February 27, 2020 - 9:20am EST by
2020 2021
Price: 14.20 EPS 0 0
Shares Out. (in M): 3 P/E 0 0
Market Cap (in $M): 45 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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  • Community Bank
  • Discount to Tangible Book


"Our Lady of Blessed Acceleration, don't fail me now."
Ottawa Bancorp is a sleepy, 3-branch Illinois bank that trades at 90% of TBV. The bank has a little over
$300 million in assets. The bank did a 2nd step conversion on 10/12/2016, meaning that there are no
restrictions on the bank being sold. I think the bank will be sold in about three years for about $22/sh.
Meanwhile, sit back, collect some dividends, and see how the bank continues to deploy capitol through
buybacks and growing the balance sheet.
"There's 106 miles to Chicago, we've got a full tank of gas, half a pack of cigarettes, it's dark out, and
we're wearing sunglasses."
Background: Ottawa is actually about 84 miles west, south west of Chicago, along the Illinois River. The
two branches are located east along the river, as well as Route 6. Here is a map of the locations:
As a side note, I have found the web site to be very useful. Not only can you see
all the branch locations on a map, but it also has history and financial information, albeit at the bank
subsidiary level. The catch is you have to look up by the bank subsidiary name, not the holding company
The bank began operations in 1871 and did a 1st step MHC conversion in 2005. It acquired Twin Oaks
Savings Bank in 2014, which highlighted one of the benefits of the MHC structure as Twin Oaks was a
mutual bank. Twins Oaks merged with Ottawa for no cash consideration, although it had to contribute
776,143 shares to the MHC. In the process, it tripled its branch network!
"We're on a mission from God!"
Earnings: Earnings have improved over the past two years, but even with the change in tax rates, the
bank has yet to break a 4.0% ROE. The bank has relied more on flipping mortgages in recent years which
is not as high quality earnings when it comes to bank M&A.
"Five grand? No problem, we'll have it for you in the morning."
Loans: Mortgage loans make up 63% of the loan book. Commercial real estate is 12%, commercial loans
are 10%, consumer direct is 8% and purchased auto loans are 7%. In terms of trends, the purchased auto
loans are decreasing and commercial loans are increasing. Non-performing assets were 0.73% as of
"Oh we got both kinds. We got Country and Western."
Management: The current CEO, Craig Hepner, took over in August 2019 upon the retirement of Jon
Kranov, who remains on the board of directors. Hepner came over with the Twin Oaks deal and will be
55 years old this year. The top three executives have changes of control agreements for two times their
"No, ma'am. We're musicians."
Board of Directors: It is the typical thrift board of directors. Small business owner. Check. Former
package store owner. Check. Funeral home director. Check. Check (bonus!). Financial planner or
accountant. Check. The non-management directors are between the ages of 60 and 70.
"Everybody needs somebody to love."
Institutional Ownership: Maltese Capital owns 9.3% and AllianceBernstein owns 8.4%.Both have a
history of being involved in converted thrifts. The ESOP owns 7.4%. There are other noted bank
investors but on a smaller scale; FJ Capital owns 2.8% and Stilwell owns 1.6%.
"Four fried chickens and a Coke."
Capital Allocation: The bank recently announced a special dividend of $0.35/sh. It will go ex-dividend on
March 3, 2020. It increased the regular quarterly dividend from $0.06/sh to $0.08/sh for a forward yield
of 2.27%. Between 11/20/2019 and 12/31/2019, the bank repurchased 340,669 shares or about 10% of
its shares. The bank has a tangible equity to tangible assets ratio of 16.6%, which means that it still over-
capitalized and can continue to buy back shares for some time.
"We gotta go in and visit the Penguin."
Outlook: There are a lot of tea leaves to read here. Management is on the younger side but insiders only
own 7% of the shares. There is an activist and another large holder, so institutional ownership is over
20%. Since the 2nd step, assets have increased 30% in three years. The fact that the bank recently
bought back a lot of shares and paid a special dividend plus decent regular dividends indicates someone
has the ear of management and the board, as these actions are not typical when insiders own so little. I
also do not believe that Kranov would have retired if a sale was imminent. Thus, I think it will 3-4 years
before a sale. The bank has enough capital to pursue growth and keep existing shareholders happy,
while the new CEO builds up his stock equity via the ESOP.
"I beg your pardon; what did you just say?"
Risks: No sale. Activists leave.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Likely sale in 3-4 years.

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