To Our Shareholders:
2016 was a memorable year for many reasons. The Presidential election will go down as one of the most fiercely contested, verbally abusive and controversial elections in the Country’s history. The election turned politics and the media upside down. Many “experts” predicted an economic collapse if the election was won by Donald Trump, which sent many businesses into a “wait and see” position, rather than proceeding with any expansion. The uncertainty of the election affected the banking industry, with some believing there would be increased regulatory scrutiny, while others thought there may be some regulatory relief depending on who was elected. Most bank stocks remained flat due to the uncertainty in the market and the M & A industry was somewhat quiet. However, to the surprise of many, the results of the election had the opposite effect on the stock market and specifically the banking industry. The stock market reached new highs and the banking industry enjoyed the “Trump Bump”. Predictions of loosening regulations and tax reductions for businesses and banking revitalized many businesses’ strategic planning, with several major companies announcing plans to expand operations in the United States rather than building abroad. These corporate announcements promised thousands of jobs staying and expanding in the United States. The promise of the repeal or amendment of the Dodd-Frank Act generated optimism that banks would be able to better serve their communities and lessen the cost of some of the current regulatory requirements which would equate to increased profits. Time will tell if the optimism is unfounded or if there will be a new expansion of the economy and the banking industry. There have only been a few new bank charters issued since the financial crisis and reports indicate that there are currently 8 new bank charters pending with the FDIC.
We worked through the many challenges of 2016 and it became a record year for Parke Bancorp. We achieved our fourth straight year of record earnings, opened two new full service branches and we reached one billion dollars in total assets. We opened our Collingswood branch in September. It has far exceeded our expectations for growth and already has over $20mm in deposits. Our Chinatown office opened in December and is off to a great start with deposits and loans. We believe these two new branches have enhanced our franchise value as a Philadelphia area bank, and now one of the few local community banks that is over a billion dollars in assets. This growth puts us in a great position to take advantage of the continued strength of the Philadelphia area market and the very strong growth of the Asian community.
Parke Bancorp generated net income of $17.3 million, an increase of 82.3% over year ended December 31, 2015. The Company’s return on average assets was 1.97% and our return on average equity was 17.04%. Earnings per share increased to $2.53 per common share and $2.06 per diluted common share, a 69.3% increase over year ended December 31, 2015. Shareholders’ Equity increased 13.5% in 2016 to $127.1 million. There were several key factors supporting our growth in net income, including the sale of our SBA Subsidiary for a substantial profit. If you exclude the profit from the sale of this company, our Bank would still have recorded our fourth straight year of record profits, representing continued strong growth of our operating earnings. The sale of our SBA Subsidiary included the sale of our SBA loan portfolio, which was a condition of the purchase. SBA protocol requires an SBA lender to forfeit their authorization to generate SBA loans if their SBA loan portfolio was sold. In an unprecedented decision, the SBA granted Parke Bank the approval to continue generating SBA loans, which is a critical part of serving our communities with small business loans. Another important factor supporting the Bank’s profitability was our strong loan growth. Our loan portfolio grew 12.3% in 2016 and that was after selling our $42.6mm SBA loan portfolio. We continue to be one of the leaders in our peer group on managing expenses. Our cost efficiency ratio was 45.64% in 2016. These factors combined, contributed to our strong earnings in 2016.
We continue to focus on reducing our NPAs (nonperforming loans plus Other Real Estate Owned (“OREO”) properties). In 2016 our Nonperforming loans decreased 16.7% to $11.3 million as of December 31, 2016. OREO decreased 36.7% in 2016 to $10.5 million as of December 31, 2016. Although these are substantial reductions, we remain focused on continuing to reduce our NPAs. It is again important to note that we remain committed to reducing our NPAs without sacrificing shareholder value.
Only time will tell if the current regulatory and business environment will change. Hopefully, the current Administration will address the increased residential mortgage lending regulations that have eliminated so many community banks from offering residential mortgages, which has reduced the options available to consumers. There are also many reports stating that several compliance and current reporting requirements will be addressed, specifically as they pertain to community banking. Community banking continues to be the cornerstone of small business lending. The cost of these increased regulations to the community banking industry is millions of dollars annually and has in many instances restricted community banks’ ability to provide needed capital to small businesses.
2017 will be another exciting year at Parke Bancorp. We will continue to focus our marketing efforts on growing the new Collingswood and Chinatown branches, in addition to growing our existing branch network. Our ability to offer SBA loans to the small businesses in our communities will also play a key role in our growth, in addition to expanding our Asian lending with the new Chinatown branch. The addition of two branches includes increased costs, however, we remain committed to disciplined control of the Bank’s expenses. The Bank’s record profits, control of expenses and reaching $1 billion dollars in total assets supported the Board of Directors’ decision to approve a 31% increase in our cash dividend in 2016. Parke Bancorp is well positioned in the marketplace with strong earnings, substantial capital and a growing footprint. There will be market opportunities in the future and Parke Bancorp is well positioned to take advantage of those opportunities. We appreciate the strong support of our shareholders and we will continue to work very hard to enhance your investment in our Company.
C.R. “Chuck” Pennoni
Vito S. Pantilione
President and Chief Executive Officer
The Federal Deposit Insurance Corporation (FDIC) has permanently increased deposit insurance on all accounts to $250,000 per depositor.