINANCIAL CORPORATION
Item 1. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Cash and due from financial institutions $ 25,696 $ 20,253
Interest-bearing demand deposits in other
financial institutions 2,430 2,548
-------- --------
Total cash and cash equivalents 28,126 22,801
Securities available for sale 55,041 62,906
Federal Home Loan Bank stock 7,308 6,958
Loans receivable, net 731,909 715,551
Accrued interest receivable
Loans 4,021 3,893
Securities 687 798
Premises and equipment, net 14,347 14,533
Acquisition intangibles 14,857 15,474
Other assets 5,038 5,392
-------- --------
Total Assets $861,334 $848,306
======== ========
LIABILITIES
Deposits $636,221 $622,492
Federal funds purchased 2,000
Federal Home Loan Bank advances 138,958 139,170
Advances from borrowers for taxes
and insurance 3,527 270
Accrued expenses and other liabilities 7,431 7,458
-------- --------
Total Liabilities 786,137 771,390
-------- --------
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value;
10,000,000 shares authorized; issued
5,969,983 shares at June 30, 1997
5,962,534 shares at December 31, 1996 60 60
Additional Paid-in Capital 61,376 61,048
Retained earnings, substantially restricted 35,455 32,672
Net unrealized gain or (loss) on securities available
for sale, net of tax (135) (79)
Employee Stock Ownership Plan
(Unallocated Shares) (2,568) (2,806)
Management Recognition and
Retention Plan (Unearned Shares) (1,598) (1,977)
Less Cost of Common Stock in
Treasury - 1,056,830 shares at
June 30, 1997, 782,866 shares at
December 31, 1996 (17,393) (12,002)
-------- --------
Total Shareholders' Equity 75,197 76,916
-------- --------
Total Liabilities and Shareholders' Equity $861,334 $848,306
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
OTTAWA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
-------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest Income
Loans $14,987 $12,450 $29,444 $21,383
Investment securities and
equity investments 966 1,283 1,927 2,478
Other interest and dividend income 270 172 474 368
------- ------- ------- -------
16,223 13,905 31,845 24,229
------- ------- ------- -------
Interest Expense
Deposits 7,227 6,572 14,280 11,080
Federal Home Loan Bank advances 2,076 1,171 4,088 2,002
Other 5 4 9 7
------- ------- ------- -------
9,308 7,747 18,377 13,089
------- ------- ------- -------
NET INTEREST INCOME 6,915 6,158 13,468 11,140
Provision for loan losses 150 150 300 264
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,765 6,008 13,168 10,876
------- ------- ------- -------
Noninterest income
Service charges and other fees 772 711 1,309 1,398
Mortgage servicing fees 79 79 142 158
Gain on sale of loans 4 21 20 75
Gain (loss) on sale of securities 87 (7) 151 (4)
Other 95 98 136 174
------- ------- ------- -------
1,037 902 1,758 1,801
------- ------- ------- -------
Noninterest expense
Compensation and benefits 2,627 2,240 4,968 4,137
Occupancy 303 290 633 524
Furniture, fixtures and equipment 258 191 514 331
Advertising 75 55 162 112
FDIC deposit insurance 100 327 124 560
State single business tax 90 86 180 158
Data processing 243 254 454 471
Professional services 69 54 149 130
Acquisition intangibles amortization 305 309 617 463
Other 608 717 1,300 1,381
------- ------- ------- -------
4,678 4,523 9,101 8,267
------- ------- ------- -------
INCOME BEFORE FEDERAL
INCOME TAX EXPENSE 3,124 2,387 5,825 4,410
Federal income tax expense 1,162 931 2,147 1,658
------- ------- ------- -------
NET INCOME $ 1,962 $ 1,456 $ 3,678 $ 2,752
======= ======= ======= =======
Earnings per share:
Primary .39 .28 .73 .52
=== === === ===
Fully diluted .39 .28 .72 .52
=== === === ===
Dividends per common share .10 .08 .19 .16
=== === === ===
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
OTTAWA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
-------- --------
(Dollars in Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,678 $ 2,752
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 536 346
Net amortization of security premiums and discounts 192 140
Amortization of acquisition intangibles 617 457
Provision for loan losses 300 264
Loss on limited partnership investments 24 42
ESOP expense 477 407
MRP expense 302 285
Origination of loans for sale (6,823) (4,032)
Proceeds from sale of loans originated for sale 6,843 4,107
Gain on sale of loans (20) (75)
Gain on sale of securities (151)
Changes in:
Other assets 297 (296)
Other liabilities (27) (73)
------- -------
Net cash from operating activities 6,245 4,324
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for acquisition of AmeriBank (22,959)
Purchase of securities available for sale (4,161) (8,337)
Proceeds from calls and maturities of securities available for sale 8,020 8,314
Proceeds from sale of securities available for sale 299 24,976
Purchases of FHLB stock (350) (1,300)
Principal payments on mortgage-backed certificates 3,627 1,860
Purchases of loans (2,367) (6,591)
Loan originations net of principal payments on loans (14,291) (64,240)
Premises and equipment expenditures, net (350) (929)
------- -------
Net cash from investing activities (9,573) (69,206)
------- -------
</TABLE>
5
<PAGE> 6
OTTAWA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CONTINUED
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
--------- --------
(Dollars in Thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 13,729 25,503
Net decrease in Federal funds purchased (2,000)
Proceeds from FHLB advances 47,000 41,539
Repayment of FHLB advances (47,212)
Net increase in advances from borrowers 3,257 3,237
Proceeds from exercise of stock options 165 480
Cash dividends paid (895) (831)
Purchase of treasury shares (5,391) (3,846)
-------- -------
Net cash from financing activities 8,653 66,082
-------- -------
Net change in cash and cash equivalents 5,325 1,200
-------- -------
Cash and cash equivalents at beginning of year 22,801 15,868
-------- -------
Cash and cash equivalents at end of year $ 28,126 $17,068
======== =======
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 18,865 $12,749
Income taxes 1,665 1,020
Supplemental disclosure of noncash financing activities
Forfeiture of MRP shares 110
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
OTTAWA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1997
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Ottawa Financial Corporation ("Corporation") and its wholly owned subsidiary,
AmeriBank ("Bank"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
These interim financial statements are prepared without audit and reflect
all adjustments which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Corporation at June 30, 1997,
and its results of operations and statement of cash flows for the periods
presented. All such adjustments are normal and recurring in nature. The
accompanying consolidated financial statements do not purport to contain all
the necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances and should be
read in conjunction with the consolidated financial statements and notes
thereto of Ottawa Financial Corporation for the year ended December 31, 1996.
The Corporation acquired AmeriBank, Federal Savings Bank ("AFSB") on
February 13, 1996. Therefore the financial results for the six months ended
June 30, 1996 reflect the consolidation of financial information since that
date. The financial results for the three and six months ended June 30, 1997
reflect the consolidation of financial information for the entire quarter and
semi-annual period.
The provision for income taxes is based upon the effective tax rate
expected to be applicable for the entire year.
Earnings per share for the quarter ended June 30, 1997, were computed by
dividing net income for the quarter ended June 30, 1997 by 5,004,150 shares for
primary and 5,031,567 shares for fully diluted. Earnings per share for the six
months ended June 30, 1997, were computed by dividing net income for the six
months ended June 30, 1997 by 5,004,534 shares for primary and 5,097,110
shares for fully diluted. The shares are based on the weighted average number
of shares outstanding and reflect common stock equivalents.
7
<PAGE> 8
OTTAWA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion compares the financial condition of Ottawa
Financial Corporation ("Corporation") and its wholly owned subsidiary,
AmeriBank ("Bank") at June 30, 1997 to December 31, 1996 and the results of
operations for the three and six months ended June 30, 1997, compared to the
same periods in 1996. This discussion should be read in conjunction with the
interim consolidated condensed financial statements and footnotes included
herein.
When used in this Quarterly Report on Form 10-Q, the words or phrases
"will likely result", "are expected to", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties -
including changes in economic conditions in the Corporation's market area,
changes in policies by regulatory agencies, fluctuations in interest rates,
demand for loans in the Corporation's market area and competition, that could
cause actual results to differ materially from historical performance and those
presently anticipated or projected. The Corporation wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made. The Corporation wishes to advise readers that the
factors listed above could affect the Corporation's financial performance and
could cause the Corporation's actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements.
The Corporation does not undertake - and specifically disclaims any
obligation - to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
FINANCIAL CONDITION
The Corporation's total assets increased to $861.33 million at June 30,
1997 from $848.31 million at December 31, 1996. Most of the growth was in
loans and liquid assets, which was funded from the proceeds received from the
call and maturity of securities and the growth in deposits.
Net loans receivable increased to $731.91 million at June 30, 1997 from
$715.55 million at December 31, 1996. Most of this growth was in new
originations of commercial and consumer loans, which was funded primarily by
retail deposits as opposed to wholesale funding sources.
Deposits increased $13.73 million to $636.22 million at June 30, 1997,
from $622.49 million at December 31, 1996. Approximately 75% of the growth
was in certificates of deposits, while the remaining increase was in money
market savings and demand accounts. While the pace of growth during the first
half of 1997 was not as significant as that experienced during 1996, the
increase in deposits reflects the Bank's matching of deposit products to market
needs and its advertising.
8
<PAGE> 9
The primary change in total shareholders' equity related to additional
repurchases of the Corporation's outstanding shares of common stock. During
the first six months of 1997, 273,964 shares were repurchased at an average
price of $19.68 per share, which both completed the repurchase plan approved in
December 1996 and began a new repurchase plan approved in June 1997. Under the
new repurchase plan, the Corporation received approval to repurchase an
additional 5% (245,973 shares) of its outstanding shares of stock. The stock
buy back has enhanced the Corporation's return on equity and earnings per
share.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following tables present for the periods indicated the total dollar
amount of interest income earned on average interest-earning assets and the
resultant yields, as well as the amount of interest expense paid on average
interest-bearing liabilities, and the resultant rates.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
-------------------------------- -----------------------------------
Average Interest Average
Outstanding Earned/ Yield/ Outstanding Interest Yield/
Balance Paid Rate Balance Earned/Paid Rate
-------------------------------- -----------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable (1) (2) $725,098 $29,468 8.13% $526,727 $21,401 8.13%
Securities (2) 59,144 1,979 6.67 83,591 2,517 6.47
Other interest-earning assets 14,596 474 6.50 7,188 368 6.37
-------- ------- ------ -------- ------- ------
Total interest-earning assets $798,838 $31,921 7.99% $617,506 $24,286 7.87%
-------- ------- ------ -------- ------- -----
Interest-Bearing Liabilities:
Demand and NOW deposits $149,164 $ 2,827 3.83% $114,276 $ 1,975 3.48%
Savings deposits 67,083 801 2.42 66,066 850 2.59
Certificate accounts 388,152 10,652 5.55 302,793 8,254 5.48
FHLB advances 141,248 4,088 5.85 69,889 2,003 5.76
Other interest-bearing liabilities 240 9 7.27 182 7 7.80
-------- ------- ------ -------- ------- ------
Total interest-bearing liabilities $745,887 $18,377 4.98% $553,206 $13,089 4.76%
-------- ------- ----- -------- ------- -----
Net interest income $13,544 $11,197
======= =======
Net interest rate spread 3.01% 3.11%
===== =====
Net earning assets $ 52,951 $ 64,300
======== ========
Net yield on average
interest-earning assets 3.39% 3.63%
===== =====
Average interest-earning assets
to average interest-bearing
liabilities 1.07x 1.12x
==== ====
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process,
and loan reserves.
(2) Tax exempt interest on loans and securities has been converted to a fully
- - taxable equivalent basis.
9
<PAGE> 10
RATE/VOLUME ANALYSIS
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the change related to
changes in outstanding balances and that due to interest rate movements. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume which cannot be segregated have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 vs. 1996
--------------------------------
Increase
(Decrease)
Due to
------------------
Total
Volume Rate Increase
(Decrease)
--------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable $8,062 $ 5 $8,067
Securities - Taxable (867) 328 (539)
Other interest-earning assets 166 (59) 107
------ ---- ------
Total interest-earning assets $7,361 $274 $7,635
====== ===== ======
Interest-bearing liabilities:
Demand and NOW deposits 647 205 852
Savings deposits 13 (62) (49)
Certificate accounts 2,342 56 2,398
Borrowings 2,065 20 2,085
Other interest-bearing liabilities 2 0 2
------ ---- ------
Total interest-bearing liabilities $5,069 $219 $5,288
====== ==== ======
Net interest income $2,292 $ 55 $2,347
====== ==== ======
</TABLE>
RESULTS OF OPERATIONS
The acquisition of AmeriBank, Federal Savings Bank ("AFSB") was closed on
February 13, 1996, therefore the financial results for the three and six months
ended June 30, 1996 reflect the consolidation of financial information since
that date. The financial results for the three and six months ended June 30,
1997 reflect the consolidation of financial information for the entire quarter
and semi-annual period.
Net income for the quarter ended June 30, 1997 was $1.96 million or $.39
per share compared to net income of $1.46 million or $.28 per share for the
same period in 1996. This represents a 39% increase in earnings per share
("EPS"). Net income for the six months ended June 30, 1997 was $3.68 million
or $.73 per share compared to net income of $2.75
10
<PAGE> 11
million or $.52 per share for the same period in 1996 representing a 40%
increase in earnings per share. In addition to the increase in net income, EPS
was also positively impacted by the stock buy back activity discussed above.
To supplement the EPS information typically disclosed, the Corporation is
providing "cash" or "tangible" EPS as an alternative measure for evaluating the
Corporation's ability to grow tangible capital. The calculations of cash
earnings per share were specifically formulated by the Corporation and may not
be comparable to similarly titled measures reported by other companies. This
measure is not intended to reflect cash flow per share. The cash or tangible
EPS for the second quarter of 1997 was $.50, which is $.11 per share higher
than the standard EPS, compared to a cash EPS of $.38 for the second quarter of
1996, showing a 32% improvement. The cash or tangible EPS for the six months
ended June 30, 1997 was $.95, which is $.22 per share higher than the standard
EPS, compared to a cash EPS of $.69 for the same period in 1996, showing a 38%
improvement. This measure and the factors influencing its calculation are
described more fully in the 1996 Annual Report to shareholders.
Net income for the quarter ended June 30, 1997 yielded a return on average
equity of 10.31%, representing a 45% improvement over the return on average
equity achieved for the same period in 1996 of 7.13%. Return on average
equity for the six months ended June 30, 1997 was 9.66% compared to 6.78% for
the same period in 1996, representing a 42% improvement. The increase in the
return on average equity is primarily attributable to the improved earnings
resulting from the positive impact of capital leveraging experienced during
1996 and the first six months of 1997. The capital leveraging was achieved
mostly through growth in assets and, to a lesser extent, through the stock buy
back activity.
Net interest income increased $2.35 million on a tax equivalent basis for
the six months ended June 30, 1997 as compared to the same period in 1996.
The increase in net interest income is attributable to the positive impact of
volume increases caused by the AFSB acquisition and internal growth experienced
during 1996 and the first six months of 1997. While net interest income
increased, there was a decline in the net interest spread, from 3.11% to
3.01%, and net interest margin, from 3.63% to 3.39%, for the six months ended
June 30, 1996 compared to the same period in 1997, respectively. The yield on
total interest-earning assets improved primarily due to an increase in the loan
portfolio as a percent of total interest-earning assets. Offsetting this
improvement in the yield on interest-earning assets was the increase in the
cost of interest-bearing liabilities, resulting in a decline in the net
interest spread. The cost of interest-bearing liabilities increased primarily
due to an increase in FHLB advances as a percent of total interest-bearing
liabilities, as well as a general rise in the rates of the significant
interest-bearing liabilities. The reduction in net interest margin was
partially the result of this spread decline, but also the result of the
Corporation becoming more leveraged through acquisition and internal growth.
This increase in leveraging is reflected in the ratio of average
interest-earning assets to average interest-bearing liabilities, which declined
to 1.07x for the six months ended June 30, 1997 compared to 1.12x for the same
period in 1996.
The provision for loan losses is a result of management's periodic
analysis of the adequacy of the allowance for loan losses. The provision of
$300,000 for the six months ended June 30, 1997 has maintained the ratio of
allowance for loan loses to total loans at a consistent level as the
Corporation's credit risk profile has not changed dramatically. It is
anticipated that the Corporation will increase its provision in future periods
to prepare for the higher risk of loss associated with management's intention
to increase the commercial and consumer loan portfolios.
The allowance is maintained by management at a level considered adequate
to cover possible loan losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific borrower
situations, including their financial position and collateral values, and other
factors and estimates, which are subject to change over time. Although the
level of non-performing assets is considered in establishing the allowance for
loan losses balance, variations in non-performing loans have not been
meaningful based upon the Corporation's past loss experience and, as such, have
not had a significant impact on the overall level of the allowance for loan
losses. Delinquent loans more than 90 days are put on non-accrual status
unless they are adequately collateralized and in the process of collection
(see discussion on non-performing assets and allowance for loan losses).
11
<PAGE> 12
Noninterest income declined $43,000 in the six months ended June 30, 1997
compared to the same period in 1996. The decline is greater yet considering
that the results in 1996 include AFSB for less than a full six month period.
The decrease was primarily in the area of deposit service charges and ATM fees.
Deposit service charges did not increase consistently with the growth in
deposits due to the composition of deposits and related terms for generating
service charge income. ATM fees declined due to new fees charged by
competitors for usage of their machines. As a result, AmeriBank customers used
competitors' machines less often. Since AmeriBank charges its customers when
they use a competitor's machine, fee income from this activity declined. In
addition, there was a decline in gains on sales of loans due to less favorable
market pricing during the first six months of 1997. Offsetting these decreases
were gains on sales of securities of approximately $151,000 for the six months
ended June 30, 1997.
Noninterest expense increased to $4.68 and $9.10 million for the three and
six months ended June 30, 1997 from $4.52 and $8.27 million for the three and
six months ended June 30, 1996. Most components of noninterest expense are
higher for the six months in 1997 compared to the same period in 1996
considering that the results in 1996 include AFSB for less than a full six
month period. The increase in noninterest expense for the three months ended
June 30, 1997 compared to 1996 is primarily attributable to the increase in
compensation and benefits, offset by a reduction in FDIC premium and economies
of operations achieved through the AFSB acquisition. The increase in
compensation and benefits is due in part to a greater number of full-time
equivalent employees and an increase in ESOP expense attributable to the
higher market price of the Corporation's stock during 1997. The decrease in
the FDIC deposit insurance reflects the lower charge of 6.5 cents per $100 of
domestic deposits in 1997 versus the 23 cents per $100 of domestic deposits in
1996. Economies of operations have been achieved through the acquisition and
are reflected in the lower levels of data processing and other noninterest
expenses.
The Corporation's efficiency ratio, defined as noninterest expense divided
by the sum of net interest income and noninterest income, decreased from 63.84%
for the six months ended June 30, 1996 to 60.14% for the same period in 1997.
A similar improvement was experienced for the second quarter of the year in
which the efficiency ratio decreased from 63.88% in 1996 to 59.55% in 1997.
This ratio demonstrates that while the absolute dollars of noninterest expense
increased for the three and six months ended June 30, 1997 compared to the same
periods in 1996, the Corporation's ability to generate revenues on those
dollars improved.
Income tax expense for the first six months of 1997 was $2.15 million
compared to $1.66 million for the same period in 1996. The higher federal tax
expense is primarily due to a higher level of pre-tax income, as well as six
months worth of goodwill amortization, which is not deductible for tax
purposes, in 1997 compared to four and a half months of amortization in 1996.
12
<PAGE> 13
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The Corporation's non-performing assets showed a nominal increase from $2.93
million at December 31, 1996 to $2.94 million at June 30, 1997. The
percentage of non-performing assets to total assets was .34% at both June 30,
1997 and December 31, 1996. The Corporation's allowance for loan losses as a
percentage of non-performing assets at June 30, 1997 was 115.31% compared to
106.97% at December 31, 1996. Non-accruing loans at June 30, 1997 consisted of
$736,000 of residential mortgage loans, $366,000 of consumer loans and $237,000
of commercial business loans.
The table below sets forth the amounts and categories of non-performing
assets in the Corporation's loan portfolio at June 30, 1997 and December 31,
1996.
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Non-accruing loans $1,339 $2,123
Accruing loans delinquent more than 90 days:
One- to four-family 835 132
Commercial and multi-family real estate 505 426
Consumer 4 55
------ ------
Total 2,683 2,736
------ ------
Foreclosed assets:
One- to four-family 60 38
Consumer 198 151
------ ------
Total 258 189
------ ------
Total non-performing assets $2,941 $2,925
====== ======
Total as a percentage of total assets .34% .34%
====== ======
</TABLE>
LIQUIDITY
The Bank is required to maintain minimum levels of liquid assets of 5% as
defined by Bank regulators. The Bank's liquidity ratio of 8.19% at June 30,
1997 complies with minimum levels and is down slightly from the December 31,
1996 level of 8.40%. The Bank anticipates it will have sufficient funds
available to meet current loan commitments through growth of deposits,
amortization of loans and additional FHLB borrowings, if necessary.
CAPITAL RESOURCES
The Bank is subject to capital to asset requirements in accordance with
Bank regulations. There has been no significant change in the level of the
Bank's regulatory capital relative to the requirements since December 31, 1996.
The Bank remains well capitalized under the prompt corrective action
regulations.
13
<PAGE> 14
OTTAWA FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
PART II - OTHER INFORMATION
Item 1 Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 Changes in Securities:
There are no matters required to be reported under this item.
Item 3 Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 Submission of Matters to a Vote of Security Holders:
On April 29, 1997, Ottawa Financial Corporation held its Annual
Meeting of Stockholders ("Meeting").
Stockholders of the Corporation voted on the following matters at the
Meeting:
<TABLE>
<CAPTION>
Election of Directors Votes For Votes Withheld
-------------------- --------- ---------------
<S> <S> <C> <C>
Gordon H. Cunningham 3,661,010 37,363
B. Patrick Donnelly III 3,676,697 22,006
Robert D. Kolk 3,664,712 33,991
Ratification of the appointment Votes For Abstain Votes Against
of Crowe, Chizek and Compamy as ---------- ------- --------------
independent auditors of the Bank 3,669,867 20,708 18,128
</TABLE>
Item 5 Other Information:
There are no matters required to be reported under this item.
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibit 11 Statement - Re: Computation of per Share Earnings
(b) Exhibit 27 - Financial Data Schedule (electronic
filing only)
(c) Reports on Form 8-K
1. The Corporation filed a Form 8-K dated
July 25, 1997 with the SEC, containing
a press release announcing the conversion of AmeriBank
from a federally chartered
savings bank to a Michigan state chartered savings bank.
SIGNATURES
Pursuant to the requirement 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 FINANCIAL CORPORATION
Date: August 11, 1997 Gordon L. Grevengoed
--------------- ----------------------------------
Gordon L. Grevengoed
President and Chief Executive Officer
Date: August 11, 1997 Jon W. Swets
--------------- ------------
Jon W. Swets
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11 Statement - Re: Computation of per share earnings.
27 Financial Data Schedule (electronic filing only)
15
<PAGE> 1
(a) Exhibit 11 -COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
------------- ----------------
<S> <C> <C>
Primary
- -------
Net income $ 1,962 $ 3,678
========== ==========
Weighted average shares outstanding
Average Common shares 4,945,122 5,013,239
Average unallocated ESOP shares (262,734) (268,698)
Common stock equivalents - options
and warrants 321,762 259,993
---------- ----------
Total weighted average shares outstanding
during period 5,004,150 5,004,534
========== ==========
Earnings per common and common share equivalent - primary $ .39 $ .73
========== ==========
Fully Diluted
Net income $ 1,962 $ 3,678
========== ==========
Weighted average shares outstanding
Average common shares 4,945,122 5,013,239
Average unallocated ESOP shares (262,734) (268,698)
Common stock equivalents - options and
warrants 349,179 352,569
---------- ----------
Total weighted average shares outstanding
during period 5,031,567 5,097,110
========== ==========
Earnings per common and common share equivalent - fully diluted $ .39 $ .72
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS FINANCIAL INFORMATION FROM THE
CORPORATION'S INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 25,696
<INT-BEARING-DEPOSITS> 2,430
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,041
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 735,003
<ALLOWANCE> 3,094
<TOTAL-ASSETS> 861,334
<DEPOSITS> 636,221
<SHORT-TERM> 53,223
<LIABILITIES-OTHER> 10,958
<LONG-TERM> 85,735
0
0
<COMMON> 60
<OTHER-SE> 75,137
<TOTAL-LIABILITIES-AND-EQUITY> 861,334
<INTEREST-LOAN> 29,444
<INTEREST-INVEST> 1,927
<INTEREST-OTHER> 474
<INTEREST-TOTAL> 31,845
<INTEREST-DEPOSIT> 14,280
<INTEREST-EXPENSE> 18,377
<INTEREST-INCOME-NET> 13,468
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 151
<EXPENSE-OTHER> 9,101
<INCOME-PRETAX> 5,825
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,678
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.72
<YIELD-ACTUAL> 3.39
<LOANS-NON> 1,339
<LOANS-PAST> 1,334
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,129
<CHARGE-OFFS> 375
<RECOVERIES> 39
<ALLOWANCE-CLOSE> 3,093
<ALLOWANCE-DOMESTIC> 2,696
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 397
</TABLE>
