investor relations overview

A Message from the President & CEO

I am proud to report on our strong performance for 2017. Net income was $3,833,719, or $1.56 per share, which reflects a 2% increase from last year’s earnings of $3,756,714, or $1.51 per share. Return on average assets was 0.95% and return on average equity was 9.49%, both reflecting an improvement over 2016. Earnings were favorably impacted when Congress and the President adopted the largest overhaul to the US tax code since 1986. As a result of the new law, our deferred tax assets and liabilities were adjusted to reflect the new tax rates, which resulted in a $241,000 reduction of our 2017 income tax expense.

As our Chairman indicated in last year’s message, we anticipated 2017 would be a year of uncertainty. He was correct. The post-crisis expansion continues, aided by growing consumer optimism and real economic growth. As a result, the US Federal Reserve Bank increased their pace of short-term rate increases, while long-term rates have remained stubbornly level, continuing to put pressure on the yield curve. More rate increases are forecast for 2018. Consolidation in the banking industry continues. In 2013, there were 223 banks with headquarters in Ohio. At the end of 2017, that number declined to 186 banks, a reduction of 17%. We expect that trend to continue. Despite fewer banks, competition remains elevated as we adjust to a new interest rate environment, not seen since before the Great Recession. Overall local economic conditions continue to improve, but at a tepid pace. We view the evolving economy with great optimism for a well-positioned community bank, and will continue to look for opportunities to grow.

Speaking of optimism, we are very encouraged that Washington, D.C. is beginning to understand the significant differences between large banks and community-minded, locally owned small financial institutions. As of the writing of this message, no less than 7 bills are making their way through Congress, several with bipartisan support, which would significantly reduce the excessive regulation that adds to the operating costs of the bank. We will continue to lobby for legislation that allows us to deploy our capital in a safe and prudent manner, while having a positive impact on our shareholders, customers, and communities we serve.

I am pleased to report on some positive trends for the bank. Assets grew by $11.7 million, or 2.9%, net loans grew by $4.1 million, or 2.1%, and deposits grew by $9.6 million, or 3%. Credit quality remains exceptionally strong, with year-end delinquency of 0.36% and net charge-offs at 0.09% of average net loans. Net interest income grew by $193,000 over 2016, a direct effect of the growth stated above. We have worked diligently to operate as efficiently as possible. I am proud that we kept noninterest expenses nearly identical to 2016. This was not an easy task, as we increased our marketing expenses considerably as part of our strategic plan. These accomplishments would not be possible without the hard work and dedication of our greatest asset, our employees. Our terrific officers and employees have worked tirelessly to make the year a successful one.

Due to our strong earnings and capital position, we continued our strong dividend performance with a total dividend declared for 2017 of $0.715 per share, which represents an increase of 1.42% over 2016. Since the formation of the holding company, this is the 35th consecutive year of paying and increasing the dividend from the prior year.

In our ongoing effort to improve shareholder value and customer experience, we accomplished or advanced several things last year. Of those accomplishments, I’m most proud of our newly adopted customer service standards. Although we have consistently considered our service to be one of our strengths, market data obtained in 2016 told us that we had room for improvement. These new standards serve as the foundation for building and rewarding relationships needed in today’s competitive financial services market. Additionally, we have completely revamped our consumer checking account products, led by our market leading, high-interest paying, Affinity account. We also implemented a Management Customer Information File (MCIF) system, capable of providing critical information needed today to target and track successful sales and marketing efforts. We soon will be unveiling our upgraded website, featuring a fresh brand image to propel us forward. Finally, look for the transition to our Andover.Bank domain internet site, for enhanced security and a much needed upgrade to more accurately reflect our growing footprint.

It is truly an honor and privilege to serve as President and CEO of a community bank that was established in 1884. Our success is attributable to our directors, who provide outstanding guidance and vision, our employees, who deliver unselfishly each and every day, and you, our shareholders, for your continued confidence and trust in the bank and the communities we serve.

Stephen E. Varckette
President and
Chief Executive Officer