Business Context and Reporting Period
Parke Bancorp, Inc. is a New Jersey-based bank holding company operating through Parke Bank, providing commercial and retail banking services primarily in southern New Jersey and the Philadelphia region. Its principal lending categories are residential mortgage, commercial real estate, and construction loans. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, with comparisons to the same periods in 2022 and to December 31, 2022 for balance-sheet data.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Net interest income | $15.7 million | $19.3 million | $48.7 million | $54.4 million |
| Provision for credit losses | $0.3 million | $0.6 million | Recovery of $1.6 million | $1.0 million provision |
| Non-interest income | $1.8 million | $2.0 million | $5.2 million | $6.6 million |
| Non-interest expense | $15.8 million | $6.3 million | $29.0 million | $17.7 million |
| Net income available to common shareholders | $1.0 million | $10.5 million | $20.3 million | $31.3 million |
| Basic/diluted EPS | $0.09/$0.08 | $0.88/$0.87 | $1.70/$1.67 | $2.63/$2.58 |
| Net interest margin | 3.21% | 4.06% | 3.40% | 3.71% |
Total assets were $1.98 billion at September 30, 2023, including $1.80 billion of loans and $126.7 million of cash and cash equivalents. Total deposits were $1.53 billion, FHLBNY borrowings were $111.2 million, subordinated debentures were $43.1 million, and total shareholders’ equity was $278.0 million.
Loan balances increased 2.8% from December 31, 2022, while the allowance for credit losses was $32.3 million. Nonperforming loans totaled $19.7 million, compared with $21.7 million of nonaccrual loans at December 31, 2022. The allowance for off-balance-sheet credit exposures was $0.8 million.
Operating cash flow for the first nine months was $14.0 million. Investing activities used $48.0 million, primarily because of a $48.7 million net increase in loans. Financing activities used $21.4 million. Cash and cash equivalents declined $55.4 million, or 30.4%, from year-end 2022.
The Company reported Tier 1 leverage ratios of 14.68% at the holding-company level and 16.15% at Parke Bank; both were classified as well capitalized.
Material Changes Versus Prior Comparable Period
- Third-quarter net income available to common shareholders fell 90.3% to $1.0 million. Nine-month earnings declined 35.3% to $20.3 million.
- Net interest income decreased despite higher loan yields and balances because interest expense rose sharply. Q3 interest expense increased $10.4 million, including a $9.1 million increase in deposit interest and a $1.3 million increase in borrowing interest.
- The net interest margin declined to 3.21% in Q3 and 3.40% for the first nine months, versus 4.06% and 3.71%, respectively, in the prior-year periods.
- Deposits declined $43.0 million, or 2.7%, from year-end. Noninterest-bearing deposits declined $121.4 million, partly offset by higher money-market, checking, and time-deposit balances.
- FHLBNY borrowings increased $28.0 million to $111.2 million, while cash and cash equivalents declined $55.4 million.
- Loan growth was concentrated in commercial owner-occupied real estate, residential one-to-four-family investment, and multifamily loans; construction loans declined $41.5 million.
- The Company adopted CECL on January 1, 2023, recording a $2.1 million after-tax reduction to retained earnings and increasing the loan allowance by $1.9 million at adoption.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide formal earnings or financial guidance. Management remains focused on organic growth in customers, loans, deposits, and revenue while managing expenses, risk, liquidity, and capital.
The most significant unusual item was a $9.5 million contingent loss recorded in other operating expense during the third quarter after an outside forensic accountant confirmed that cash had been stolen from a third-party armored-carrier facility used by the Company. This loss materially reduced reported quarterly earnings.
Management identifies sensitivity to higher interest rates, deposit repricing, funding costs, inflation, real estate values, economic conditions, and potential credit losses. The loan portfolio is geographically concentrated in southern New Jersey and Philadelphia and is weighted toward residential and commercial real estate.
Cannabis-related deposits were $93.9 million, or 6.1% of total deposits, at September 30, 2023, and cannabis-related loans were $26.7 million. The Company states that federal enforcement changes could require it to cease serving cannabis-related businesses. Three customers represented 56.0% of cannabis-related deposits.
The Company had $113.7 million of unused loan commitments, $1.5 million of standby letters of credit, and $760,000 of reserves for off-balance-sheet credit exposures. It had $774.1 million of remaining FHLBNY borrowing capacity and a $13.3 million BTFP line with no outstanding balance.
At September 30, 2023, the Company was foreclosing on $2.8 million of loans. A legal proceeding involving Absecon Gardens Condominium Association alleges approximately $1.7 million of damages; management states that the matter is in early discovery and that the outcome cannot yet be predicted.
Important Facts for Investors to Verify
- Whether the $9.5 million cash-theft loss is recoverable through insurance, litigation, or other proceedings, and whether additional losses could arise.
- The sustainability of deposit levels and mix, particularly the decline in noninterest-bearing and cannabis-related deposits and the increase in higher-cost funding.
- Net interest margin trends as deposit costs, brokered deposits, and FHLBNY borrowing rates remain elevated.
- Credit quality in commercial real estate, construction, and residential portfolios, including the $19.7 million of nonperforming loans and $2.8 million under foreclosure.
- The adequacy of the $32.3 million loan allowance and the $0.8 million off-balance-sheet allowance under the CECL methodology.
- Exposure to cannabis-related regulatory or enforcement changes and concentration among the largest cannabis depositors.
- The status and potential exposure from the Absecon Gardens litigation and any other contingent liabilities.
- Future liquidity and capital effects of deposit outflows, loan growth, borrowings, and unrealized investment-security losses.