2017 Annual Report

2017 Annual Report

Dear Stockholders:

Apollo Bancorp, Inc. reported a record year of earnings as a result of ongoing lending growth as well as strategic and timely recognition of investment securities gains. In 2017, consolidated net income totaled $1,903,000, which exceeded 2016 earnings of $1,423,000. Net securities gains increased $769,000 compared with 2016, mostly due to sales of equity investments. Net interest income increased by $322,000 due to a noteworthy increase in loan interest income totaling $843,000, which was offset by a reduction in securities income of $414,000. Interest expense also increased $111,000 due to rising rates.

The loan portfolio increased by $14.0 million during 2017, or 17%, following growth levels of 32% and 27% in 2016 and 2015, respectively. Over the previous three years, management successfully repositioned assets from the investment portfolio into higher yielding loans, which nearly doubled, in order to generate greater net interest income. During 2017, commercial loan balances increased by $9.2 million, or 20%. Residential mortgage balances increased by $3.8 million, or 15%, and notably, consumer loan balances increased $1.9 million, or 30%. Experienced community bank lenders continue to expand and cultivate high quality relationships across a broad trade area in Western Pennsylvania. Loan growth is supported by borrowers that value relationship banking, a prompt approval process, and who return for additional financing needs.

The allowance for loan losses was strengthened to 1.1% of outstanding balances to support loan portfolio growth and proactive credit risk monitoring. The Bank maintains sound asset quality with few watchlist credits and a low borrower delinquency rate. A vast majority of credit exposure is comfortably secured by real estate properties. The credit risk management system continues to be refined with additional resources for timely monitoring and enhanced reporting to the Board of Directors.

Noninterest income increased $863,000 during 2017 compared with 2016. This included additional investment securities gains of $769,000 due to opportunities resulting from a robust financial services equity market and a lower interest rate environment during the second quarter, which supported higher valuations for fixed income securities. A recent change in financial accounting standards and tax law created an opportunity for one-time gains on equity securities sales and nonrecurring income in the fourth quarter. This contributed to a 29% boost in earnings per share without materially sacrificing future core earnings.

Average retail deposit balances increased by $2.5 million, or 2.1%, during 2017, following two years of no growth. Deposit services remain focused on relationship banking, but more customers prefer using electronic and internet delivery systems than ever before. Overhead expenses increased 4.3% during 2017 compared with 2016. Essential investments in attracting and retaining experienced personnel, technology upgrades, proactive risk management, and an increasing cost of regulatory compliance ensure the Company remains competitive with independent local ownership.

Earnings per share totaled $3.63 in 2017 compared with $2.82 in 2016. The quarterly dividend was increased from $0.49 to $0.50 per share, or 2.0%, in the fourth quarter. Total cash dividends per share increased from $1.93 in 2016 to $1.97 in 2017. In addition, the Company retained earnings of $868,000 and strengthened its equity level.

Equity growth was further supported in 2017 with $397,000 of treasury stock sales. Forward-looking capital planning and growth remain vital to sustaining a robust lending program and to support attractive dividend pay-outs, which totaled 54% of net income during 2017.

Future growth with sound lending practices is expected to support consistent earnings and provide attractive investment returns. The directors, officers, and employees thank you for your support and loyalty.

Sincerely,

Nelson L. Person
President and CEO