On behalf of the board of directors of Andover Bancorp, Inc. and the employees of Andover Bank, I am pleased to report on our solid operating performance in 2024, as we celebrate our 140th year in operation.
The economic challenges that traditional banks have faced over the past couple of years continued into 2024. The Federal Reserve Bank’s aggressive action to combat inflation increased short-term interest rates at their fastest pace in over 40 years. Higher rates slowed demand for all loans, but it has been particularly tough on our largest lending segment, residential mortgages. Simultaneously, interest rates on deposits increased significantly as consumer demand for higher yielding products grew. Despite these usually short-term profitability headwinds, the bank has managed through these obstacles well and remains in a strong position to capitalize on opportunities as they present themselves.
While net income for the year of $3,157,449 decreased by 16.4% from last year’s net earnings of $3,778,297, these results surpassed our budgeted expectations as we anticipated our net interest margin would suffer because of the inverted yield curve, where short-term rates are higher than long-term rates. Nevertheless, growth in core deposits and small business lending positively impacted the results. The higher interest expense mentioned previously was the main factor impacting year-over-year earnings. Interest expense on deposits rose 81.8% over 2023. Net earnings per share of $1.53 decreased 15.0% from last year’s $1.80 earnings per share. Earnings per share were consistent with pre-Covid results. Return on average assets was 0.56% and return on average equity adjusted for other comprehensive losses was 6.45%.
In comparing the change from the 2023 balance sheet, record year-end total deposits increased by $8.6 million, or 1.6% to 533.2 million. Increasing deposits in a competitive rate environment is a testament to our strong community-focused franchise. Additionally, the bank did not have to rely on expensive alternative funding sources and had no outstanding wholesale borrowings at year end. Net loans decreased by $3.0 million, or 1.2%, to $263.4 million. Loan runoff was driven by payoffs in larger dollar private placement municipal loans that the bank stopped originating in 2022 as liquidity concerns arose in the banking industry. The mortgage lending portfolio also declined because of the previously mentioned difficulty in originating those types of loans. Conversely, I am happy to report that we originated a record dollar amount of small business loans as our efforts with our first loan production office in Stow, Ohio is paying off nicely. In fact, 86% of all our new small business lending originated from that office. Total assets increased $7.6 million, or 1.3%, to $565.6 million. Stockholders’ equity decreased by $2.6 million, or 12.8%, to $17.7 million. It was negatively impacted by an increase in market interest rates during the fourth quarter which caused the market value of our securities portfolio to decline.
The bank remains very well-capitalized as our Tier 1 equity capital ratio of 9.5% and Total Risk-Based capital ratio of 22.3% are both significantly above the regulatory requirements to be well-capitalized of 6.0% and 10.5%, respectfully. Asset quality continues to shine as total delinquency remains well below 1% and net charge-offs for the year were below $20,000 on a loan portfolio of over $260 million. The bank outperforms its peer group in both delinquency and charge-offs as we continue to focus on operating the bank under the conservative philosophy set forth by our Board of Directors.
I am pleased to report that 2024 marked the 42nd consecutive year the bank has paid a dividend and increased the amount of the dividend from the prior year. This record dividend performance is unmatched in the State of Ohio and serves as a validation of our efforts to enhance franchise value. Total dividends declared for 2024 were $0.755 per share, compared to $0.75 per share in 2023. Since 2019, the bank has returned just under $17 million to shareholders in the form of cash dividends and market share repurchases. Market share repurchases benefit all shareholders by creating liquidity for the stock, while improving earnings per share and return on average equity. These repurchases also increase the remaining shareholders’ ownership percentage of the bank and demonstrate the Board’s confidence in our business model and the bank’s intrinsic value.
Community banking is a philosophy built around local ownership, leadership and decision-making, with a long-term commitment to community involvement. Community banking is about people who make a difference. I am extremely proud of our organization’s efforts to empower our greatest asset, our employees, for the purpose of strengthening the communities we serve. Because of their efforts, the bank continues to receive accolades, including the Reader’s Choice Award from The Star Beacon as Ashtabula County’s best bank for the 3rd year in a row and United Way of Ashtabula County’s Bronze Award for the highest employee participation rate. Finally, because of our employees, we were again recognized as a Bauer Financial 5-Star rated bank. Bauer Financial is an independent firm that evaluates financial institutions based on factors like capital adequacy, profitability, and asset quality, signifying that Andover Bank is considered to be among the strongest and most financially stable in the country.
It is an honor and a privilege to serve as President of an institution with 140 years of service as our foundation. I would like to thank our Board of Directors for their invaluable stewardship, and our senior management and staff for their continued hard work and dedication to the bank. Lastly, I want to thank you, our shareholders, for your continued confidence and support of the bank and the mission we serve.
Stephen E. Varckette
President and
Chief Executive Officer