To Our Shareholders:
It is great when you can lead off a letter to your shareholders saying that it was a record year for your Company. What could be more fitting than achieving record earnings during our 20th Anniversary. Our net income for 2018 was $24.4 million, $2.28 per diluted share, a 127% increase over 2017 and a 41% increase over 2016’s net income, which is when we sold our SBA Company and generated a substantial profit. The Company generated a return on average assets of 2% in 2018, which is substantially higher than our peer group. The increase in our net income was primarily due to the strong growth in our loan portfolio, which generated an increase in interest income, while maintaining tight controls of our expenses. The reduction in our Federal corporate tax rate also helped earnings, although it was somewhat offset by the increase in our State corporate tax rate.
A detailed analysis of our financial results is illustrated in this 2018 Annual Report. Salient highlights include a 29% increase in total assets from December 31, 2017 to $1.47 billion, quite an increase from $8 million when we started in 1999. Our loan portfolio grew to $1.24 billion, a 22.5% increase in twelve months. The growth in our deposits supported our loan growth, increasing 36.6% since December 31, 2017 to $1.18 billion. The strong growth of our net income supported a 13.9% increase in shareholders’ equity to $153.6 million, which is above Federal banking guidelines for a well-capitalized bank. An additional factor having a positive effect on our strong financial performance in 2018 is the improvement of our credit quality. Nonperforming loans decreased 32.4% from December 31, 2017 to $3.1 million. OREO decreased $2.1 million to $5.1 million, a 29% decrease from December 31, 2017.
Deposit growth is one of the many challenges facing the banking industry in the country and even more so in our region. Money that is flowing into the stock market and real estate investments is coming out of banks. Competition is fierce and includes community, regional and nationwide banks. Savings, money market and CD rates have escalated dramatically in the last twelve months, while loan rates have increased at a much slower rate. This increase in funding costs challenges the banking industry’s net interest margin, including ours. Our Company is fortunate to be well positioned to continue generating strong loan volume with competitive interest rates that support the strength in our net interest income.
Our Company’s strong financial performance supported the Board of Directors’ approval of an increase in our cash dividend to 14 cents per share, per quarter. The Board also approved a 10% stock dividend, which also enhanced shareholder value.
There have been several bank mergers in our region over the last year that could create opportunities for Parke Bank to acquire additional quality branches. New branches could assist our Company with funding needs. There has been an overlap of branches with the merged institutions that have made over 30 branches available in the Delaware Valley. There may also be opportunities to hire quality experienced personnel that could be beneficial to the continued growth of the Company.
The country, including our region enjoyed a strong economy in 2018. The GDP was strong, with unemployment at record lows. Some experts, including the Federal Reserve, believe that the country is experiencing full employment. The strong economy and low unemployment raised Fed concerns for the potential of inflation. In response to their concerns, the Fed raised interest rates four times in 2018. The tariff wars, the apparent weakening of the European economy combined with the continued political confusion doesn’t calm many concerns for 2019. The Federal Reserve seems to be indicating that it may be taking a break from increasing interest rates. Some believe that if the Fed continues to push up interest rates, it will trigger a recession. We have no control over any of these factors that are affecting the economy. However, we will continue to work hard in maintaining strong reserves, disciplined loan underwriting policies, tight control of our expenses and be focused on insuring that we are in a good position to take advantage of market opportunities, while working to enhance shareholder value.
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.