On behalf of the board of directors of Andover Bancorp, Inc. and the employees of Andover Bank, I am pleased to report on the strong operating performance of the bank in 2022. While consolidated net income of $4,873,015 decreased 9.6% from last year’s record earnings of $5,392,801, this performance still represents our second highest annual earnings in the bank’s 138-year history. These results also represent our 3rd consecutive year of record “core” earnings, or earnings that exclude one-time revenue sources, such as fees associated with the Paycheck Protection Programs in 2021 and 2020. Consolidated earnings per share of $2.29 decreased 5.4% from last year’s $2.42 earnings per share. Return on average assets was 0.85% and return on adjusted average equity was 10.65%.
Growth in loans and deposits and early success from the strategic expansion of our small business banking program drove our earnings results. Reduced fee income associated with our successful participation in the Paycheck Protection Program and higher salary costs associated with creating the necessary infrastructure needed for the small business banking program were the main factors impacting this year’s earnings as compared to the prior year.
The post-pandemic economic setting has created an especially difficult operating environment for traditional banking models. The Federal Reserve Bank’s aggressive response to fighting inflation has inverted the interest rate yield curve leaving the Fed-controlled short-term rates, which now sit at 15-year highs, significantly higher than the market-controlled long-term rates. This creates pressure on our model of reinvesting customer deposits into longer-term assets to earn a greater interest rate spread. Despite this headwind, and the growing possibility of a recession this year, we believe the bank remains well-positioned to navigate through these volatile economic times.
As part of our strategic plan, we spent the last several years building our small business banking program which culminated in the April opening of our first Loan Production Office (LPO) in Stow, Ohio. This venture is led by a talented and seasoned team and is very important for us as we look to scale our operations and expand our geographical footprint for future growth. Our early performance has exceeded our projections as small business loans in 2022 increased 261% over 2021. We remain enthusiastic that both our greater Akron, Ohio and Erie County, Pennsylvania markets will continue to provide growth opportunities for years to come.
We have also accomplished something special that we believe no other bank headquartered in the State of Ohio can claim: we have not only paid a dividend every year for the past 40 years, but we have also increased that dividend from the prior year for 40 straight years. Because of our operating performance and capital position, we are proud to continue our strong dividend performance. Total dividends declared for 2022 were $0.745 per share, compared to $0.74 per share in 2021. Our focus for increasing shareholder value remains on growing earnings per share so that we can provide you, our shareholders, with an acceptable return on your capital, cash flow in the form of dividends, and market liquidity demonstrated by the bank’s repurchase of $4.7 million of Andover Bancorp, Inc. stock since 2020.
In comparing the change in the balance sheet from 2021, total deposits increased $20.0 million, to $524.8 million, or 4.0%, and net loans increased $15.0 million, to $275.3 million, or 5.8%. This marks our 4th consecutive year of record growth in these areas. Total assets decreased $3.5 million, to $571.2 million, or -0.60%. Stockholders’ equity decreased $32.8 million, to $13.7 million. The decrease in stockholders’ equity was negatively impacted by a $34.8 million tax-effected decline in the market value of our securities portfolio caused by rapidly rising short-term interest rates and the market losses that would occur if those securities were sold in today’s market. It is important to note that this reduction to capital is unrealized and has no impact on our actual, realized earnings, as we intend to hold these securities until they mature, or market conditions improve. The bank remains very well-capitalized as our Tier 1 equity capital ratio of 8.90% and Total Risk-Based capital ratio of 21.34% are significantly above the regulatory requirements to be well-capitalized of 6% and 10.5%.
Asset quality continues to be exceptionally strong, as loan delinquencies remain well below 1%. Complementing the low delinquency rate was a net gain in loan charge-offs, meaning the bank recovered more in 2022 than what was charged-off off as uncollectible. We believe these results are impressive for a bank with a $275 million loan portfolio, compare favorably to our peer group, and indicate the bank continues to operate in a safe and sound manner.
It is always a pleasure for me to report on the bank’s accomplishments and this year is no exception. American Banker magazine has ranked Andover Bank as one of the top 200 community banks in the nation for the sixth time in the last seven years. The annual rankings include all publicly-traded banks with less than $2 billion in assets. The institutions were ranked by return on average equity over the last 3 years. The bank was also recognized once again as a Bauer 5-Star rated bank. We have maintained this highest ranking continuously for the past 29 years. Andover Bank retained the FDIC’s top ranking in Ashtabula County, measured by deposits. Finally, the bank received the Ashtabula Star Beacon’s Reader’s Choice award as Ashtabula County’s best bank. None of these achievements would have been possible without the extraordinary efforts of our greatest asset, our employees. It is an honor and privilege to work with such a talented group of individuals.
Special thanks go out to our board of directors, whose foresight and leadership have been invaluable, and to our senior management and staff for their unwavering dedication and relentless pursuit of improvement. Lastly, I want to thank you, our shareholders, for your continued confidence and support for our mission and the community banking philosophy. It is greatly appreciated.
Stephen E. Varckette
Chief Executive Officer