Presidents Message
To Our Shareholders:
Parke Bancorp posted another year of record earnings as Net Income improved to $5.9 million, an increase of 28%. Earnings per share increased to $1.63 on a fully diluted basis. This accomplishment becomes even more noteworthy when reviewing the economic turbulence in 2007 and the coinciding decline in profits in the banking industry. Our financial results position the Company as one of the top five banks in the country for return on equity, which was 17.17%, for banks under $1 billion in assets and one of the top two banks under $500 million in assets, while our return on assets was 1.41%. Parke Bancorp's assets grew to $461 million as of December 31, 2007, a 28% increase from the end of the previous year. The growth of the Company was again supported by a 32% increase in our loan portfolio from $311 million as of the end of 2006 to $408 million at December 31, 2007. The primary source of funding for the loans was an increase in our deposits to $379 million, a 31% increase year over year. Our Company continued to be one of the top banks in the nation in the control of expenses with a cost efficiency ratio of 39%, a clear indication of the hard work and dedication of our employees.
The U. S. economy has recently been rocked with a severe decline in the residential real estate market and the coinciding skyrocketing of residential mortgage foreclosures. The credit markets worldwide experienced billions of dollars in portfolio write downs for their sub prime mortgage investments, further crippling the liquidity and credit availability in the nation. The write downs in turn created a rippling effect through the financial and credit markets causing significant market illiquidity and impediments to economic growth and price stability. While the Treasury Department initiated a stimulus package that Congress approved and the Federal Reserve dramatically reduced fed funds rates by 300 basis points, the illiquidity persists and the number of troubling economic indicators continues to increase.
The combination of the credit market malaise and the numerous negative economic indicators has prompted the Federal Reserve to take corrective monetary action in an attempt to head off a possible recession. Interest rates are expected to further decline in a continued effort to support an economy that many economists believe is already in a recession. Based on the continued illiquidity of the credit markets, the Fed's move does not yet appear to have stabilized the market. Additional pressure has been added to the credit markets by the recent bailout of Bear Stearns who was acquired by J P Morgan with federal government assistance.
The dramatic reduction in interest rates has negatively impacted the Company's and much of the banking industry's spread and net interest margin. The interest rates on a significant segment of our loan portfolio that is prime-based was immediately reduced while the interest rates paid on deposits have declined much more slowly, thereby reducing the Company's net interest income. We have taken steps to reduce our cost of funds by adding alternative funding sources at very competitive pricing. These moves will hopefully equate to a stabilized interest margin and net interest income but will also be dependent upon the Federal Reserve's future interest rate adjustments.
We opened a new Loan Production Office in 2007 in Havertown, PA to focus on the attractive suburban Philadelphia market. This is a very strong market with a dense high income population and many small to midsize businesses. We are in the process of identifying potential locations in this market area to open a full service branch. The constantly changing dynamics in the banking industry coupled with the currently troubled real estate market and economy makes it very important to carefully and strategically expand our bank's branch network. We continue to consider attractive retail locations that are either contiguous to or within our existing geographic footprint. ParkeBank's branch network is critical to our success with our Northfield branch, which opened in 2003, surpassing $100 million in deposits and our recently opened Philadelphia branch approaching close to $40 million in deposits in 2007.
The uninterrupted growth and financial strength of Parke Bancorp is dependent on the continued hard work and support of our Board of Directors, the quality and hard work of our staff and the implementation of new products and state of the art technology that provides our customers the best banking services in the industry. We recently implemented branch capture for our retail branches that will add to our efficiency while providing improved funds availability for our retail customers. This technology includes "remote" or "merchant capture" which provides our new and existing customers with the capability of processing their check deposits in their office or store without the need of going to one of our retail branches. The successful implementation and marketing of this new technology will provide us with lower cost funding.
As we approach our 10 year anniversary, 2008 will be our most challenging year. Fortunately, challenges provide opportunity. The continued consolidation in the banking industry combined with many banks in the region experiencing financial uncertainty has provided our Company with new prospects for talented lenders and retail banking personnel. In addition the possibility of accelerated growth exists through a merger or acquisition with an area bank that may view the current banking environment as the time to join a bank with the strength and vision of Parke Bancorp.
We want to thank our shareholders for their continued support during the past year. Despite our strong financial performance during 2007, our stock price was negatively impacted by the overall dismal performance of the banking sector. We are cautiously optimistic that the economic stimulus package recently enacted by Congress combined with the Federal Reserve's efforts to provide the market with liquidity and lower interest rates will provide the economy with the tools to regain sustained growth. The members of our board, management team and staff will continue to focus on the implementation of our business plan and control costs to further enhance shareholder value.
C.R. "Chuck" Pennoni |
Vito S. Pantilione |
