2018 Annual Report

2018 Annual Report

Dear Stockholders:

Apollo Bancorp, Inc. delivered another consistent year of earnings as a result of continued lending growth. Net income totaled $1,437,000 in 2018 and included a pre-tax $210,000 unrealized valuation loss on equity securities due to the fourth quarter market downturn. Earnings of $1,903,000 reported in 2017 were elevated with strategic and timely recognition of investment securities pre-tax gains of $1.1 million.

In 2018, net interest income increased by 3.0%, or $174,000, due to a noteworthy $730,000 increase in loan interest income, which was offset by a $284,000 reduction in securities income. Also, interest expense increased $272,000 due primarily to the rising cost of short-term borrowing rates. Noninterest income from service charges and fiduciary activities increased 7% in 2018, while noninterest expense showed no increase.

Loan portfolio growth was $15.6 million during 2018, or 16%, following growth levels of 17%, and 32% in 2017 and 2016, respectively. Over the previous three years, loan growth has been consistently achieved and funded by a combination of repositioning of investment securities, wholesale funding and modest deposit growth. During 2018, commercial real estate loan balances increased by $8.4 million, or 16%, and residential real estate loan balances increased by $8.0 million, or 23%. Western Pennsylvania borrowers continue to value our community bank approach of providing financing with a personal touch. We deliver timely loan approvals coupled with prudent flexibility while valuing relationship banking.

The allowance for loan losses was increased to keep pace with loan portfolio growth. The Company maintains a strong level of 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 with corporate loans also being personally guaranteed. The credit risk management system uses comprehensive procedures with frequent oversight from the Board of Directors and other independent resources.

Average retail deposit balances increased by $2.4 million, or 2.0%, during 2018 which followed 2.1% growth in 2017. Deposit services also remain focused on relationship banking, either in-person or through electronic and internet delivery systems. Essential investments are made annually toward attracting and retaining experienced personnel, upgrading technology and strengthening risk management to ensure a positive customer experience and for the Company to remain competitive with independent local ownership.

Earnings per share totaled $2.77 in 2018 compared with $3.63 in 2017. The quarterly dividend was increased from $0.50 to $0.51 per share, or 2.0%, in the fourth quarter. Total cash dividends per share increased from $1.97 in 2017 to $2.01 in 2018. In addition, the Company retained earnings of $403,000 and completed $524,000 of net treasury stock purchases. Capital planning and steady growth remain vital to sustaining a sound lending program, delivering consistent earnings and supporting attractive dividend pay-outs, which totaled 72% of net income during 2018.

The directors, officers, and employees thank you for your support and loyalty. I am honored to have now completed a full decade of service with the Company.

Sincerely,

Nelson L. Person
President and CEO