Presidents Message
To Our Shareholders:
Parke Bancorp remained very profitable with strong growth in 2008. Earnings of the Company decreased from $5.9 million in 2007 to $4.2 million in 2008, a 27.4% decrease. The decline in earnings was due to the "Other Than Temporary Impairment" (OTTI) write down of two private issue Collateralized Mortgage Obligations (CMO's) in the aggregate amount of $759 thousand, net of taxes. These two CMO's continue to make all payments as required. Additionally, we had OTTI write downs on our preferred stock holdings in two Government Sponsored Enterprises, The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The total write down for all OTTI adjustments in 2008 was $1.4 million, after taxes. The Company's return on average equity was over 11% for 2008, with Stockholders' Equity growing 10.7% to over $40 million.
The total assets of the Company grew 30.6% in 2008 from $460.8 million as of December 31, 2007 to $602.0 million as of December 31, 2008. The Company's loan portfolio grew more than 34% in 2008 from $408.4 million as of December 31, 2007 to $547.7 million as of December 31, 2008, a net increase of $139.3 million. The Company's deposit base also enjoyed strong growth, with an increase of 30.5% as of December 31, 2008 to $495.3 million from $379.5 million as of December 31, 2007. ParkeBank has maintained a conservative 1.42% allowance for loan loss with $2.1 million added in 2008 due to our continued strong loan growth. The prolonged weakness in the real estate market will continue to challenge the banking industry's loan portfolios, including ours. We are confident that we have the experience and expertise at ParkeBank to work with our borrowers in satisfactorily resolving many of these challenges.
This past year was a distressing year in the world economy and specifically the banking industry. A number of banks failed while major banks all over the world were kept from failing by the infusion of capital by their government. Great Britain now owns 70% of the Royal Bank of Scotland, which owns Citizens Bank in the United States. Investment banks such as Merrill Lynch were taken over, and others like Lehman Brothers failed, while Wachovia Bank was taken over by Wells Fargo Bank in order to preserve its' viability. There is a multitude of reasons and blame for these failures and for the economic turmoil. Many "experts" put a major portion of the blame for the current economic problems on the lack of available financing from commercial banks. Additionally, many industry experts have repeatedly expressed the hardship that FASB 157 "fair value accounting" rules have had on the banking industry. Banks are forced to book losses on investments that continue to make their payments under the theory that they are "impaired" because there is no longer a liquid market for these securities, even if the banks are not required to sell these securities.
The government "bailout plan", TARP, has also become a political sword for our Washington representatives. What is lost in all of the rhetoric is the fact that other than the 7 largest banks in the country, only well run banks with high ratings qualified for the government funding. The new TARP regulations have added additional restrictions and requirements that may hurt a bank's ability to grow and retain qualified management, which has caused many banks, including ours, to consider returning the TARP funding, although we have not made the decision to do so.
The story that is not being printed or headlining TV news programs is that commercial banks are responsible for only 22% of the country's lending, with the balance provided by insurance companies, conduits, hedge funds and other non-bank sources (shadow banking). We also do not hear about the continued strength of community banks. The vast majority of community banks did not get involved in sub-prime lending or high risk investments and continue to provide funding for quality loans in their communities. ParkeBank is one of those community banks. As a high rated well capitalized bank, the Company qualified and received approximately $16 million of TARP funding. As of December 31, 2008, prior to TARP funding, our capital ratios were very strong. The Banks's total risk based capital ratio was 11.14%, tier 1 risk based capital was 9.89% and tier 1 leverage capital was 9.46%, all well above the banking regulations definition of "Well Capitalized" of 10%, 6% and 5% respectively. The additional capital that the TARP money provides enables the Company to continue its' loan growth and to take advantage of opportunities in the market. The potential of this growth needs to be weighed against the negative restrictions and publicity recently levied against TARP recipients.
We are very concerned with the FDIC's recent proposal to increase our insurance premiums, in addition to a 20% "special assessment". This is in direct contrast to "Washington's" repeated statements that banks need to increase lending. The increase in fees, combined with the special assessment is projected to cost ParkeBank an additional $2 million in 2009. This would result in a substantial reduction in our earnings, subsequently our capital and our lending ability.
We celebrated our 10 year anniversary in January of 2009. Ten years ago we started out in a trailer with a little over $8 million in total assets. Today our Bank has over $600 million in total assets and has been a leader in our banking peer group in growth and profitability since we started the Bank. Since then, we opened 4 full service branches, a loan production office and went public. Our shareholders enjoyed very strong growth in our stock price, with four stock dividends issued. Our stock price was over $16.00 per share only 9 months ago but unfortunately has declined to $5.60 per share in February of 2009 in spite of our strong growth, capital and profits. The financial sector has been in a free fall, with strong performance banks like ParkeBank being dragged down with the market.
The Company is in position to take advantage of opportunities that are in the marketplace. We have strengthened our management team, increased our capital and have upgraded our technology. Our online banking, including consumer and business bill pay continues to grow, in addition to expanding our remote banking services, which allows our business customers to make their bank deposits without leaving their office. We have confidence in our country's ability to rebound from the current economic turbulence and we are structured to not only survive this economic downturn, but to succeed with continued growth and profitability. We appreciate the support of our customers and our shareholders and we will continue with our commitment to provide competitive products to our customers and to maximize shareholder value.
C.R. "Chuck" Pennoni |
Vito S. Pantilione |
