To Our Shareholders:
We experienced continued improvement in the banking industry and the overall economy in 2014. The unemployment rate continued to inch lower as real estate activity and values experienced a long awaited expansion. Parke Bancorp, Inc. also moved forward in 2014, recording another year of record earnings. We are proud that we generated record earnings in two consecutive years in a very difficult market, however, there are still many challenges that lie ahead.
Parke Bancorp’s net income available to common shareholders increased to $9.3 million in 2014, up close to 10% from 2013. Equally important, is the fact that in 2013 we had had a $1.9 million non-recurring gain on the repayment of TARP, which reinforces the strong growth in core earnings in 2014. Our earnings per share were $1.55 in 2014, an increase of 9.6% from 2013. The core earnings of our Company continue to be very strong, as we maintain a critical focus on controlling expenses. Continual regulatory changes and increased requirements places pressure on the Company’s operating costs. Like all banks in the country, we are affected by all of the new banking regulations, along with those that remain to be implemented from the Dodd Frank Act, in addition to the new Basel III capital regulations that were implemented in 2015. That is the banking world today and we will do whatever is necessary to ensure that we are in full compliance with all new (and old) regulatory requirements.
We increased our loan portfolio by 9% to $713 million. This compares favorably to our peer group, especially those banks headquartered in South Jersey, an area which is lagging behind the national recovery rate. We added two lenders to our staff in 2014 that has helped support our loan growth. We continue to expand our loan presence in the Philadelphia, Delaware and Montgomery county areas. The Company’s asset growth was 4% to $822 million, as we carefully managed our cash position, which was slightly elevated at the end of 2013. Our excess cash position dictated a slower deposit growth rate in 2014 of 3.4% to $648 million.
We continued to focus on reducing our non-performing assets in 2014, and although we are not satisfied, we made considerable progress. The Company’s non-performing loans decreased to $26.9 million as of December 31, 2014, a reduction of 25% from December 31, 2013, and our other real estate owned properties were reduced to $20.9 million as of December 31, 2014, a reduction of 28%. The major asset, over $9 million, in the OREO category is a project in Absecon. After several years of litigation and delays, we have started marketing this project. We have executed several agreements of sale and have started to close on individual units. We have maintained the same approach to our NPAs, aggressively working to reduce this class of assets while preserving shareholder capital. As of December 31, 2014 our NPAs were 5.8% of total assets, down from 8.2% as of December 31, 2013. The Company continues to have a strong allowance for loan losses, which was 2.5% of our total loan portfolio as of December 31, 2014. This is slightly less than the 2.8% reserve as of December 31, 2013, however, the improvement in our credit quality of the loan portfolio supports the adjustment. The ratio of allowance for loan losses to non-performing loans increased to 67.1% as of December 31, 2014, a 30% improvement from December 31, 2013.
The Company’s total shareholders’ equity increased 10% in 2014 to $103 million. The growth in equity was due to the retention of earnings. Our Tier 1 Leverage Ratio is 14.27%. A Well Capitalized Bank, as defined by banking regulations, is one with a minimum Tier 1 Leverage Ratio of 5% (among other measures). Our strong capital puts us in an excellent position to take advantage of opportunities that may arise in the market. This level of capital supports expansion of the Company through the possibility of acquisitions, in addition to supporting additional organic growth. The Company’s capital strength, combined with consistent strong earnings also supported the Board of Directors approving an increase in our cash dividend from 5 cents per share to 6 cents per share per quarter.
The banking industry has changed dramatically, especially in the industry’s approach to branching. Parke Bank has always maintained a very conservative approach to branching, which has supported a strong deposit base, while minimizing operational expenses. However, we remain focused on the market for opportunities to expand our footprint and franchise value. We are currently working on opening a new full service branch in Philadelphia. If successful, we anticipate opening this new branch by the 1st quarter of 2016. We are also evaluating an opportunity to open a “high-tech” limited service branch in Camden County. This branch would have the location that could take advantage of the new ATM technology that can provide virtually every in-branch service with limited space and personnel.
There are a wide variety of economic forecasts that are presented daily by many “experts”. These forecasts range from an inevitable pause, or recession in the economy to a strong robust expansion. The only thing that remains clear is that there will continue to be many challenges facing the economy and the banking industry. Compressed interest margins, increased regulatory pressure, and fierce competition for deposits and loans are at the top of the list. Our Board of Directors and staff will continue to work very hard to enhance shareholder value, while maintaining a safe and sound approach to banking, while facing these challenges head on. Strategically expanding our footprint, pursuing potential acquisition opportunities, reducing our NPAs and maintaining strict controls on our expenses will be the continued focus of our Company. Our shareholders have placed their trust in us, which we appreciate and don’t take for granted. We will continue to work hard every day to maintain that trust.
C.R. “Chuck” Pennoni
Vito S. Pantilione
President and Chief Executive Officer