[FRONT COVER]
Ottawa Financial Corporation / AmeriBank
1999 Report to Shareholders
Profitability
Growth
Techniques
Values
Diversification
Citizenship
Leadership
[INSIDE FRONT COVER]
Growth Through Leadership
AmeriBank, a wholly-owned subsidiary of Ottawa Financial Corporation, is
committed to the concepts of leadership, citizenship and technology to achieve
growth. By offering a broad line of financial products and services in support
of community and business objectives, AmeriBank consistently delivers value to
our shareholders, customers, employees and the communities we serve.
Table of Contents
Financial Highlights, page 1
Letter To Our Shareholders, page 2
Financial Charts, page 17
Selected Consolidated Financial Information, page 18
Management's Discussion and Analysis of Financial Condition and
Results of Operations, page 20
Report of Independent Auditors, page 30
Consolidated Balance Sheets, page 31
Consolidated Statements of Income, page 32
Consolidated Statements of Changes in Shareholders' Equity, page 33
Consolidated Statements of Cash Flows, page 34
Consolidated Statements of Comprehensive Income, page 35
Notes to Consolidated Financial Statements, page 36
Quarterly Financial Information, page 55
Shareholder Information, page 56
Officers and Directors, Inside Back Cover
Branch Office and ATM Locations, Inside Back Cover
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FINANCIAL HIGHLIGHTS
1999 1998 % Change
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Dollars in thousands, except per share data(1)
Net interest income $ 30,096 $ 27,892 +7.9%
Noninterest income 6,683 7,811 -14.4
Noninterest expense 20,963 21,092 -.6
Income before income taxes 14,646 13,681 +7.1
Net income 9,508 8,668 +9.7
Diluted earnings per common share 1.51 1.31 +15.3
Total assets 1,017,168 938,030 +8.4
Total liabilities 939,336 864,623 +8.6
Shareholders' equity 77,832 73,407 +6.0
Book value per share 12.77 12.25 +4.2
Cash dividends declared per share .45 .35 +28.6
(1) All per share information has been retroactively adjusted to reflect the 10%
stock dividends paid on June 30, 1999 and August 31, 1998.
Favorable trend in return 30.5% compounded annual Improved efficiency through
on equity through active growth rate in earnings per share increased revenue on
capital management... from 1995 to 1999... stabilized expenses...
RETURN EARNINGS EFFICIENCY
ON [LINE GRAPH] PER [LINE GRAPH] RATIO [LINE GRAPH]
EQUITY SHARE
* Adjusted to remove the impact of the one-time SAIF assessment.
** All amounts adjusted for stock dividends.
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1999 ANNUAL REPORT 1
Dear Shareholders:
During 1999, we focused on profitable growth through improved efficiencies and
diversification of our products and services. With this focus, we grew to over
one billion dollars in assets for the first time in history and achieved record
earnings of $9.5 million. This resulted in earnings per share of $1.51, a 15%
improvement over the prior year and a 30.5% compounded annual growth rate since
1995.
While our financial performance in 1999 was strong, we saw the value of our
stock decline 6% from the prior year. The rising interest rate environment and
other factors negatively affected bank stocks across the country. Our solid
financial performance has resulted in an average total annual return to our
shareholders of 20% since our inception as a public company in 1994. We are
determined to focus on our strategic goals which will maximize shareholder
value.
Executing on our strategic initiatives, we focused our attention during 1999
on expanding business banking services. We continued to diversify our loan
portfolio by expanding the higher yielding lines of business. As a result,
commercial real estate and commercial business loans increased by $46.2 million
during the year, 30% higher than the previous year. Further, we added
specialized expertise to our cash management staff to broaden our product line
for business customers.
In addition to an emphasis on diversification, we also evaluated alternatives
for containing costs and improving efficiencies. Indicative of our commitment in
these areas have been the successful integration of our Y2K readiness plan,
implementation of automated underwriting and our well-received AmeriLoan24(TM)
"loan by phone" service.
Ottawa's performance and accomplishments are products of our highly dedicated
and successful employees, management team and Board of Directors. I am fortunate
to be working along side of Ronald L. Haan, President and COO, who continues to
provide strong leadership and direction. We are supported by a talented Chief
Financial Officer, Jon W. Swets, and a well-qualified management team. This
talented group of individuals is focused on continually improving performance
and delivering quality products and services to our customers.
I would like to thank Gerrard W. Haworth for his leadership and dedication to
our Board of Directors over the past 33 years. In June 1999, Mr. Haworth retired
from our Board. His unparalleled success and achievement in business and our
community have been a model for us. We will miss his leadership and wish him
health and happiness in his retirement.
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2 OTTAWA FINANCIAL CORPORATION
A bank's commitment to a community's values aren't always reflected in its
balance sheet. Even so, it's important to us that we conduct our business in a
fashion which is consistent with the principles and integrity of the communities
we serve. This loyalty to local markets, along with AmeriBank's service-driven
culture, enables us to attract new customer relationships while maintaining
existing ones. Our genuine interest in the success of our customers and their
profitability defines the foundation of these relationships.
In the following pages you'll hear from some of our customers about how we've
met their banking needs and delivered on our promise to provide high quality
products and services.
The upcoming year will be a challenging one for the banking industry. With
rising interest rates, tightening net interest margins, increasing competitive
pressures and growing customer needs, we need to stay committed to our primary
strategic initiative: profitable growth through improved efficiency and
diversification. We will continue to pursue higher yielding commercial business
loans, while maintaining strong asset quality, and develop additional business
products to better serve our commercial customers and enhance non-interest
income. Some of our objectives - technology enhancements and Internet banking,
for instance - will not only meet the evolving needs of our customers, they'll
also be the catalysts for improved operational efficiencies.
On behalf of the Corporation, I would like to thank our employees and
management team for their outstanding service, our customers for their continued
loyalty and our shareholders for their confidence and support. We will remain
focused on our goal of achieving profitable growth and look forward with
enthusiasm to the year ahead.
Sincerely,
"...we need to stay
/s/ Douglas J. Iverson committed to our primary
strategic initiative:
Douglas J. Iverson profitable growth through
Vice Chairman and Chief Executive Officer improved efficiency
Ottawa Financial Corporation and diversification."
[PICTURE]
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1999 ANNUAL REPORT 3
" AmeriBank really [PICTURE]
understood the problem
and was enthusiastic
in its desire to help."
[PICTURE]
Glenn Anderson
President
Holland Plastics Corporation
Grand Haven, MI
Custom injection molder
and manufacturer
GROWTH. The opportunity for business growth often comes unexpectedly. Just ask
Glenn Anderson, President of Holland Plastics Corporation. "One of our customers
had an incredible demand - one that required a significant increase in our
credit line," he says. "AmeriBank really understood the problem and was
enthusiastic in its desire to help. In fact, one of the bank officers has been
heavily involved in the decision for us to move into new markets." Because it
understands the need for growth, AmeriBank is eager to help this custom
injection molder and manufacturer. One of our responsibilities to them is to
ensure they have the tools needed to remain competitive.
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4 OTTAWA FINANCIAL CORPORATION
"Our success isn't difficult to understand. AmeriBank grows by helping our
clients grow. With a healthy diversity of clientele which mirrors the local
market, we're able to avoid cyclic trends which can negatively affect specific
industries."
AmeriBank closed the books on the 20th Century with a solid record of
performance and a bright outlook for continued growth into the 21st Century.
Much of our success can be attributed to the ability of AmeriBank staff to build
lasting relationships with customers and to customize products and services that
help them reach their goals.
While the focus of our efforts is on helping customers succeed, we too
benefit from the relationships that develop. We are fortunate to work with many
talented and visionary individuals with whom we share common goals and a vision
for the future. This is truly the foundation upon which mutually beneficial
relationships grow and flourish.
[PICTURE]
Ron Haan
President, COO
AmeriBank
Grand Rapids, MI
GROWTH
[PICTURE]
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1999 ANNUAL REPORT 5
We are often asked, "With so many financial service companies around these days,
what makes AmeriBank different?" Good question. We think it's because we see
each of our customers as a long-term relationship. In order to succeed, each of
us - bank and customer alike - needs to rely on the commitment and capabilities
of the other.
To keep our part of the bargain, we not only provide for customers' immediate
needs, we also do whatever it takes to meet their evolving, often unexpected,
financial needs.
LEADERSHIP
[PICTURE]
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6 OTTAWA FINANCIAL CORPORATION
[PICTURE] "We're not just an
account number for them...
As far as I'm concerned,
we're partners forever."
LEADERSHIP. "AmeriBank tries to help with everything. They're always looking for
solutions," declares Dan Davis, President of TLI, Inc. As a trailer rental and
leasing company that believes in the value of personal service and competitive
pricing, TLI appreciates their partnership with AmeriBank. "We're not just an
account number for them," says Davis. "They've taken the time to really
understand the elements that are important to my business including providing
creative financing for a special buying opportunity we encountered recently. As
far as I'm concerned, we're partners forever."
[PICTURE]
Dan Davis
President
TLI, Inc.
Grand Rapids, MI
Trailer rental and
leasing company
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1999 ANNUAL REPORT 7
Techniques
"Our business is built
on relationships, but
only if we can deliver
the goods. AmeriBank [PICTURE]
understands our need
for continuing technology
improvements in order
to make this possible."
[PICTURE]
Bill Ockerlund
CFO
Steketee-Van Huis, Inc.
Holland, MI
Commercial printing
and packaging
Banking is a rapidly evolving business. In today's highly competitive
environment, it pays to be nimble. Our culture at AmeriBank thrives on change,
which means that change is a strategic advantage for us.
By using an innovative combination of financial and service technologies,
AmeriBank can customize a range of lending and deposit products that provide
unique financial solutions for our customers. In every sense, we are their
business partners.
We understand that a growing, productive relationship requires that we do our
part to meet their financial and competitive market needs.
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8 OTTAWA FINANCIAL CORPORATION
TECHNIQUE. Technology combines with technique for high-end commercial printer
Steketee-VanHuis. "The challenge we face," reports President Ted Etheridge, "is
a desire to stay private while competing with large, public companies. Our
business is built on relationships, but only if we can deliver the goods.
AmeriBank takes the time to understand our need for continuing technology
improvements in order to make this possible." The name Steketee-VanHuis means
high quality within the printing industry. We're proud to be associated with a
company nimble enough to successfully carve out a profitable niche for
themselves in a volatile marketplace.
"The challenge we face
is a desire to stay private
while competing
with large, public
companies...
(AmeriBank) [PICTURE]
makes this
possible."
Ted Etheridge
CEO
Steketee-Van Huis, Inc.
Holland, MI
Commercial printing
and packaging
TECHNIQUES
[PICTURE]
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1999 ANNUAL REPORT 9
A business cannot succeed without growth, nor can it grow without profit. The
financial marketplace is increasingly competitive and AmeriBank has taken steps
to ensure our profitability for shareholders by streamlining our operations with
the latest technology and adopting an administrative vigilance which continually
seeks out new methods of cost reduction.
PROFITABILITY
[PICTURE]
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10 OTTAWA FINANCIAL CORPORATION
[PICTURE] "It's a pleasure to
work with a bank that
appreciates real world,
bottom-line thinking."
[PICTURE]
Mark Stockwell
President
Stockwell Manufacturing Company
Grand Rapids, MI
Quality screw
machine products
PROFITABILITY. Mark Stockwell, President of Stockwell Manufacturing, understands
that corporate profits don't automatically generate themselves. "The quality of
our products is exceptionally high, yet they must be priced to sell in a
competitive marketplace. It's a pleasure to work with a bank that appreciates
real world, bottom-line thinking." The services we provide to companies such as
Stockwell Manufacturing include an understanding of the constant pressure on
their profits. "I'm very happy with AmeriBank," says Stockwell. "Their services
are second to none. I've recommended them to others many times."
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1999 ANNUAL REPORT 11
"When we're presented
with new opportunities, [PICTURE]
AmeriBank can
match strides with
us quickly. That's an
important skill in
your banking partner."
[PICTURE]
Steve Buth
CEO
Profile Industrial Packaging, Inc.
Grand Rapids, MI
Plastic film
for industry
At AmeriBank, we believe that our customers as well as our employees are the key
to our success. That's why we're committed to delivering the finest products to
our customers and to investing in the communities where we all work and live.
West Michigan has always had a special attitude towards business. Competitive,
yes, but with a concern for and commitment to the community at large. They
understand that business success is lessened if the larger community is not also
enriched. AmeriBank not only shares this philosophy, it supports its expansion
throughout the entire West Michigan region.
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12 OTTAWA FINANCIAL CORPORATION
CITIZENSHIP. "We're in the packaging business, but what we really sell is trust
and dependability," declares Steve Ehmann, President of Profile Industrial
Packaging. He likes the fact that AmeriBank is big enough to help when he needs
it, yet is able to maintain a community bank attitude towards quick service.
"Our company has to move fast to take advantage of new business opportunities,"
Ehmann states. "AmeriBank's fast and flexible service attitude is a tremendous
asset to us." Understanding the special needs of growing companies such as
Profile Industrial Packaging is one of the many ways AmeriBank also supports our
community.
"We're in the packaging
business, but what
we really sell is
trust and
dependability,"
[PICTURE]
Steve Ehmann
President
Profile Industrial
Packaging, Inc.
Grand Rapids, MI
Plastic film
for industry
CITIZENSHIP
[PICTURE]
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1999 ANNUAL REPORT 13
We are fast becoming the bank of choice for small businesses in West Michigan.
From plastics manufacturing to golf retailing, and commercial printing to
transportation, our customers cover nearly the entire breadth of the commercial
landscape.
This diversity of our service and lending portfolio is intentional. By
viewing the local and regional economy from the many different perspectives
represented in this diversity, we are able to better educate not only ourselves,
but also our customers, on potential opportunities and hidden dangers.
Diversification
[PICTURE]
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14 OTTAWA FINANCIAL CORPORATION
[PICTURE] "We wanted to think
down-the-road when we
started our business...
AmeriBank helped us
plan for the expansion of
services we offer today."
Diversification. Whether you're looking for high-quality golf equipment,
professional instruction or superior practice facilities, Rockford Golf Center
has it all. "We wanted to think down-the-road when we started our business,"
says President Roger Mowrey, "and AmeriBank helped us plan for the expansion of
services we offer today." By keeping prices in line, watching their expenses and
associating themselves with only brand name merchandise, Rockford Golf is fast
becoming a name to be reckoned with in West Michigan. Roger Mowrey knows it
would have been difficult to do alone. "AmeriBank goes out of their way to help
you. There's no one there I can't trust and that means a lot to a businessman."
[PICTURE]
Roger Mowrey
President
Rockford Golf Center, Inc.
Rockford, MI
Master range and
golf shop
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1999 ANNUAL REPORT 15
"We've learned that the best [PICTURE]
way to keep AmeriBank's
bottom-line healthy is
to share the same business
values as the clients
we serve. Everyone
wins when we
all have the
same goal."
[PICTURE]
Jon Swets
Chief Financial Officer
AmeriBank
Grand Rapids, MI
VALUES. As President of Pearson Foods, Inc., David Pearson understands the value
of sharing a similar outlook with his financial institution. "We operate within
a fast-paced, entrepreneurial environment," he says. "To satisfy customers'
needs, our product line not only has to cover a wide spectrum, it also must be
supported by our commitment to product quality and genuine customer service.
AmeriBank has the entrepreneurial attitude which is a good fit for us," Pearson
reports. "The pressures of our marketplace can make us a very demanding banking
customer. We appreciate that AmeriBank's branch staff helps us clear a lot of
red tape and focus on the essence of our needs."
With the experience we've gained over the years, AmeriBank is able to recognize
the potential of small businesses and help them achieve it in ways they never
thought possible.
We understand that loans aren't the only vital need for growing small
businesses. AmeriBank starts by learning as much as we can about our customers
and their businesses because the more we know about them, the easier it is to
respond to their needs.
That's where our team of veteran loan officers comes in. They're responsive
and resourceful in meeting the needs of our customers. More importantly, they're
surrounded by professional staff who understand that customers' needs have a
higher priority than our own.
Values
[PICTURE]
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16 OTTAWA FINANCIAL CORPORATION
FINANCIAL CHARTS
Achieved $1 billion in assets Change in mix consistent
for the first time in history... with strategic direction...
[LINE GRAPH--TOTAL ASSETS [LINE GRAPH--LOAN PORTFOLIO MIX
MILLIONS OF DOLLARS] PER SHARE]
Improvement in net interest margin Level of non-performing
through favorable mix changes in assets well below peer...
loans and deposits...
[LINE GRAPH--NET INTEREST MARGIN [LINE GRAPH--NON-PERFORMING
PER SHARE] ASSETS TO TOTAL ASSETS
PER SHARE]
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1999 ANNUAL REPORT 17
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following financial data summarizes more detailed financial information
disclosed throughout this report.
December 31, 1999 1998 1997 1996(1) 1995
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Dollars in thousands, except share and per share data
Selected Financial Condition Data:
Total assets $1,017,168 $ 938,030 $ 885,817 $848,306 $ 370,305
Loans receivable, net 856,759 769,770 747,423 715,551 276,457
Securities and Federal Home Loan Bank stock 92,838 83,428 64,616 69,864 66,926
Deposits 711,954 693,632 654,560 622,492 243,220
Federal Home Loan Bank advances 216,353 160,268 145,458 139,170 43,241
Shareholders' Equity 77,832 73,407 76,363 76,917 79,560
Selected Operations Data:
Total interest income $ 68,978 $ 67,904 $ 64,726 $ 54,669 $ 25,579
Total interest expense 38,882 40,012 37,704 30,531 11,321
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Net interest income 30,096 27,892 27,022 24,138 14,258
Provision for loan losses 1,170 930 660 564 160
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Net interest income after provision
for loan losses 28,926 26,962 26,362 23,574 14,098
Service charges and other fees 5,068 4,749 3,356 3,042 2,219
Gain on sales of loans 666 2,398 370 141 309
Other noninterest income (loss) 949 664 420 145 (435)
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Total noninterest income 6,683 7,811 4,146 3,328 2,093
Total noninterest expense(2) 20,963 21,092 18,708 21,844 10,651
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Income before federal income tax expense 14,646 13,681 11,800 5,058 5,540
Income tax expense 5,138 5,013 4,273 1,964 1,911
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Net income $ 9,508 $ 8,668 $ 7,527 $ 3,094 $ 3,629
===============================================================================================================================
Basic earnings per common share(3) $ 1.60 $ 1.45 $ 1.21 $ .46 $ .52
===============================================================================================================================
Diluted earnings per common share(3) $ 1.51 $ 1.31 $ 1.11 $ .45 $ .52
===============================================================================================================================
Cash dividends declared per common share(3) $ .45 $ .35 $ .30 $ .25 $ .23
===============================================================================================================================
(1) Significant variation from prior years due primarily to the acquisition of AFSB in February 1996.
(2) Noninterest expense for 1996 includes the one-time SAIF assessment of $3.5 million.
(3) Weighted average common shares outstanding for 1999, 1998, 1997, 1996, and 1995 were 5,961,287, 5,980,195, 6,231,985,
6,719,022, and 6,953,208 respectively. Weighted average common and dilutive potential common shares outstanding for
1999, 1998, 1997, 1996, and 1995 were 6,295,044, 6,630,634, 6,786,963, 6,879,536, and 6,995,320 respectively. All share
and per share information has been retroactively adjusted to reflect the 10% stock dividends paid on June 30, 1999,
August 31, 1998 and September 30, 1997, and the adoption of Statement of Financial Accounting Standards No. 128,
Earnings per Share.
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18 OTTAWA FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
December 31, 1999 1998 1997 1996 1995
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Dollars in thousands, except per share data
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets 1.00% .94% .87% .41% 1.08%
SAIF adjusted(2) .72
Average interest rate spread during period 2.96 2.89 3.01 3.08 3.31
Net interest margin(1) 3.37 3.26 3.37 3.50 4.44
Ratio of operating expense to
average total assets 2.19 2.28 2.15 3.06 3.16
SAIF adjusted(2) 2.56
Efficiency(3) 56.95 60.20 60.66 79.56 65.14
SAIF adjusted(2) 66.75
Return on equity 12.41 11.49 9.93 3.93 4.62
SAIF adjusted(2) 6.83
Quality Ratios:
Non-performing assets to
total assets at end of period 0.21 0.43 0.36 0.36 0.76
Allowance for loan losses to
non-performing loans 359.21 119.51 118.62 109.89 51.38
Allowance for loan losses to
total loans receivable, net 0.55 0.49 0.44 0.44 0.45
Capital Ratios:
Equity to total assets at end of period 7.65 7.83 8.62 9.07 21.48
Average equity to average assets 8.02 8.15 8.73 9.09 22.62
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.09x 1.08x 1.07x 1.10x 1.32x
Number of full service offices 27 26 26 26 13
(1) Net interest income divided by average interest-earning assets.
(2) Ratio is revised to remove the impact of the one-time SAIF assessment of $3.5 million expensed in 1996.
(3) Ratio of noninterest expense to the total of net interest income before provision for loan losses and
noninterest income net of gains and losses on sales of assets.
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1999 ANNUAL REPORT 19
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MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis should be read with the consolidated
financial statements attached. The financial statements reflect the consolidated
financial condition and results of operations of Ottawa Financial Corporation
and its wholly-owned subsidiary, AmeriBank.
GENERAL
Ottawa Financial Corporation's focus in 1999 on profitable growth through
improved efficiencies and diversification enabled us to grow to over one billion
in assets for the first time in history and achieve record earnings of $9.5
million. Improvements in net interest income and stabilization of noninterest
expenses contributed heavily to the growth in earnings. These earnings resulted
in earnings per share of $1.51, a 15% improvement over the prior year.
We continued to diversify our loan portfolio by growing the higher yielding
loan categories. Our focus on expanding our business banking services, as well
as healthy loan demand in our market area, enabled us to increase our portfolio
of commercial real estate and commercial business loans. These portfolios grew
by a combined total of $46.2 million during the year, repre- senting 30% growth.
In addition, we increased our consumer portfolio by $21.1 million, representing
18% growth.
During 1999, we also evaluated alternatives for containing costs and
improving efficiencies. We performed a thorough analysis of ways to improve
efficiency in providing customer service at our 27 retail banking offices in
Western Michigan. We successfully implemented new technology in our mortgage
department to improve operational efficiency and provide greater customer
convenience. In addition, we defined standards for stabilizing salary costs in
all areas of the bank. These changes, as well as the growth in net interest
income, resulted in an improvement in our efficiency ratio to 56.95% in 1999
from 60.20% in 1998.
FINANCIAL CONDITION
Total assets increased to $1.0 billion at December 31, 1999 from $938.0 million
at December 31, 1998. Most of this growth was in the loan portfolio and, to a
lesser extent, in securities available for sale. Proceeds received primarily
from the growth in deposits and FHLB advances funded the increase in assets.
Securities increased to $81.1 million at December 31, 1999 from $71.6 million
at December 31, 1998. The growth in securities of $9.5 million was primarily in
agency bonds with the purpose of investing our excess interest-bearing demand
deposits in other financial institutions at December 31, 1998.
Net loans receivable increased to $856.8 million at December 31, 1999 from
$769.8 million at December 31, 1998. The commercial business and commercial real
estate portfolios grew by $46.2 million, while the consumer portfolio grew by
$21.1 million, representing growth rates of 30% and 18%. Our focus on the
development of our commercial and business banking services, as well as healthy
loan demand in our market area, provided for this growth.
The residential mortgage loan portfolio increased by $26.3 million in 1999.
Due to the low interest rate environment in the beginning of the year, we
experienced a portion of our adjustable-rate mortgage loan portfolio refinancing
to fixed-rate loans. Since we sell almost all of our 15 and 30 year term
fixed-rate mortgage loan production and retain for our portfolio adjustable-rate
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20 OTTAWA FINANCIAL CORPORATION
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MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
mortgage loan production, we experienced a decrease in our overall residential
mortgage loan portfolio through the third quarter of 1999. During the later
portion of the third quarter and entire fourth quarter however, the combination
of rising interest rates and loan demand in our market area caused a shift in
mix from fixed-rate loans to adjustable-rate loans. The growth in this product
during the last quarter of 1999 more than offset the overall reduction
experienced in the mortgage loan portfolio during the first nine months of the
year.
The increase in net loans receivable reflects the continued healthy loan
demand in our market area. We were well positioned with our loan products to
capitalize on this demand. The growth was achieved while maintaining rates
consistent with our competitors and maintaining credit quality standards.
Deposits increased to $712.0 million at December 31, 1999 from $693.6 million
at December 31, 1998. Growth occurred in the areas of business checking, money
market savings and certificates of deposit accounts. These increases funded a
portion of the loan growth, however, approximately 84% of the residential real
estate, commercial business and commercial real estate loan growth discussed
above occurred in the last half of 1999. This quick growth in the loan portfolio
necessitated the use of wholesale funding sources. As a result, Federal Home
Loan Bank ("FHLB") advances increased by $56.1 million primarily in the last
half of 1999 to fund this loan growth.
The primary components of growth in shareholders' equity for 1999 related to
net income, as well as proceeds received from the exercise of stock options and
warrants. The increases in shareholders' equity were offset by quarterly cash
dividends declared and additional repurchases of the Corporation's outstanding
shares of common stock. During 1999, we repurchased 241,985 shares of common
stock at an average price of $21.26 per share. Stock repurchases are an
important part of our capital management and are used to supplement asset growth
in achieving our desired capital levels. However, as growth in assets continues
stock repurchase activity may be diminished.
After careful consideration and evaluation, the management and Board of
Directors of Ottawa Financial Corporation determined it was in the best
interests of the Corporation and its shareholders to make an exchange offer for
warrants outstanding at the end of 1998. On December 24, 1998, Ottawa offered to
exchange, for each outstanding warrant, at the holder's option, either .44
shares of the Corporation's common stock or $10.03 in cash. The purpose of the
exchange was to reduce the amount of cash to be received by the Corporation,
estimated at $7.8 million, and the number of shares of common stock that could
be issued pursuant to an exercise of the warrants. We believed we had adequate
capital for our current and foreseeable operations and did not believe we could
adequately leverage the funds that would be received upon exercise of the
warrants in a manner consistent with our business objectives. We determined that
the offer to exchange the warrants for common stock or cash would limit the
receipt of excess capital and the number of shares issuable upon exercise of the
warrants and best utilize our capital base to maximize value to our
shareholders. As of January 26, 1999, the expiration date of the exchange offer,
Ottawa accepted tenders for approximately 86% of its warrants. In connection
with this exchange, we issued 180,600 shares of our common stock and paid
$90,130 in cash. The remaining 14% of the warrants were exercised by the date of
the warrant plan expiration, resulting in additional capital of $1.1 million.
On June 30, 1999, we paid a 10% stock dividend, the third stock dividend
declared by the corporation. We have not reduced the amount of the cash
dividends as a result of the stock dividend. All share and per share amounts
have been retroactively adjusted to reflect the stock dividends paid on June 30,
1999, August 31, 1998 and September 30, 1997.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 21
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF 1999 TO 1998
Net income. Net income for 1999 was $9.5 million, or $1.51 per diluted common
share, compared to $8.7 million, or $1.31 per diluted common share for 1998.
Diluted earnings per share increased $.20, or 15%, for the year ended December
31, 1999 compared to 1998. The improvement in earnings over the prior year was
due primarily to the growth in net interest income and the stabilization of
noninterest expense. This improvement was partially offset by the decrease in
gains on sales of loans.
In 1996, we introduced a measure we refer to as "cash" or "tangible" earnings
per share. Due to significant differences in methods of accounting for business
combinations, the concept of cash or tangible earnings per share provides
comparability between companies using different methods. Amortization of
goodwill and core deposit intangibles, which are non-cash components of net
income, are added back to earnings in computing cash or tangible earnings per
share. Further, Employee Stock Ownership Plan and Management Recognition Plan
expenses are added back as these items also do not involve actual current period
cash outflow. Cash or tangible earnings per share also serves as an alternative
measure for determining the rate of growth in regulatory (tangible) capital.
Since the amortization of goodwill and core deposit intangibles and expenses
related to the Employee Stock Ownership Plan and Management Recognition Plan do
not reduce tangible capital, these items are added back to earnings in
evaluating tangible capital growth. Our diluted cash or tangible earnings per
share under this method was $1.86 for the year ended December 31, 1999, compared
to $1.66 for 1998, showing a 12% improvement. Since we specifically formulated
the calculations for cash or tangible earnings per share, the calculations may
not be comparable to similarly titled measures reported by other companies. This
measure is not intended to reflect cash flow per share.
Return on equity for 1999 was 12.41% compared to 11.49% for 1998. The 8%
improvement in return on equity was primarily attributable to the improved
earnings. In addition, our stock buyback activity and warrant exchange offer
also positively impacted return on equity.
Net Interest Income. Our net income is primarily dependent upon net interest
income. Net interest income is a function of the difference, or margin between
the average yield earned on loans and investment securities and the average rate
paid on deposits and other borrowings, as well as relative amounts of these
assets and liabilities. Net interest income is affected by economic and
competitive factors that influence interest rates, loan demand, deposit flows
and alternative sources of funds.
Net interest income increased $2.2 million on a tax equivalent basis for the
year ended December 31, 1999 as compared to the same period in 1998. The
increase in net interest income was attributable to the positive impact of
interest-earning asset volume increases caused by internal growth experienced in
1999 and late 1998, as well as the positive impact of decreases in the cost of
interest-bearing liabilities. The improvement in interest income resulting from
the increase in the volume of interest-earning assets was partially offset by a
decrease in the yield on interest-earning assets caused by the decline in the
general market interest rates. There was an even larger decrease in the cost of
interest-bearing liabilities, resulting in an improvement in net interest
spread. While there was an overall increase in the volume of interest-bearing
liabilities, the shift in mix from higher costing certificates of deposit to
lower costing demand deposits contributed to the lower interest expense. These
improvements in net interest income were due to the spread improvement discussed
above and the growth in noninterest-bearing deposits during the past year.
- --------------------------------------------------------------------------------
22 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
AVERAGE BALANCES, INTEREST RATES AND YIELDS
This table presents the amount of interest income from average interest-earning
assets and the yields earned on those assets, as well as the interest expense on
average interest-bearing liabilities and the rates paid on those liabilities.
All average balances are daily average balances.
Year Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands
INTEREST-EARNING ASSETS:
Loans receivable(1)(2) $795,190 $62,967 7.92% $778,282 $62,687 8.05% $732,927 $59,994 8.19%
Securities(2) 78,825 4,677 5.93 60,513 3,859 6.38 56,635 3,787 6.68
Other interest-earning assets 18,962 1,377 7.26 19,119 1,425 7.46 15,754 1,071 6.80
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets(1) 892,977 69,021 7.72 857,914 67,971 7.92 805,316 64,852 8.05
INTEREST-BEARING LIABILITIES:
Demand and NOW deposits 205,820 7,139 3.47 173,322 6,517 3.76 149,909 5,823 3.89
Savings deposits 52,411 905 1.73 59,485 1,125 1.89 65,678 1,551 2.37
Certificate accounts 383,296 20,623 5.38 401,026 22,741 5.67 393,757 22,024 5.61
FHLB advances 171,179 9,985 5.83 160,533 9,591 5.97 140,746 8,293 5.91
Other interest-bearing liabilities 3,521 230 6.54 663 38 5.73 184 13 7.07
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 816,227 38,882 4.76 795,029 40,012 5.03 750,274 37,704 5.04
Net interest income $ 30,139 $ 27,959 $ 27,148
==================================================================================================================================
Net interest rate spread 2.96% 2.89% 3.01%
==================================================================================================================================
Net earning assets $ 76,750 $ 62,885 $ 55,042
Net yield on average
interest-earning assets 3.37% 3.26% 3.37%
==================================================================================================================================
Average interest-earning assets to
average interest-bearing liabilities 1.09x 1.08x 1.07x
==================================================================================================================================
(1) Calculated net of deferred loan fees, loan discounts, loans in process and allowance for loan losses.
(2) Tax-exempt interest on loans and securities has been converted to a fully-taxable equivalent basis.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 23
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
This table presents the dollar amount of changes in interest income and interest
expense for major components of interest-earning assets and interest-bearing
liabilities. For each category of interest-earning assets and interest-bearing
liabilities, infor-mation 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). 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.
Year Ended December 31 1999 vs. 1998 1998 vs. 1997
- -----------------------------------------------------------------------------------------------------------------------------
Increase Increase Increase Increase
(Decrease) (Decrease) Total Increase (Decrease) (Decrease) Total Increase
Due To Volume Due To Rate (Decrease) Due To Volume Due To Rate (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
Dollars in thousands
INTEREST-EARNING ASSETS:
Loans receivable $ 1,258 $ (978) $ 280 $ 3,632 $ (940) $ 2,692
Securities 1,062 (244) 818 222 (150) 72
Other interest-earning assets (12) (36) (48) 244 111 355
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 2,308 (1,258) 1,050 4,098 (979) 3,119
Interest-bearing liabilities:
Demand and NOW deposits $ 1,060 $ (438) $ 622 $ 873 $ (179) $ 694
Savings deposits (127) (93) (220) (137) (289) (426)
Certificate accounts (982) (1,136) (2,118) 410 307 717
FHLB advances 613 (219) 394 1,181 117 1,298
Other interest-bearing liabilities 186 6 192 27 (2) 25
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 750 (1,880) (1,130) 2,354 (46) 2,308
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income $ 1,558 $ 622 $ 2,180 $ 1,744 $ (933) $ 811
=============================================================================================================================
Provision for Loan Losses. Management's periodic analysis of the adequacy of the
allowance for loan losses determines the provision for loan losses. The
provision was $1.2 million in 1999 compared to $930,000 in 1998. The ratio of
non-performing assets, consisting of loans 90 days or more delinquent and
foreclosed assets, to total assets was .21% as of December 31, 1999 compared to
.43% as of December 31, 1998. The ratio of the allowance for loan losses to
total loans receivable was .55% as of December 31, 1999 compared to .49% as of
December 31, 1998. The increase in the provision was primarily for the purpose
of growing the allowance for loan loss balance to keep pace with loan growth.
The increase was also in response to the shift in the mix of the loan portfolio
from mortgage loans to commercial and consumer loans and the higher risk of loss
associated with these loans. We anticipate we will increase the allowance for
loan loss balance in future periods as we continue to increase these commercial
and consumer loan portfolios.
We maintain the allowance for loan losses at a level considered adequate to
cover possible 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 on our past loss experience and, as such, have not had a significant
impact on the overall level of the allowance for loan losses.
- --------------------------------------------------------------------------------
24 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
While we consider the allowance for loan losses to be adequate to provide for
potential losses, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods. In addition, the Financial Institutions Bureau and
the Federal Deposit Insurance Corporation review the allowance for loan losses
as part of their examination process. These regulatory agencies may require
additional general or specific allowances based upon their judgement of the
information available to them at the time of their examination.
Noninterest Income. Noninterest income for 1999 was $6.7 million compared to
$7.8 million for 1998. The decrease related to the lower gains on sales of
mortgage loans. The rising interest rate environment in 1999 not only caused a
reduction in the volume of loans originated for sale but also caused a
tightening of the profit margins experienced on the sale of those loans.
Noninterest income in other areas including loan servicing fees, deposit account
service charges and fees from the sale of mutual funds and annuities improved in
1999.
Noninterest Expense. Noninterest expense decreased to $21.0 million for 1999
compared to $21.1 million for 1998. Slight increases in salaries expense were
more than offset by the reduction in ESOP expense due to lower accounting
charges related to the reduction in our stock price, and pension income
resulting in overall decreases in compensation and benefits expense for 1999
compared to 1998. Due to favorable market conditions, the performance of the
pension assets was strong and exceeded the expenses associated with the plan,
thereby resulting in net pension income. Our efficiency ratio, defined as
noninterest expense divided by the sum of net interest income and noninterest
income, decreased from 60.20% in 1998 to 56.95% in 1999. This ratio demonstrates
that our ability to generate revenues on our noninterest expense dollars has
improved over the prior year.
Income Tax Expense. The increase in the income tax expense from $5.0 million in
1998 to $5.1 million in 1999 is due to the higher pre-tax income for the year.
COMPARISON OF 1998 TO 1997
Net income. Net income for 1998 was $8.7 million, or $1.31 per diluted common
share, compared to $7.5 million, or $1.11 per diluted common share for 1997.
Diluted earnings per share increased $.20, or 18%, for the year ended December
31, 1998 compared to 1997. The growth in noninterest income and, to a lesser
extent, the increase in net interest income provided the improvement in
earnings. Increases in the provision for loan losses and noninterest expenses
partially offset the improvements in earnings.
Our diluted cash or tangible earnings per share under was $1.66 for the year
ended December 31, 1998, compared to $1.44 for 1997, showing a 16% improvement.
Return on equity for 1998 was 11.49% compared to 9.93% for 1997. The 16%
improvement in return on equity was primarily attributable to the improved
earnings. In addition, our stock buyback activity also positively impacted
return on equity.
Net Interest Income. Net interest income increased $811,000 on a tax equivalent
basis for the year ended December 31, 1998 as compared to the same period in
1997. The volume increases in interest-earning assets caused by internal growth
experienced in 1998 and late 1997 increased net interest income. Despite the
significant decline in general market interest rates during 1998, the yield on
total interest-earnings assets experienced only a slight decline. This is
attributable to the change in the composition of our loan portfolio to higher
yielding commercial loans during 1998. The stable composition of our
interest-bearing liabilities, accompanied by the offsetting affects of the
general decline in the cost of deposits compared to the small increase in the
cost of FHLB advances, resulted in a minor decline in the cost of
interest-bearing liabilities. Together, the decline in the yield on
interest-earning assets, offset with the small decline in the cost of
interest-bearing liabilities, resulted in a decline in the net interest spread
from 3.01% in 1997 to 2.89% in 1998. While the rates on deposit accounts
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 25
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
generally decreased during 1998, the cost of certificate of deposit accounts
increased to 5.67% for 1998 compared to 5.61% for 1997. This increase in cost of
certificates of deposit is almost entirely due to the decrease in amortization
of the purchase accounting adjustment relative to certificate accounts obtained
in the acquisition of the former AmeriBank, FSB in early 1996. Amortization of
this purchase accounting adjustment was an offset to interest expense. The
reduction in net interest margin from 3.37% in 1997 to 3.26% in 1998 is
primarily attributable to the spread decline discussed above.
Provision for Loan Losses. The provision was $930,000 in 1998 compared to
$660,000 in 1997. The ratio of non-performing assets, consisting of loans 90
days or more delinquent and foreclosed assets, to total assets was .43% as of
December 31, 1998 compared to .36% as of December 31, 1997. The ratio of the
allowance for loan losses to total loans receivable was .49% as of December 31,
1998 compared to .44% as of December 31, 1997. The increase in the provision was
primarily for the purpose of growing the allowance for loan loss balance to keep
pace with loan growth. The increase was also in response to the shift in the mix
of the loan portfolio from mortgage loans to commercial and consumer loans and
the higher risk of loss associated with these loans.
Noninterest Income. Noninterest income for 1998 was $7.8 million compared to
$4.1 million for 1997. Increased sales and realizations of gains on sales of
mortgage loans, along with fees on sales of mutual funds and annuities, have
significantly increased noninterest income. In addition, increases in deposit
account service fees contributed to the growth in noninterest income. During the
third quarter of 1997, we modified deposit fee structures to achieve more
consistency between AmeriBank and AFSB. Savings accounts that fell below a
minimum balance and checking accounts that had cancelled checks returned to
customers with monthly bank statements were assessed fees.
Noninterest Expense. Noninterest expense increased to $21.1 million for 1998
compared to $18.7 million for 1997. Employee related costs, a portion of which
relates to the increased expense of the Employee Stock Ownership Plan due to the
higher market value of our stock, increased noninterest expense. Further, we
added specialized expertise to our staff to develop the commercial and consumer
loan portfolios and other lines of fee generating business consistent with our
strategic plan. The benefits of these investments in resources have been
reflected in the growth in the commercial business and real estate loan
portfolio and the increases in fee income on sales of mutual funds and
annuities.
Income Tax Expense. The increase in the income tax expense from $4.3 million in
1997 to $5.0 million in 1998 is due to the higher pre-tax income for the year.
Y2K READINESS DISCLOSURE
We successfully completed our Y2K readiness plan and experienced no material
issues. All systems and functions have been processing well since January 1,
2000. We will continue to monitor all systems throughout the year.
ASSET/LIABILITY MANAGEMENT; MARKET RISK ANALYSIS
The balance sheet consists of investments in interest-earning assets, primarily
loans and investment securities, which are primarily funded by interest-bearing
liabilities, deposits and borrowings. These financial instruments have varying
levels of sensitivity to changes in market interest rates, resulting in market
risk. Other than loans that are originated and held for sale, all of our
financial instruments are for other than trading purposes. We are subject to
interest rate risk to the extent that our interest-bearing liabilities with
short and intermediate-term maturities reprice more rapidly, or on a different
basis, than our interest-earning assets.
- --------------------------------------------------------------------------------
26 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Senior management and the Board of Directors review the Bank's exposure to
interest rate risk on a quarterly basis. We measure interest rate risk by
computing estimated changes in net interest income and the net portfolio value
of cash flows from assets, liabilities and off-balance sheet items within a
range of assumed changes in market interest rates. If estimated changes to net
portfolio value and net interest income are not within the limits established by
the Board, the Board may direct management to adjust the Bank's asset and
liability mix to bring interest rate risk within Board approved limits.
Net portfolio value represents the market value of equity and is equal to the
market value of assets minus the market value of liabilities, with adjustments
made for off-balance sheet items. This analysis assesses the risk of loss in
market risk sensitive instruments in the event of sudden and sustained 1% to 3%
increases and decreases in market interest rates. The following tables set forth
the change in AmeriBank's net portfolio value and net interest income at
December 31, 1999 and 1998, based on internal assumptions, that would occur upon
an immediate change in interest rates, with no effect given to any steps that
management might take to counteract that change.
December 31, 1999: Net Portfolio Value Net Interest Income
- ----------------------------------------------------------------------------------------------------------------------
Change in Interest Rate (Basis Points) $ Amount in NPV % Change in NPV $ Amount in NII % Change in NII
- ----------------------------------------------------------------------------------------------------------------------
+300 $ 50,356 -39% $ 20,235 -31%
+200 60,890 -27 23,412 -20
+100 73,191 -12 26,468 -10
0 83,204 -- 29,299 --
-100 84,197 1 31,910 9
-200 90,050 8 33,703 15
-300 97,142 17 35,349 21
December 31, 1998: Net Portfolio Value Net Interest Income
- -----------------------------------------------------------------------------------------------------------------------
Change in Interest Rate (Basis Points) $ Amount in NPV % Change in NPV $ Amount in NII % Change in NII
- -----------------------------------------------------------------------------------------------------------------------
+300 $ 45,280 -39% $ 20,275 -27%
+200 56,873 -23 23,040 -18
+100 64,838 -13 25,532 -9
0 74,187 -- 27,965 --
-100 79,649 7 30,309 8
-200 83,117 12 31,886 14
-300 91,819 24 33,440 20
As illustrated in the table, net portfolio value is more sensitive to rising
rates than declining rates. This occurs because, as rates rise, the market value
of fixed-rate loans declines due to both the rate increase and slowing
prepayments. When rates decline, we do not experience a significant rise in
market value for these loans because borrowers prepay at relatively high rates.
The value of most of our deposits and borrowings changes in approximately the
same proportion in rising or falling rate scenarios.
The results for the 300 basis point interest rate shocks are monitored
primarily to assist in identifying trends in our interest rate risk profile. We
feel that a sudden and sustained change in interest rates of 300 basis points is
not a realistic event. Therefore we focus on managing, to acceptable levels, the
change in NPV for the 100 and 200 basis point interest rate shocks both up and
down.
The table identifies only slight changes in our interest rate risk position
in 1999 compared to 1998. The composition changes in the balance sheet during
1999 have produced a net nominal impact on interest rate risk. FHLB advances
grew by $56.1 million and the weighted average time for this portfolio to
reprice decreased by 12 months. This decrease in repricing frequency has had a
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 27
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
negative impact on our interest rate risk. However, the weighted average
maturity in the certificates of deposit portfolio increased by four months due
to growth in our 30-month CD product. This increase has had a positive impact on
interest rate risk and entirely offset the negative impact of the FHLB advances
changes. Further, growth in the commercial and installment loan portfolios have
had a positive impact on interest rate risk. These portfolios bear less interest
rate risk than the residential mortgage loan portfolio due to their shorter
weighted average maturities. However, this positive impact was outweighed by
composition changes within the mortgage loan portfolio. The net result of all of
these changes has been a slight increase in sensitivity to a rise in interest
rates from 1998 to 1999.
To decrease our exposure to interest rate risk, we are trying to reduce the
duration and average life of our interest-earning assets. To achieve this goal,
we are emphasizing adjustable-rate mortgage loans and growing our installment
and commercial business loan portfolios. In addition, we are underwriting all
long-term, fixed-rate mortgages in accordance with Freddie Mac guidelines which
allows us the flexibility of selling these assets into the secondary market. We
are currently selling all 30- and 15-year fixed-rate residential mortgage loans
as they are originated. With our funding sources, we are attempting to reduce
the impact of interest rate changes by emphasizing non-interest bearing products
and using longer-term fixed-rate certificates of deposit.
As with any method of measuring interest rate risk, the above table
inherently has shortcomings. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. The interest rates on
certain types of assets and liabilities may fluctuate before changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate mortgage
loans, have features that restrict changes in interest rates on a short-term
basis and over the life of the asset. When there is a change in interest rates,
expected rates of prepayments on loans, decay rates of deposits and early
withdrawals from certificates could likely differ from those assumed in the
table. Finally, the ability of many borrowers to service their debt may decrease
in the event of a significant interest rate increase.
In addition, the above table may not properly reflect the impact of general
interest rate movements on our net interest income because the repricing of
certain categories of assets and liabilities are influenced by competitive and
other pressures beyond our control.
LIQUIDITY AND CAPITAL RESOURCES
AmeriBank's principal sources of funds are deposits; borrowings, primarily FHLB
advances; principal and interest payments on loans; sales of loans; and
maturities and sales of securities. We have classified all securities held in
portfolio as available for sale, which increases our liquidity flexibility.
While scheduled loan repayments and maturing investments are relatively
predictable, deposit flows and loan prepayments are more influenced by interest
rates, general economic conditions and competition.
We view liquidity management to be both a daily and long-term responsibility.
We maintain a level of liquidity consistent with our assessment of expected loan
demand, loan sales, deposit flows, yields available on interest-earning deposits
and investment securities, and the objectives of our asset/liability management
program. We generally invest excess liquidity in interest-earning overnight
deposits of the Federal Home Loan Bank of Indianapolis. Other investments
include U.S. Treasury and federal agency securities, collateralized mortgage
obligations, mortgage and other asset-backed securities, municipal bonds and
corporate debt securities. When overnight deposits with the Federal Home Loan
Bank are drawn to low levels to maintain liquidity, we will generally borrow
funds through the FHLB's advances program instead of selling our investment
securities.
Advances from the Federal Home Loan Bank of Indianapolis increased $56.1
million during 1999 while assets grew by $79.1 million. Deposits were the other
source of funds for this asset growth. Federal Home Loan Bank advances totaled
$216.4 million as of December 31, 1999. Approximately $101.2 million of these
advances come due in 2000. We may choose to renew or pay off these advances
depending upon our liquidity needs at that time.
- --------------------------------------------------------------------------------
28 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Ottawa Financial Corporation, the holding company for AmeriBank, also has a
need for, and sources of, liquidity. Dividends from AmeriBank are its primary
source of liquidity, subject to certain regulatory constraints (see Note 11 of
the Notes to Consolidated Financial Statements). Ottawa has modest operating
costs and the dividends paid on common stock are discretionary.
AmeriBank is subject to three capital to asset requirements as discussed in
Note 11 of the Consolidated Financial Statements.
ACCOUNTING AND REGULATORY STANDARDS
For accounting standards, see "New Accounting Pronouncements" in Note 1 of the
Notes to Consolidated Financial Statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document, including information included or incorporated by reference,
contains, and future filings by the Company on Form 10-K, Form 10-Q and Form 8-K
and future oral and written statements by the Company and its management may
contain, forward-looking statements about Ottawa Financial and its subsidiaries
which we believe are within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, without
limitation, statements with respect to anticipated future operating and
financial performance, growth opportunities, interest rates, cost savings and
funding advantages expected or anticipated to be realized by management. Words
such as "may," "could," "should," "would," "believe," "anticipate," "estimate,"
"expect," "intend," "plan" and similar expressions are intended to identify
these forward-looking statements. Forward-looking statements by the Company and
its management are based on beliefs, plans, objectives, goals, expectations,
anticipations, estimates and intentions of management and are not guarantees of
future performance. The Company disclaims any obligation to update or revise any
forward-looking statements based on the occurrence of future events, the receipt
of new information, or otherwise. The important factors we discuss below and
elsewhere in this document, as well as other factors discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this document and identified in our filings with the SEC and
those presented elsewhere by our management from time to time, could cause
actual results to differ materially from those indicated by the forward-looking
statements made in this document:
The following factors, many of which are subject to change based on various
other factors beyond our control, could cause our financial performance to
differ materially from plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements:
o the strength of the United States economy in general and the strength of
the local economies in which we conduct our operations;
o the effects of, and changes in, trade, monetary and fiscal policies and
laws, including interest rate policies of the Federal Reserve Board;
o inflation, interest rate, market and monetary fluctuations;
o the timely development of and acceptance of our new products and services
and the perceived overall value of these products and services by users,
including the features, pricing and quality compared to competitors'
products and services;
o the willingness of users to substitute competitors' products and services
for our products and services;
o our success in gaining regulatory approval of our products and services,
when required;
o the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
o the impact of technological changes;
o acquisitions;
o changes in consumer spending and saving habits; and
o our success at managing the risks involved in the foregoing.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 29
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
[CROWE CHIZEK LOGO]
Board of Directors and Shareholders
Ottawa Financial Corporation
Holland, Michigan
We have audited the accompanying consolidated balance sheets of Ottawa Financial
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity, cash flows and
comprehensive income for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ottawa
Financial Corporation as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
March 1, 2000
- --------------------------------------------------------------------------------
30 OTTAWA FINANCIAL CORPORATION
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Dollars in thousands
ASSETS
Cash and due from financial institutions $ 24,420 $ 20,437
Interest-bearing demand deposits in other financial institutions 2,069 21,788
- ---------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 26,489 42,225
Securities available for sale 81,056 71,646
Loans held for sale 3,375
Loans receivable, net 856,759 769,770
Federal Home Loan Bank stock 11,782 11,782
Premises and equipment, net 16,348 15,200
Acquisition intangibles 11,828 13,032
Other assets 12,906 11,000
- ---------------------------------------------------------------------------------------------------------------------
Total assets $1,017,168 $ 938,030
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 711,954 $ 693,632
Federal Home Loan Bank advances 216,353 160,268
Federal funds purchased 1,600
Accrued expenses and other liabilities 9,429 10,723
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 939,336 864,623
Shareholders' equity
Preferred stock
Common stock 65 62
Additional paid-in capital 77,562 73,177
Retained earnings, substantially restricted 10,454 15,363
Accumulated other comprehensive income (855) 23
Employee Stock Ownership Plan (1,462) (1,886)
Management Recognition and Retention Plan (215) (712)
Less cost of common stock in treasury (7,717) (12,620)
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 77,832 73,407
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,017,168 $ 938,030
=====================================================================================================================
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 31
- -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
Dollars in thousands, except per share data
Interest income
Loans $ 62,932 $ 62,646 $ 59,948
Securities 4,669 3,833 3,707
Other 1,377 1,425 1,071
- -----------------------------------------------------------------------------------------------------------------------
68,978 67,904 64,726
Interest expense
Deposits 28,667 30,383 29,398
Federal Home Loan Bank advances 9,985 9,591 8,293
Other 230 38 13
- -----------------------------------------------------------------------------------------------------------------------
38,882 40,012 37,704
- -----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 30,096 27,892 27,022
Provision for loan losses 1,170 930 660
- -----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 28,926 26,962 26,362
Noninterest income
Service charges and other fees 4,669 4,400 3,039
Mortgage servicing fees, net 399 349 317
Gain on sale of mortgage loans 666 2,398 370
Gain (loss) on securities (8) (24) 143
Fees from sales of mutual funds and annuities 858 597 --
Other 99 91 277
- -----------------------------------------------------------------------------------------------------------------------
6,683 7,811 4,146
Noninterest expense
Compensation and benefits 11,213 11,521 10,356
Occupancy 1,680 1,550 1,316
Furniture, fixtures and equipment 1,199 1,241 1,056
Advertising 325 275 276
FDIC deposit insurance premium 403 400 324
State single business tax 570 517 357
Data processing 1,197 1,130 891
Professional services 426 495 379
Acquisition intangibles amortization 1,204 1,216 1,226
Other 2,746 2,747 2,527
- -----------------------------------------------------------------------------------------------------------------------
20,963 21,092 18,708
- -----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAX EXPENSE 14,646 13,681 11,800
Federal income tax expense 5,138 5,013 4,273
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 9,508 $ 8,668 $ 7,527
=======================================================================================================================
Earnings per common share
Basic $ 1.60 $ 1.45 $ 1.21
=======================================================================================================================
Diluted $ 1.51 $ 1.31 $ 1.11
=======================================================================================================================
See accompanying notes to consolidated financial statements..
- --------------------------------------------------------------------------------
32 OTTAWA FINANCIAL CORPORATION
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumu-
lated Unallocated
Other Employee Unearned Total
Additional Compre- Stock Management Share-
Common Paid-in Retained hensive Ownership Recognition Treasury holders'
Years ended December 31, 1999, 1998 and 1997 Stock Capital Earnings Income Plan Shares Plan Shares Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands, except share data
BALANCE - JANUARY 1, 1997 $ 60 $ 61,049 $ 32,672 $ (79) $ (2,806) $(1,977) $(12,002) $ 76,917
Net income for the year ended
December 31, 1997 7,527 7,527
29,079 shares issued upon
exercise of stock options 258 258
38,182 shares issued upon
exercise of stock warrants 502 502
62,760 shares committed to be released
under employee stock ownership plan 654 483 1,137
Issuance of 11,638 shares of common
stock for management recognition plan 249 (249)
Shares earned under management
recognition and retention plan 572 572
15,224 shares forfeited under management
recognition and retention plan (152) 152
Acquisition of 528,740 treasury
shares, at cost (8,833) (8,833)
Cash dividend - $.30 per share (1,858) (1,858)
10% Stock dividend 4,821 (14,955) 10,134
Change in unrealized gain (loss) on securities
available for sale, net of tax of $73 141 141
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1997 60 67,381 23,386 62 (2,323) (1,502) (10,701) 76,363
Net income for the year ended
December 31, 1998 8,668 8,668
62,425 shares issued upon
exercise of stock options 1 491 492
124,353 shares issued upon
exercise of stock warrants 1 1,634 1,635
59,611 shares committed to be released
under employee stock ownership plan 909 437 1,346
Shares earned under management
recognition and retention plan 509 509
15,481 shares forfeited under management
recognition and retention plan (293) 12 281
Acquisition of 606,645 treasury
shares, at cost (13,640) (13,640)
Cash dividend - $.35 per share (2,113) (2,113)
10% Stock dividend 2,869 (14,590) 11,721
Tax benefit of equity deductions 186 186
Change in unrealized gain (loss) on securities
available for sale, net of tax of $(21) (39) (39)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1998 62 73,177 15,363 23 (1,886) (712) (12,620) 73,407
Net income for the year ended
December 31, 1999 9,508 9,508
82,077 shares issued upon
exercise of stock options 1 790 791
81,124 shares issued upon
exercise of stock warrants 1 1,077 1,078
180,600 shares issued upon exchange
of stock warrants 1 (93) (92)
56,463 shares committed to be released
under employee stock ownership plan 733 424 1,157
Shares earned under management
recognition and retention plan 497 497
Acquisition of 241,985 treasury
shares, at cost (5,145) (5,145)
Cash dividend - $.45 per share (2,689) (2,689)
10% Stock dividend 1,680 (11,728) 10,048
Tax benefit of equity deductions 198 198
Change in unrealized gain (loss) on securities
available for sale, net of tax of $(452) (878) (878)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1999 $ 65 $ 77,562 $ 10,454 $ (855) $ (1,462) $ (215) $ (7,717) $77,832
===================================================================================================================================
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 33
- ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,508 $ 8,668 $ 7,527
Adjustments to reconcile net income to net cash from operating activities
Depreciation 1,255 1,209 1,079
Net amortization of security premiums and discounts 329 418 314
Amortization of intangible assets 1,204 1,216 1,226
Provision for loan losses 1,170 930 660
(Gain) loss on sales of securities 8 24 (143)
Loss on limited partnership investment 281 332 82
ESOP expense 1,157 1,346 1,137
MRP expense 497 509 572
Origination of loans for sale (63,310) (151,356) (45,354)
Proceeds from sales of loans originated for sale 66,652 150,678 43,531
Gain on sales of loans (666) (2,398) (370)
Changes in assets and liabilities
Other assets (1,740) (1,286) (94)
Other liabilities (1,096) 1,473 1,709
- ----------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 15,249 11,763 11,876
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities
Purchases (36,993) (59,110) (30,092)
Maturities, prepayments and calls 24,916 40,301 33,409
Sales 1,005 3,965 2,324
Purchases of FHLB stock (4,474) (350)
Purchases of loans (20,942) (6,039)
Loan originations and principal payments on loans (66,518) (21,621) (26,255)
Premises and equipment expenditures, net (2,403) (1,379) (1,575)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (100,935) (42,318) (28,578)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 18,322 39,072 32,068
Net increase (decrease) in Federal funds purchased 1,600 (2,000)
Proceeds from FHLB advances 114,961 163,625 67,000
Repayment of FHLB advances (58,876) (148,815) (60,712)
Proceeds from exercise of stock options 791 492 258
Proceeds from exercise of stock warrants 1,078 1,635 502
Cash paid for exchange of stock warrants (92)
Cash dividends paid (2,689) (2,113) (1,858)
Purchase of treasury shares (5,145) (13,640) (8,833)
- ----------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 69,950 40,256 26,425
- ----------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (15,736) 9,701 9,723
Cash and cash equivalents at beginning of year 42,225 32,524 22,801
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 26,489 $ 42,225 $ 32,524
======================================================================================================================
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 39,100 $ 39,228 $ 37,289
Income taxes 5,050 4,340 3,167
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
34 OTTAWA FINANCIAL CORPORATION
- ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
Net income $ 9,508 $ 8,668 $ 7,527
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) arising during the period
on securities available for sale (883) (55) 235
Less: Reclassification adjustment for accumulated
(gains) losses included in net income 5 16 (94)
- ----------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on securities available for sale (878) (39) 141
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 8,630 $ 8,629 $ 7,668
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 35
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: Ottawa Financial
Corporation is a thrift holding company and the sole shareholder of AmeriBank.
AmeriBank is the sole shareholder of O.S. Services, Inc. and AmeriPlan Financial
Services, Inc. The consolidated financial statements include the accounts of
Ottawa, AmeriBank and AmeriBank's wholly-owned subsidiaries. All significant
inter-company transactions and balances have been eliminated in consolidation.
AmeriBank's primary services include accepting deposits and making
commercial, mortgage and installment loans at its 27 retail banking offices in
six counties in the Western Michigan. Due to the significance of these primary
services, our operations are reported as one segment. Other operations include
that of O.S. Services and AmeriPlan Financial Services. The operations of O.S.
Services include investing in the stock of MMLIC Life Insurance Company and
participating as a limited partner in affordable housing projects. AmeriPlan
Financial Services was established in December 1997. Its operations include
selling investment products, including mutual funds and annuities, and offering
discount brokerage services.
As of January 1, 2000, AmeriBank's residential mortgage lending operations
were segregated and transferred into AmeriBank Mortgage Company, a wholly-owned
subsidiary of AmeriBank. The operations of AmeriBank Mortgage Company include
originating and selling residential mortgage loans.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The primary estimates incorporated into our consolidated financial
statements which are particularly susceptible to change in the near term include
the allowance for loan losses, the realization of deferred tax assets, the
determination and carrying value of certain financial instruments, the
determination and carrying value of impaired loans, the status of contingencies
and the evaluation of impairment of mortgage servicing assets.
Concentration of Credit Risk: Loans are granted to, and deposits are obtained
from, customers primarily in the Western Michigan area as described above.
Substantially all loans are secured by specific items of collateral, including
residential real estate, commercial real estate and consumer assets. Other
financial instruments which potentially subject Ottawa to concentrations of
credit risk include deposit accounts in other financial institutions.
Consolidated Statements of Cash Flows: For purposes of the consolidated
statements of cash flows, cash equivalents include demand balances with
financial institutions and Federal funds sold for one-day periods. Cash flows
are reported net for short-term investment, loan and deposit transactions, and
short-term borrowings.
Securities Available for Sale: Securities available for sale consist of
securities which might be sold prior to maturity due to changes in interest
rates, prepayment risks, yield and availability of alternative investments,
liquidity needs or other factors. Securities classified as available for sale
are reported at their fair value and the related unrealized holding gain or loss
is reported, net of income tax, in other comprehensive income.
Declines in the fair value of individual securities below cost, which we
consider to be other than temporary, are charged to earnings as a realized loss.
Premiums and discounts on securities available for sale are recognized in
interest income using the level-yield method over the estimated life of the
security. Gains and losses on the sale of securities available for sale are
determined using the specific identification method.
Loan Income: Interest on loans is accrued over the term of the loans based upon
the principal outstanding, using the interest method. We review loans delinquent
90 days or more to determine if the interest accrual should be discontinued and
the loan considered impaired. The carrying values of impaired loans are
periodically adjusted to reflect cash payments, revised estimates of future cash
flows, and changes in the present value of expected cash flows due to the
passage of time. Cash payments representing interest income are reported as
such. Other cash payments are reported as reductions in carrying value, while
increases or decreases due to changes in estimates of future payments and due to
- --------------------------------------------------------------------------------
36 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the passage of time are reported as adjustments to the provision for loan
losses.
For loans originated for portfolio, loan fees are deferred, net of certain
direct loan origination costs. The net amount deferred is reported in the
consolidated balance sheets as a reduction of loans and is recognized as
interest income over the contractual term of the loan using the level-yield
method.
Mortgage Banking Activities: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated aggregate
market value. Net unrealized losses are recognized in a valuation allowance by
charges to income. Mortgage loans are sold into the secondary market at market
prices, which includes consideration for normal servicing fees. The total cost
of mortgage loans purchased or originated with the intent to sell is allocated
between the right to service the loan and the mortgage loan without servicing,
based on their relative fair values. The capitalized cost of loan servicing
rights is amortized in proportion to, and over the period of, estimated net
future servicing revenue.
Mortgage servicing rights are periodically evaluated for impairment by
stratifying them based on predominant risk characteristics of the underlying
serviced loans, such as loan type, term and note rate. Impairment represents the
excess of cost of an individual mortgage servicing rights stratum over its fair
value, and is recognized through a valuation allowance.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of the
loss and the amount of loss on any loan is necessarily subjective. Accordingly,
we maintain the allowance at a level considered adequate to cover possible
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. While we may periodically allocate
portions of the allowance for specific problem loan situations, including
impaired loans discussed below, the whole allowance is available for any loan
charge-offs that occur. Loans are charged off in whole or in part when our
estimate of the undiscounted cash flows from the loan are less than the recorded
investment in the loan, although collection efforts may continue and future
recoveries may occur.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral. Loans
are evaluated for impairment when payments are delayed, typically 90 days or
more, or when it is probable that all principal and interest amounts will not be
collected according to the original terms of the loan.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Premises and related components are depreciated using
the straight-line method with useful lives ranging from 10 to 40 years and
furniture and equipment are depreciated using the straight-line method with
useful lives ranging from 3 to 10 years. Maintenance and repairs are charged to
expense and improvements are capitalized. The cost and accumulated depreciation
applicable to assets retired or otherwise disposed of are eliminated from the
accounts and the gain or loss on disposition is included in noninterest income
or expense. These assets are reviewed for impairment when events indicate the
carrying amount may not be recoverable.
Real Estate Owned: Real estate properties acquired through, or in lieu of, loan
foreclosure are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of cost or
fair value minus estimated costs to sell. Revenue and expenses from operations
of real estate owned is included in other noninterest expense.
Acquisition Intangibles: Goodwill is the excess of purchase price over
identified net assets in business acquisitions. Goodwill is expensed on the
straight-line method over 15 years. Identified intangibles represent the value
of depositor relationships purchased and is expensed on an accelerated basis
over 10 years. Goodwill and identified intangibles are assessed for impairment
based on estimated undiscounted cash flows, and written down if necessary.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 37
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes: Income tax expense is based on the amount of taxes due on the tax
return plus the change in deferred taxes computed based on the expected future
tax consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities, using enacted tax rates, adjusted for
allowances made for uncertainty regarding the realization of net tax assets.
Retirement Plans: Ottawa sponsors a noncontributory defined benefit pension
plan. The plan covers all employees who have met certain age and service
requirements. Benefits from the defined benefit pension plan are based on years
of service and the employee's compensation. The funding policy for the plan is
to contribute the minimum funding requirement calculated by consulting
actuaries.
Employee Stock Ownership Plan: The cost of shares issued to the employee stock
ownership plan but not yet allocated to participants are presented in the
consolidated balance sheet as a reduction of shareholders' equity. Compensation
expense is recorded based on the market price of the shares as they are
committed to be released for allocation to participant accounts. The difference
between the market price and the cost of shares committed to be released is
recorded as an adjustment to paid in capital. Dividends on allocated plan shares
are recorded as a reduction of retained earnings; dividends on unallocated plan
shares are reflected as a reduction of debt and accrued interest.
Earnings Per Share: Amounts reported as basic earnings per common share reflect
the earnings available to common shareholders for the year divided by the
weighted average number of common shares outstanding during the year. Common
shares outstanding includes issued shares less shares held in the treasury and
unallocated shares held by the employee stock ownership plan. Diluted earnings
per common share includes the shares that would be outstanding assuming exercise
of dilutive stock options and warrants. All share and per share information has
been retroactively adjusted to reflect the 10% stock dividends paid on June 30,
1999, August 31, 1998 and September 30, 1997.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as a separate
component of equity.
New Accounting Pronouncements: Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. This is not expected to
have a material effect but the effect will depend on derivative holdings when
this standard applies. As of December 31, 1999 we have no derivative holdings.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there are such matters that will have a
material effect on the financial statements.
Equity: Ottawa is authorized to issue 5,000,000 shares of preferred stock from
time to time in one or more series subject to applicable provisions of law, and
the Board of Directors is authorized to fix the designations, powers,
preferences and relative participating, optional and other special rights of
such shares, including voting rights (which could be multiple or as a separate
class) and conversion rights. In the event of a proposed merger, tender offer or
other attempt to gain control of Ottawa that the Board does not approve, it
might be possible for the Board to authorize the issuance of a series of
preferred stock with rights and preferences that would impede the completion of
such a transaction. The Board of Directors has not issued and has no present
plans for the issuance of any preferred stock.
Common stock has $.01 par and 10,000,000 shares authorized. As of December
31, 1999 and 1998, 6,471,617 and 6,155,234 shares were issued. Treasury stock is
carried at cost. As of December 31, 1999 and 1998, 376,828 and 162,257 shares
were held in the treasury. Transfers from retained earnings are made for stock
dividends using the fair value of shares issued.
Reclassifications: Certain amounts in the 1998 and 1997 consolidated financial
statements have been reclassified to conform with the 1999 presentation.
- --------------------------------------------------------------------------------
38 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Securities
Securities available for sale at year end are as follows:
Gross Gross
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands
1999
Debt securities
Obligations of U.S. Government corporations and agencies $ 46,647 $ 33 $ 724 $ 45,956
Municipal obligations 106 2 104
Corporate 7,051 123 6,928
Asset-backed 28,548 34 514 28,068
- -----------------------------------------------------------------------------------------------------------------------------------
$ 82,352 $ 67 $ 1,363 $ 81,056
===================================================================================================================================
Gross Gross
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands
1998
Debt securities
Obligations of U.S. Government corporations and agencies $ 25,510 $ 69 $ 37 $ 25,542
Municipal obligations 649 4 653
Corporate 8,095 85 4 8,176
Asset-backed 37,358 137 220 37,275
- -----------------------------------------------------------------------------------------------------------------------------------
$ 71,612 $ 295 $ 261 $ 71,646
===================================================================================================================================
Contractual maturities of debt securities available for sale at year end 1999
are as follows. Securities not due at a single maturity date, primarily
asset-backed securities, are shown separately. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------
Dollars in thousands
Due in one year or less $ 15,051 $ 14,960
Due after one year through five years 37,175 36,445
Due after five through ten years 1,578 1,583
- -------------------------------------------------------------------------------------------------------------
53,804 52,988
Asset-backed debt securities 28,548 28,068
- -------------------------------------------------------------------------------------------------------------
$ 82,352 $ 81,056
=============================================================================================================
Sales of securities available for sale are as follows:
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Dollars in thousands
Proceeds $ 1,005 $ 3,965 $ 2,324
Gross gains 154
Gross losses (8) (24) (11)
As of December 31,1999, securities with a carrying value of $74,024,000 were
pledged to secure Federal Home Loan Bank advances under a blanket collateral
agreement.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 39
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS
Loans at year end are as follows:
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
Residential mortgage loans (principally conventional)
Secured by one-to-four family residences $ 432,145 $ 425,974
Construction 50,814 30,673
- ----------------------------------------------------------------------------------------------------------------------
482,959 456,647
Commercial loans
Secured by multi-family and commercial properties 122,884 101,039
Construction 74,897 87,119
Business 78,318 53,935
- ----------------------------------------------------------------------------------------------------------------------
276,099 242,093
Consumer and other loans
Home equity 53,497 49,647
Other (principally auto) 87,853 70,643
- ----------------------------------------------------------------------------------------------------------------------
141,350 120,290
- ----------------------------------------------------------------------------------------------------------------------
900,408 819,030
Less
Undisbursed portion of construction loans (38,482) (44,797)
Deferred fees and discounts (453) (640)
Allowance for loan losses (4,714) (3,823)
- ----------------------------------------------------------------------------------------------------------------------
(43,649) (49,260)
- ----------------------------------------------------------------------------------------------------------------------
$ 856,759 $ 769,770
======================================================================================================================
As of December 31,1999, residential mortgage loans amounting to $418,481,000
were pledged to secure Federal Home Loan Bank advances under a blanket
collateral agreement.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
Balance - beginning of year $ 3,823 $ 3,293 $ 3,129
Provision 1,170 930 660
Recoveries 265 176 119
Loans charged-off (544) (576) (615)
- ----------------------------------------------------------------------------------------------------------------------
Balance - end of year $ 4,714 $ 3,823 $ 3,293
======================================================================================================================
- --------------------------------------------------------------------------------
40 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information regarding impaired loans is as follows:
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
Average investment in impaired loans $ 1,715 $ 1,710 $ 1,354
Interest income recognized on impaired loans including
interest income recognized on cash basis 69 24 104
Interest income recognized on impaired loans on cash basis 69 24 4
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
Balance of impaired loans at year end $ 3,247 $ 1,452
Less portion for which no allowance for loan losses is allocated (2,861) (1,053)
- ----------------------------------------------------------------------------------------------------------------------
Portion of impaired loan balance for which an allowance for credit losses is allocated $ 386 $ 399
Portion of allowance for loan losses allocated to the impaired loan balance $ 51 $ 65
NOTE 5 - SECONDARY MORTGAGE MARKET ACTIVITIES
Mortgage loans serviced for others, principally the Federal Home Loan Mortgage
Corporation, which are not reported as assets, totaled $261,047,000 and
$227,939,000 at December 31, 1999 and 1998. Custodial escrow balances maintained
in connection with this loan servicing, and included in demand deposits, were
$488,000 and $372,000 at December 31, 1999 and 1998.
Following is an analysis of the activity, in thousands, for mortgage
servicing rights:
Balance at January 1, 1997 $ 457
Additions 237
Amortization (44)
- ------------------------------------------------------------------------------
Balance at December 31, 1997 650
- ------------------------------------------------------------------------------
Additions 1,655
Amortization (177)
- ------------------------------------------------------------------------------
Balance at December 31, 1998 2,128
Additions 759
Amortization (292)
- ------------------------------------------------------------------------------
Balance at December 31, 1999 $ 2,595
==============================================================================
The carrying values of mortgage servicing rights approximate fair values for
all years presented.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 41
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment at year end are as follows:
1999 1998
- -------------------------------------------------------------------
Dollars in thousands
Land $ 3,590 $ 3,206
Buildings and improvements 12,641 11,638
Furniture and equipment 8,764 7,636
- -------------------------------------------------------------------
24,995 22,480
Accumulated depreciation (8,647) (7,280)
- -------------------------------------------------------------------
$ 16,348 $ 15,200
===================================================================
NOTE 7 - DEPOSITS
Deposits at year end are as follows:
1999 1998
- ---------------------------------------------------------------------
Dollars in thousands
Noninterest-bearing $ 40,969 $ 40,813
NOW accounts and MMDAs 215,403 200,132
Passbook and statement savings 46,022 54,475
Certificates of deposit 409,560 398,212
- ---------------------------------------------------------------------
$ 711,954 $ 693,632
=====================================================================
Scheduled maturities of time deposits, in thousands, over the next five years
are as follows:
1999 1998
- ----------------------------------------------------------------------
Year 1 $ 234,465 $ 320,191
Year 2 95,553 53,416
Year 3 72,554 11,093
Year 4 3,324 7,529
Year 5 and thereafter 3,664 5,983
- ----------------------------------------------------------------------
$ 409,560 $ 398,212
======================================================================
The aggregate amount of demand, savings and certificates of deposit with
balances of $100,000 or more was approximately $99,881,000 and $91,717,000 at
December 31, 1999 and 1998.
- --------------------------------------------------------------------------------
42 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - BORROWINGS
Advances from the Federal Home Loan Bank of Indianapolis, collateralized by
securities and mortgage loans under a blanket collateral agreement and Federal
Home Loan Bank stock, consist of the following at year end:
Principal Terms Advance Amount Range of Maturities Weighted Average Interest Rate
- ------------------------------------------------------------------------------------------------------------------------
Dollars in thousands
1999
Single-maturity fixed rate advances $ 99,125 January 2000 to June 2010 6.08%
Putable advances 64,000 May 2000 to April 2009 5.60%
Short-term variable rate advances 50,000 January 2000 to July 2000 5.80%
Amortizable mortgage advances 3,228 May 2000 6.82%
- ------------------------------------------------------------------------------------------------------------------------
$ 216,353
========================================================================================================================
1998
Single-maturity fixed rate advances $ 104,125 February 1999 to June 2010 6.06%
Putable advances 51,000 May 2000 to May 2008 5.53%
Amortizable mortgage advances 5,143 June 1999 to May 2000 6.91%
- ------------------------------------------------------------------------------------------------------------------------
160,268
========================================================================================================================
Maturities of advances outstanding, in thousands, over the next five years
are:
1999 1998
- -----------------------------------------------------------------
Year 1 $ 101,228 $ 61,405
Year 2 13,000 18,738
Year 3 22,000 8,000
Year 4 17,000 12,000
Year 5 16,000 15,000
Year 6 and thereafter 47,125 45,125
- -----------------------------------------------------------------
$ 216,353 $ 160,268
=================================================================
Some of the advances are subject to prepayment penalties according to the
conditions of the credit policy of the Federal Home Loan Bank. Putable advances
are fixed rate advances for a scheduled period of time after which the Federal
Home Loan Bank may convert the advance to a variable rate. If converted, we may
prepay the advance without penalty.
At December 31, 1999, Ottawa had unused lines of credit with two major banks
totaling $28.4 million.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 43
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Ottawa is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include standby letters of credit, commitments to make
loans and fund loans in process. Ottawa's exposure to credit loss in the event
of nonperformance by the other party to these financial instruments is equal to
the contractual amount of these instruments. Ottawa follows the same credit
policy to make these commitments as it uses for those loans recorded in the
financial statements.
The contract amounts of these financial instruments at year end are as
follows:
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
Financial instruments whose contract amount represents credit risk
Commitments to make loans $ 23,881 $ 19,427
Unused consumer lines of credit 41,691 34,854
Unused commercial lines of credit 39,273 24,190
Loans in process 38,483 44,797
Letters of credit 22,138 10,340
Since certain commitments to make loans and fund loans in process expire
without being used, the above amounts do not necessarily represent future cash
commitments. Commitment periods are generally for 30 to 120 days. Approximately
33% and 39% of commitments to make loans and to fund lines of credit and loans
in process were made at fixed rates as of December 31, 1999 and 1998. Rate
ranges for these fixed rate commitments were 7.13% to 10.50% and 6.20% to 10.00%
as of December 31, 1999 and 1998. Lines of credit are generally issued at
variable market rates. No losses are anticipated as a result of these
transactions.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Ottawa has entered into employment agreements with two of its officers. Under
the terms of these agreements, certain events leading to separation from Ottawa
could result in cash payments aggregating approximately $1.8 million.
A lawsuit against AmeriBank was filed in December 1998 alleging that we
engaged in the unauthorized practice of law due to charging a fee for preparing
loan documents. The complaint sought class action certification, restitution of
all fees paid for the last six years, interest, attorney fees and other costs.
The class action certification was obtained in March 1999. We filed a motion for
summary disposition based upon our belief that the complaint was wholly without
merit. In July 1999, the court granted our motion and the case was dismissed.
After the case was dismissed, the plaintiff amended the complaint and alleged we
violated certain banking regulations. In September 1999, the case was again
dismissed from the state court system. After the case was dismissed for the
second time, the attorney for the plaintiff filed a similar case on behalf of a
new plaintiff in the federal court system, with a focus on the allegation that
we violated certain banking regulations. In October 1999 we filed a motion for
summary disposition within the federal courts. In December 1999 the case was
dismissed from the federal courts. Subsequently, both cases have been appealed
at both the federal and state courts. We continue to believe that these
allegations are wholly without merit and intend to vigorously defend against
these lawsuits.
Ottawa and AmeriBank periodically become defendants in certain claims and
legal actions arising in the ordinary course of business. Currently, there are
no matters which are expected to have a material adverse effect on our
consolidated financial position or results of operations.
- --------------------------------------------------------------------------------
44 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL REQUIREMENTS
Effective July 25, 1997, AmeriBank completed its conversion to a Michigan
chartered savings bank. As a state chartered savings bank, AmeriBank's primary
regulators are the Financial Institutions Bureau of Michigan and the Federal
Deposit Insurance Corporation.
AmeriBank is subject to regulatory capital requirements administered by these
regulatory agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities, and certain
off-balance sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings, and other factors, and the
regulators can lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a direct
material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
under- capitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
Capital to Risk-Weighted Assets Tier 1 Capital
Total Tier 1 to Average Assets
- -------------------------------------------------------------------------------
Well capitalized 10% 6% 5%
Adequately capitalized 8 4 4
Undercapitalized 6 3 3
AmeriBank's actual capital levels (in millions) and minimum required levels
at year end are as follows:
Minimum Required Minimum Required To Be
For Capital Well Capitalized Under Prompt
Actual Adequacy Purposes Corrective Action Regulations
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
1999
Total capital (to risk weighted assets) $ 70.2 10.2% $ 54.9 8.0% $ 68.7 10.0%
Tier 1 capital (to risk weighted assets) 65.5 9.5 27.5 4.0 41.2 6.0
Tier 1 capital (to average total assets) 65.5 6.7 39.2 4.0 49.0 5.0
1998
Total capital (to risk weighted assets) $ 62.3 10.3% $ 48.6 8.0% $ 60.7 10.0%
Tier 1 capital (to risk weighted assets) 58.5 9.6 24.3 4.0 36.4 6.0
Tier 1 capital (to average total assets) 58.5 6.3 37.0 4.0 46.2 5.0
AmeriBank was categorized as well capitalized at year end 1999 and 1998.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 45
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1999 and 1998, AmeriBank made capital distributions to Ottawa in the
amount of $6,000,000 and $12,500,000, respectively. These distributions were
made primarily to allow Ottawa to pay dividends and fund the stock repurchase
transactions discussed in Note 12. The distributions were within regulatory
guidelines.
The Qualified Thrift Lender test requires at least 65% of assets to be
maintained in housing-related finance and other specified areas. If this test is
not met, limits are placed on growth, branching, new investments, Federal Home
Loan Bank advances and dividends, or AmeriBank must convert to a commercial bank
charter. Management believes this test is met.
At the time of conversion to a stock association, a liquidation account of
$26,527,000 was established which is equal to AmeriBank's total net worth as of
the date of the latest audited balance sheet appearing in the final conversion
prospectus. The liquidation account will be maintained for the benefit of
eligible depositors who continue to maintain their accounts at the Bank after
the conversion. The liquidation account is to be reduced annually to the extent
that eligible depositors have reduced their qualifying deposits. Subsequent
increases do not restore an eligible account holder's interest in the
liquidation account. In the event of a complete liquidation, each eligible
depositor will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. AmeriBank may not pay dividends that would reduce
shareholders' equity below the required liquidation account balance.
Note 12 - Stock Repurchase Programs
During 1999, 1998 and 1997, Ottawa repurchased 241,985, 606,645 and 528,740
shares of its common stock at an average price of $21.26, $22.48 and $16.70
Repurchased shares are treated as treasury shares and are available for
general corporate purposes, including issuance in connection with stock
dividends, stock based compensation and warrant plans.
All share and per share information has been retroactively adjusted to
reflect the 10% stock dividends paid on June 30, 1999, August 31, 1998 and
September 30, 1997.
NOTE 13 - STOCK WARRANT PLAN
In connection with the acquisition of AmeriBank Federal Savings Bank on February
13, 1996, Ottawa issued 566,546 warrants to the former AmeriBank Federal Savings
Bank shareholders. All warrants were exercisable immediately upon issue and
expired on February 16, 1999.
On December 24, 1998, Ottawa offered to exchange, for each outstanding
warrant, at the holder's option, either .44 shares of the Corporation's common
stock or $10.03 in cash. As of January 26, 1999, the expiration date of the
exchange offer, Ottawa accepted tenders for approximately 86% of its warrants.
In connection with this exchange, Ottawa issued 180,600 shares of its common
stock and paid $90,130 in cash. The remaining 14% of the warrants were exercised
by the date of the warrant plan expiration, resulting in additional capital of
$1.1 million.
- --------------------------------------------------------------------------------
46 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK-BASED COMPENSATION PLANS
Ottawa maintains an Employee Stock Ownership Plan for the benefit of
substantially all employees. During 1994, this plan borrowed $4,222,050 from
Ottawa and used those funds to acquire 561,532 shares of the Corporation's stock
at $7.52 per share. Participants become fully vested in allocated shares after
five years of credited service and may receive their distribution in the form of
cash or stock.
Shares issued to the employee stock ownership plan are allocated to
participants based on principal and interest payments made on the loan. The loan
is secured by shares purchased with the loan proceeds and will be repaid by the
plan with funds from Ottawa's discretionary contributions to the plan and
earnings on the plan's assets. Principal payments are scheduled to occur in even
quarterly amounts over a ten-year period. However, in the event contributions
exceed the minimum debt service requirements, additional principal payments will
be made. For purposes of the following disclosure, all share and per share
information has been retroactively adjusted to reflect the 10% stock dividends
paid on June 30, 1999, August 31, 1998 and September 30, 1997. During 1999, 1998
and 1997, 56,463, 59,611, and 62,760 shares of stock with a fair value of
$20.49, $22.58 and $18.12 per share were committed to be released, resulting in
employee stock ownership plan compensation expense of $1,157,000, $1,346,000 and
$1,137,000, respectively.
Shares held by the plan at year end are as follows:
1999 1998 1997
- -------------------------------------------------------------------------------
Dollars in thousands
Allocated shares 367,132 310,670 251,059
Unallocated shares 194,400 250,862 310,473
- -------------------------------------------------------------------------------
Total ESOP shares 561,532 561,532 561,532
===============================================================================
Fair value of unallocated shares $ 3,524 $ 4,850 $ 8,731
===============================================================================
Ottawa maintains a management recognition plan, with 299,243 shares
authorized. This is a restricted stock award plan in which stock awards vest in
five equal annual installments, subject to the continuous employment of the
recipients. Compensation expense is based upon the market price of Ottawa's
stock at the date of grant, and is recognized on a prorata basis over the
vesting period of the awards. Compensation expense for this plan was $497,000,
$509,000 and $572,000 for 1999, 1998 and 1997. The unamortized unearned
compensation value of the management recognition plan is shown as a reduction to
shareholders' equity in the consolidated balance sheets.
Ottawa also maintains a stock option and incentive plan, with 1,427,518
shares authorized. Stock options vest in five equal annual installments and
expire 10 years from the date of grant. No compensation expense is being
recognized for options that have an exercise price equal to the market price of
the Corporation's stock at the date of grant.
The management recognition plan and the stock option and incentive plan are
administered by a committee of the Board of Directors of Ottawa. This committee
selects recipients and defines the terms of awards consistent with the plans.
Statement of Financial Accounting Standards No. 123 requires pro forma
disclosures for companies that do not adopt its fair value accounting method for
stock-based employee compensation. Accordingly, the following pro forma
information presents net income, basic earnings per common share and diluted
earnings per common share had the fair value method been used to measure
compensation cost for the stock option and inventive plan. In future years, the
pro forma effect of not applying this standard is expected to increase as
additional options are granted. The compensation cost charged against income for
the management recognition plan is the same as if the provisions of FAS No. 123
had been applied.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 47
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1999 1998 1997
- --------------------------------------------------------------------------------------------------
Dollars in thousands, except per share data
Net income as reported $ 9,508 $ 8,668 $ 7,527
Pro forma net income 8,948 8,218 7,150
- --------------------------------------------------------------------------------------------------
Basic earnings per common share as reported 1.60 1.45 1.21
Pro forma basic earnings per common share 1.50 1.37 1.15
- --------------------------------------------------------------------------------------------------
Diluted earnings per common share as reported 1.51 1.31 1.11
Pro forma diluted earnings per common share 1.43 1.25 1.06
- --------------------------------------------------------------------------------------------------
The fair values of stock options were estimated using option pricing models
with the following weighted-average assumptions as of grant date.
1999 1998 1997
- --------------------------------------------------------------------------
Risk-free interest rate 5.89% 4.77% 6.27%
Expected life 10 Years 10 Years 10 Years
Expected volatility of stock price 6.14% 6.45% 6.00%
Expected dividends 2.22% 1.91% 1.97%
Information regarding activity in the stock option plan is as follows:
Number Weighted-Average Range of Weighted-Average
of Options Exercise Price Exercise Price Fair Value of Grants
- ------------------------------------------------------------------------------------------------------------------------
OUTSTANDING, END OF 1996 771,229 $ 10.14 $ 3.61- $ 12.31
Granted 99,928 16.97 $ 4.96
Exercised (29,079) 8.87
Forfeited (30,434) 10.23
- ------------------------------------------------------------------------------------------------------------------------
OUTSTANDING, END OF 1997 811,644 $ 10.97 $ 3.61- $ 24.07
Granted 141,824 23.04 $ 4.52
Exercised (62,425) 7.88
Forfeited (61,442) 22.43
- ------------------------------------------------------------------------------------------------------------------------
OUTSTANDING, END OF 1998 829,601 $ 12.42 $ 5.92- $ 27.58
Granted 56,430 20.43 $ 5.09
Exercised (87,028) 10.21
Forfeited (4,825) 15.70
- ------------------------------------------------------------------------------------------------------------------------
OUTSTANDING, END OF 1999 794,178 $ 13.21 $ 5.92- $ 27.58
========================================================================================================================
Stock options exercisable at year-end are as follows:
Number Weighted-Average
of Options Exercise Price
- --------------------------------------------------------------------
1997 267,760 $ 9.51
1998 362,220 10.62
1999 415,075 11.32
At year-end 1999, the weighted average remaining life of options outstanding
was 6.58 years.
All share and per share information has been retroactively adjusted to
reflect the 10% stock dividends paid on June 30, 1999, August 31, 1998 and
September 30, 1997.
- --------------------------------------------------------------------------------
48 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - PENSION PLANS
Ottawa sponsors a noncontributory defined benefit pension plan. On January 1,
1998 two separate plans were merged into one. The separate plans were from each
of the two Banks that merged in early 1996. Both plans were curtailed prior to
the merger.
The following sets forth the funded status and amounts recognized in the
consolidated financial statements at year end for the plan. The 1997 information
shown below reflects combined information for the two separate plans.
1999 1998
- ------------------------------------------------------------------------------
Dollars in thousands
Change in benefit obligation:
Beginning benefit obligation $ 3,592 $ 3,947
Interest cost 246 288
Actuarial gain 20 263
Benefits paid (393) (906)
- ------------------------------------------------------------------------------
Ending benefit obligation 3,465 3,592
Change in plan assets, at fair value:
Beginning plan assets 6,167 5,923
Actual return 527 1,203
Benefits paid (454) (959)
- ------------------------------------------------------------------------------
Ending plan assets 6,240 6,167
- ------------------------------------------------------------------------------
Funded Status 2,775 2,575
Unrecognized net (gain) loss (590) (678)
- ------------------------------------------------------------------------------
Prepaid pension asset $ 2,185 $ 1,897
- ------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
Dollars in thousands
Net pension cost included in operations, including the effects
of curtailment, consisted of the following components
Interest cost on projected benefit obligation $ 246 $ 288 $ 280
Actual return on plan assets (527) (1,203) (878)
Net amortization and deferral (7) 589 466
- -------------------------------------------------------------------------------------------------------------
Net pension income $ (288) $ (326) $ (132)
=============================================================================================================
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.00% for all years presented. The
expected long-term rate of return on assets was 8.00% for all years presented.
As a result of the plan curtailments, all accumulated benefits under the plans
are vested and no further benefits arising from service to Ottawa will accrue.
The plan assets are invested in U.S. Government and corporate bonds and
listed stocks.
Ottawa maintains a 401(k) plan covering substantially all employees.
Employees who are 21 years and older and who have completed one year of service
are eligible. Employees may elect to contribute to the plan from 1% to 15% of
their salary subject to a statutory maximum amount. Ottawa does not make
matching contributions to this plan.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 49
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - FEDERAL INCOME TAXES
The provision for federal income taxes consists of the following:
1999 1998 1997
- -------------------------------------------------------------------------------
Dollars in thousands
Current tax expense $ 5,078 $ 4,858 $ 3,961
Deferred tax expense (benefit) 60 155 312
- -------------------------------------------------------------------------------
$ 5,138 $ 5,013 $ 4,273
===============================================================================
The provision for federal income taxes differs from that computed at the
statutory corporate tax rate as follows:
1999 1998 1997
- -------------------------------------------------------------------------------------------------
Statutory rate 35% 35% 34%
- -------------------------------------------------------------------------------------------------
Tax expense at statutory rate $ 5,126 $ 4,789 $ 4,012
Low-income housing credit (350) (327) (239)
ESOP 256 314 227
Tax-exempt interest (24) (45) (84)
Goodwill amortization 329 329 319
Change in deferred tax asset valuation allowance (14) (46) (60)
Other (185) (1) 98
- -------------------------------------------------------------------------------------------------
$ 5,138 $ 5,013 $ 4,273
=================================================================================================
- --------------------------------------------------------------------------------
50 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at year end are as
follows:
1999 1998
- ---------------------------------------------------------------------------------------
Dollars in thousands
Deferred tax assets
Deferred loan fees $ 209 $ 192
Management recognition plan restricted stock 98 96
ESOP 52 52
Capital loss carryforward 66 80
Accrued expenses -- 138
Allowance for loan losses 922 428
Nonaccrual loan interest 56 73
Unrealized loss on available-for-sale securities 454 --
Other 53 118
- ---------------------------------------------------------------------------------------
1,910 1,177
Deferred tax liabilities
Depreciation (561) (590)
Pension (576) (405)
Purchase accounting adjustment (918) (870)
FHLB stock dividends (70) (70)
Mortgage servicing rights (790) (619)
Unrealized gain on available-for-sale securities -- (10)
Other (80) (87)
- ---------------------------------------------------------------------------------------
(2995) (2,651)
Valuation allowance for deferred tax assets (66) (80)
- ---------------------------------------------------------------------------------------
Net deferred tax liability $ (1,151) $ (1,554)
=======================================================================================
A valuation allowance related to deferred tax assets is required when it is
considered more likely than not that all or part of the benefits relating to
such assets will not be realized. Management established a valuation allowance
for the benefits associated with the losses on mutual fund securities at
December 31, 1996, since such losses were capital in nature and could only be
realized through offsetting capital gains. Sources of capital gains were not
available at either December 31, 1999 or 1998.
During 1997, new tax law was established regarding thrift bad debt reserves.
Under the new rules, recapture of a portion of the tax bad debt reserve is
required. Beginning with the 1998 tax year, the Company will include an
additional $520,000 per year for six years in its taxable income. These new
rules had no impact on the consolidated financial statements as accounting
provisions have required recording deferred taxes for the amounts to be
recaptured.
An income tax benefit of $198,000 and $186,000 attributable to deductions
related to the exercise of nonqualified stock options and the vesting of
management recognition plan shares were allocated directly to shareholders'
equity in 1999 and 1998.
Under the Internal Revenue Code, the Bank may, for tax purposes, deduct a
provision for bad debts in excess of such provisions recorded in the financial
statements. Retained earnings at December 31, 1999 includes approximately $8.8
million, consisting of bad debt deductions accumulated prior ro 1988, on which
no provision for federal income taxes has been made. The resulting amount of
unrecognized deferred tax liability was approximately $3.0 million.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 51
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - EARNINGS PER SHARE
The factors used in the earnings per share computation follow.
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
Dollars in thousands, except share and per share data
BASIC
Net Income available to common shareholders $ 9,508 $ 8,668 $ 7,527
=============================================================================================================================
Weighted average common shares outstanding 5,961,287 5,980,195 6,231,985
=============================================================================================================================
Basic earnings per common share $ 1.60 $ 1.45 $ 1.21
=============================================================================================================================
DILUTED
Net Income available to common shareholders $ 9,508 $ 8,668 $ 7,527
=============================================================================================================================
Weighted average common shares outstanding 5,961,287 5,980,195 6,231,985
Add: Dilutive effects of assumed exercises of stock options and warrants 333,757 650,439 554,978
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average common and dilutive potential common shares outstanding 6,295,044 6,630,634 6,786,963
=============================================================================================================================
Diluted earnings per common share $ 1.51 $ 1.31 $ 1.11
=============================================================================================================================
All share and per share information has been retroactively adjusted to
reflect the 10% stock dividends paid on June 30, 1999, August 31, 1998 and
September 30, 1997.
NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair values of
each class of financial instrument for which it is practicable to estimate that
value:
Carrying amount is the estimated fair value for cash and cash equivalents,
Federal Home Loan Bank stock, the allowance for loan losses, demand deposits,
savings accounts, money market deposits and variable rate loans or deposits that
reprice frequently and fully. Security fair values are based on market prices or
dealer quotes, and if no such information is available, on quoted market prices
for similar instruments. For fixed rate loans and deposits and for variable rate
loans and deposits with infrequent repricing or repricing limits, fair value is
based on discounted cash flows using current market rates applied to the
estimated life and credit risk. Prepayment speeds are assumed in projecting
future cash flows based upon the current interest rate environment and recent
actual prepayment history. Fair values for impaired loans are estimated using
discounted cash flow analysis. Fair value of loans held for sale is based on
market quotes. Fair value of debt is based on current rates for similar
financing. The fair value of off-balance sheet items is based on the current
fees or cost that would be charged to enter into or terminate such arrangements.
The fair value of commitments was immaterial at the reporting dates presented.
The estimated fair values of Ottawa's financial instruments at year end are
as follows:
1999 1998
Carrying Value Fair Value Carrying Value Fair Value
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
FINANCIAL ASSETS
Cash and cash equivalents $ 26,489 $ 26,489 $ 42,225 $ 42,225
Securities available for sale 81,056 81,056 71,646 71,646
Federal Home Loan Bank stock 11,782 11,782 11,782 11,782
Loans held for sale -- -- 3,375 3,375
Loans, net 856,759 845,444 769,770 774,621
FINANCIAL LIABILITIES
Deposits 711,954 711,141 693,632 696,215
Federal Home Loan Bank advances 216,353 213,180 160,268 162,056
======================================================================================================================
- --------------------------------------------------------------------------------
52 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Ottawa Financial Corporation at year end is
as follows:
CONDENSED BALANCE SHEETS
December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
ASSETS
Cash and due from financial institutions $ 152 $ 278
Loans receivable from Employee Stock Ownership Plan 1,689 2,111
Investment in subsidiary bank 76,257 71,185
Other assets 10 95
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 78,108 $ 73,669
======================================================================================================================
LIABILITIES $ 276 $ 262
SHAREHOLDERS' EQUITY 77,832 73,407
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 78,108 $ 73,669
- ----------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
for the years ended December 31: 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
Interest and dividend income
Securities $ 175
Loan to Employee Stock Ownership Plan $ 147 $ 178 210
Dividends from subsidiary bank 6,000 12,500 4,000
- ----------------------------------------------------------------------------------------------------------------------
6,147 12,678 4,385
Net gain on sale of securities 151
Operating expenses 875 867 769
- ----------------------------------------------------------------------------------------------------------------------
Income before federal income taxes and equity in undistributed
(excess distributed) earnings of subsidiary bank 5,272 11,811 3,767
Federal income tax expense (benefit) (251) (232) (88)
- ----------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed (excess distributed)
earnings of subsidiary bank 5,523 12,043 3,855
Equity in undistributed (excess distributed) earnings of subsidiary bank 3,985 (3,375) 3,672
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 9,508 $ 8,668 $ 7,527
======================================================================================================================
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 53
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS
for the years ended December 31: 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands
Cash flows from operating activities
Net income $ 9,508 $ 8,668 $ 7,527
Adjustments to reconcile net income to cash provided by operations
Equity in income of subsidiary bank (9,985) (9,125) (7,672)
Net accretion of securities discounts (12)
Net gain on sale of securities (151)
Change in
Interest receivable 75
Other assets 85 81 (86)
Other liabilities 14 63 68
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (378) (313) (251)
Cash flows from investing activities
Activity in available-for-sale securities:
Maturities, prepayments and calls 307
Sales 5,884
Principal reduction of ESOP note receivable 422 422 422
Contribution to subsidiary bank (113) (111) (112)
Cash dividends received from subsidiary bank 6,000 12,500 4,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities 6,309 12,811 10,501
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury shares (5,145) (13,640) (8,833)
Proceeds from exercise of stock options 791 492 258
Proceeds from exercise of stock warrants 1,078 1,635 502
Cash paid for exchange of warrants (92)
Cash dividends paid (2,689) (2,113) (1,858)
- ----------------------------------------------------------------------------------------------------------------------
Net cash from financing activities (6,057) (13,626) (9,931)
- ----------------------------------------------------------------------------------------------------------------------
Net change in cash (126) (1,128) 319
Cash at beginning of period 278 1,406 1,087
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 152 $ 278 $ 1,406
======================================================================================================================
- --------------------------------------------------------------------------------
54 OTTAWA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL INCORMATION unaudited
The following is a summary of selected unaudited quarterly results of operations
for the years ended December 31, 1999 and 1998. In our opinion, all adjustments
necessary for a fair presentation of such financial data have been included. All
such adjustments are of a normal recurring nature.
Quarter Ended March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------
Dollars in thousands, except share data(1)
1999
Net interest income $ 7,084 $ 7,546 $ 7,831 $ 7,635
Provision for loan losses 270 285 300 315
Noninterest income 1,825 1,645 1,559 1,654
Noninterest expense 5,290 5,385 5,233 5,055
Income before income taxes 3,349 3,521 3,857 3,919
Net income 2,113 2,262 2,485 2,648
Basic earnings per common share .35 .38 .41 .45
Diluted earnings per common share .34 .36 .39 .43
1998
Net interest income $ 6,680 $ 7,000 $ 7,110 $ 7,102
Provision for loan losses 210 225 240 255
Noninterest income 1,607 1,939 1,995 2,270
Noninterest expense 5,143 5,200 5,352 5,397
Income before income taxes 2,934 3,514 3,513 3,720
Net income 1,831 2,227 2,205 2,405
Basic earnings per common share .29 .36 .37 .42
Diluted earnings per common share .26 .33 .34 .38
(1) All per share information has been retroactively adjusted to reflect the
10% stock dividends paid on June 30, 1999 and August 31, 1998.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT 55
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
MARKET
Ottawa Financial Corporation's common stock is traded on the Nasdaq National
Market under the symbol "OFCP." The high and low sales prices for the common
stock as reported on the Nasdaq as well as dividends declared per share,
adjusted for the 10% stock dividends paid on June 30, 1999 and August 31, 1998,
were as follows.
Quarter Ended High Low Dividends
- -----------------------------------------------------------------------
March 31, 1998 $ 28.306 $ 22.934 $ .08
June 30, 1998 24.793 23.554 .08
September 30, 1998 23.967 19.546 .09
December 31, 1998 21.818 16.818 .10
March 31, 1999 22.045 18.750 .10
June 30, 1999 22.125 18.409 .11
September 30, 1999 23.500 19.875 .12
December 31, 1999 20.875 17.375 .12
The information set forth in the table above was provided by The Nasdaq Stock
Market.
The Board of Directors intends to continue the payment of quarterly cash
dividends, dependent upon the results of operations and financial condition of
Ottawa and other factors. Restrictions on dividend payments are described in
Note 11 of the Notes to Consolidated Financial Statements.
As of March 14, 2000, Ottawa had approximately 2,089 shareholders of record
and 6,076,389 shares outstanding of common stock.
ANNUAL REPORT ON FORM 10-K
A copy of Ottawa Financial Corporation's Annual Report on Form 10-K, as filed
with the Securities and Exchange Commission, may be obtained without charge upon
written request to Jon W. Swets, Chief Financial Officer, Ottawa Financial
Corporation, 190 Monroe Avenue, NW, Grand Rapids, MI 49503 or by calling (616)
224-2841.
Corporate Headquarters Independent Auditor General Counsel
245 Central Avenue Crowe, Chizek and Company LLP Cunningham Dalman, PC
Holland, MI 49423-3298 Grand Rapids, MI Holland, MI
Registrar/Transfer Agent Special Counsel
Registrar and Transfer Company Silver, Freedman & Taff, LLP
Cranford, NJ Washington, DC
- --------------------------------------------------------------------------------
56 OTTAWA FINANCIAL CORPORATION
[INSIDE BACK COVER]
OTTAWA FINANCIAL CORPORATION OFFICERS BRANCH OFFICE AND ATM LOCATIONS
Gordon H. Cunningham Holland/Zeeland Grand Rapids
Chairman of the Board, Attorney
Downtown Holland Downtown Grand Rapids
Douglas J. Iverson 245 Central Avenue 190 Monroe Avenue, NW
Vice Chairman and CEO 616-393-7141 616-559-1712
Ronald L. Haan Beechwood (ATM) Alpine (ATM)
President, COO and Secretary 180 Douglas Avenue 3320 Alpine Avenue, NW
616-393-7180 616-785-1000
Jon W. Swets
Chief Financial Officer and Downtown Holland Drive-In (ATM) Breton (ATM)
Assistant Secretary 10 East 9th Street 2609 Breton Avenue, SE
616-393-7104 616-956-7110
OTTAWA FINANCIAL CORPORATION Downtown Zeeland Byron Center (ATM)
BOARD OF DIRECTORS 146 East Main Street 2384 84th Street, SW
616-772-2191 616-878-1573
Gordon H. Cunningham
Chairman of the Board Hamilton (ATM) Cascade (ATM)
Attorney & Partner 4672 Pine Street 6750 Cascade Road, SE
Cunningham Dalman, P.C. 616-751-5101 616-949-5515
Douglas J. Iverson Hudsonville (ATM) Cutlerville (ATM)
Vice Chairman and CEO 2855 Port Sheldon Street, SW 675 68th Street, SW
AmeriBank 616-669-4400 616-827-1400
Ronald L. Haan South Washington (ATM) Grandville (ATM)
President, COO and Secretary 1000 South Washington Avenue 4495 Wilson Avenue, SW
AmeriBank 616-393-7065 616-531-0700
Ronald J. Bieke West Ottawa (ATM) Jenison (ATM)
President 392 136th Street 600 Baldwin Drive, SW
Arcadia BIDCO Corporation 616-393-7103 616-457-3350
B. Patrick Donnelly, III Zeeland West (ATM) Kentwood (ATM)
President 523 West Main Street 5300 Kalamazoo Avenue, SE
Productive Solutions, LLC 616-772-4800 616-281-5200
Gordon L. Grevengoed ATM ONLY LOCATIONS Rockford (ATM)
Retired Vice Chairman of the Board 155 Marcell Drive, NE
and CEO Westshore Mall 616-433-4204
AmeriBank 12231 James Street, Holland
Muskegon/North Lakeshore
G. W. Haworth Hope College
(director emeritus) DeWitt Center, Holland Downtown Muskegon
Founding Chairman 880 First Street
Haworth, Inc. Haworth Inc. 616-726-4461
Member Center, Holland
Robert D. Kolk Fremont (ATM)
President 24 hour AmeriCall banking 211 W. Main Street
Mechanical Transplanter Co. 616-924-5600
877-515-bank (2265)
Brian Koop Grand Haven (ATM)
Vice President and Senior Executive 1600 S. Beacon Boulevard
JCI Institute 616-846-1350
Leon E. Koops Hart (ATM)
President 424 State Street
Hamilton Distributing Company 616-873-5607
Richard T. Walsh North Muskegon (ATM)
Chairman 621 Dykstra Road
Pioneer Industries, Inc. 616-744-4731
Roosevelt Park (ATM)
3145 Henry Street
616-759-3000
Terrace Street Drive-In (ATM)
877 Terrace Street
616-722-1371
Whitehall (ATM)
211 South Mears Avenue
616-894-5635
[Back Cover]
Ottawa Financial Corporation
245 Central Avenue
Holland, Michigan 49423
www.AmeriBank.net