2016 Annual Report

2016 Annual Report

Dear Stockholders:

Apollo Bancorp, Inc. delivered another profitable year, and historic loan growth further advanced the Company’s franchise value. In 2016, consolidated net income totaled $1,423,000, which slightly exceeded $1,403,000 of earnings reported in 2015. Net interest income increased by $278,000 due to a noteworthy increase in loan interest income totaling $641,000, which was offset by a reduction in securities income of $467,000. Loan fee income also increased significantly between years from $55,000 to $199,000.

Loan balances increased by $20.1 million during 2016, or 32%, following a notable growth level of 27% reported in 2015. During consecutive years, the Bank successfully repositioned assets from investment securities into higher yielding loans in order to generate greater net interest income. During 2016, commercial loan balances increased by $14.5 million, or 38%. Residential mortgage balances increased by $6.1 million, or 25%. Experienced community bank lenders, who possess both underwriting and business development skill sets, combined with timely approval processes create a preferred environment for creditworthy borrowers that value relationship banking.

The allowance for loan losses was strengthened with a $109,000 provision due to loan portfolio growth while net charge-offs remained minimal. The Bank maintains sound asset quality with few watchlist credits and negligible borrower delinquency. Management further refined and enhanced its credit risk management system so that the notable loan growth was profitable and executed with diligent oversight from the Board of Directors.

Noninterest income decreased $11,000 during 2016 compared with 2015. Service charges on deposit accounts decreased $66,000 and continued a trend as previously expanded product offerings have matured following introductory growth. Trust department income decreased by $79,000 due to a reduction of nonrecurring income from estate executorships. Securities and insurance brokerage commission income decreased by $23,000. However, net securities gains increased $141,000 due to opportunities resulting from a strengthening financial services equity market and a sustained lower interest rate environment, which supported continued higher valuations for fixed income securities.

Average retail deposit balances were mostly flat during 2016 and decreased by a minimal $103,000 during the year. This continuing trend of deposit activity was evident throughout the banking industry. Deposit services remain focused on relationship banking and greater customer adoption of electronic and internet delivery systems.

Overhead expenses increased 3.2% during 2016 compared with 2015, which were mostly unchanged from 2014. Strategic investments in attracting and retaining experienced personnel, technology advancements, proactive risk management as well as the increasing cost of regulatory compliance ensure the Bank remains competitive with independent ownership.

Earnings per share totaled $2.82 in 2016 compared with $2.81 in 2015. The quarterly dividend was increased from $0.48 to $0.49 per share, or 2.1%, in the fourth quarter. In addition to increasing cash dividends per share from $1.89 in 2015 to $1.93 in 2016, the Company retained earnings of $446,000.

Capital growth was further supported in 2016 with $1,476,000 of net treasury stock sales following $744,000 of net treasury stock purchases during 2015. Forward-looking capital planning and growth remain vital to sustain brisk lending and healthy dividend pay-outs, which totaled 69% of net income during 2016.

Consistent earnings and sound lending practices continue to provide attractive stockholder returns. On behalf of the Board of Directors, your commitment and loyalty is deeply appreciated.

Sincerely,

Nelson L. Person
President and CEO