Parke Bancorp, Inc. 2016 Q1 Form 10-Q Summary
Business context and reporting period
Parke Bancorp, Inc. is a New Jersey bank holding company whose principal subsidiary, Parke Bank, operates branches in New Jersey and Pennsylvania. The filing reports unaudited results for the three months ended March 31, 2016, with comparisons to the three months ended March 31, 2015 and the December 31, 2015 balance sheet.
Financial performance and condition
| Metric | Q1 2016 | Comparable period or prior year-end |
|---|---|---|
| Net income available to common shareholders | $2.3 million | $2.2 million in Q1 2015 |
| Basic / diluted EPS | $0.37 / $0.32 | $0.37 / $0.31 in Q1 2015 |
| Net interest income | $8.8 million | $8.1 million in Q1 2015 |
| Net interest margin | 4.15% | 4.19% in Q1 2015 |
| Provision for loan losses | $700,000 | $840,000 in Q1 2015 |
| Total assets | $926.7 million | $885.1 million at December 31, 2015 |
| Gross loans | $802.6 million | $758.5 million at December 31, 2015 |
| Total deposits | $703.0 million | $665.2 million at December 31, 2015 |
| FHLBNY borrowings | $89.7 million | $84.7 million at December 31, 2015 |
| Cash and cash equivalents | $26.9 million | $27.4 million at December 31, 2015 |
Interest income increased to $10.3 million from $9.4 million, primarily because average loans increased to $783.9 million from $716.5 million. The average loan yield declined to 5.11% from 5.17%. Interest expense increased to $1.6 million from $1.3 million as average borrowings and interest-bearing deposits increased.
Income before taxes was $4.5 million and income tax expense was $1.5 million, producing a 34.1% effective tax rate versus 36.9% in Q1 2015. Total comprehensive income was $3.0 million, including a $375,000 after-tax increase in unrealized securities gains.
Net cash provided by operating activities was $1.0 million. Investing activities used $43.5 million, mainly reflecting a $44.6 million net increase in loans. Financing activities provided $42.0 million through deposit growth and increased borrowings. Cash and cash equivalents declined by $486,000 during the quarter.
Material changes versus prior comparable periods
- Gross loans increased 5.8% from year-end 2015, driven primarily by commercial real estate growth. Total assets increased 4.7%.
- Deposits increased 5.7%, including a $24.0 million brokered certificate of deposit transaction and a 13-month certificate of deposit special. Borrowings increased $5.0 million to partially fund loan growth.
- Net interest income increased 8.7%, but the net interest margin declined four basis points to 4.15% and the net interest rate spread declined to 4.03% from 4.08%.
- Net income available to common shareholders increased approximately 4.9%. Diluted EPS increased to $0.32 from $0.31, while basic EPS remained $0.37.
- Noninterest income declined to $1.2 million from $1.3 million. A $967,000 loss and write-down on other real estate owned largely offset higher SBA loan sale gains and BOLI income.
- Noninterest expense increased to $4.7 million from $4.4 million, primarily because of higher business development and insurance expenses.
- Loan charge-offs declined sharply to $36,000 from $3.1 million, while recoveries declined to $19,000 from $428,000.
Guidance, outlook, commentary, risks, and unusual items
The filing provides no formal earnings or revenue guidance. Management expects results to remain sensitive to economic and competitive conditions, market interest rates, regulatory developments, loan demand, credit quality, and funding costs.
Credit risk remains material. Delinquent loans totaled $15.2 million, or 1.9% of loans, at March 31, 2016. Nonaccrual loans totaled $14.0 million, or 1.7% of loans, compared with $13.6 million at year-end 2015. Impaired loans totaled $42.3 million and carried specific allowances of $2.6 million. The allowance for loan losses was $16.8 million, or 2.1% of loans, and represented 120.3% of nonperforming loans.
Other real estate owned declined to $16.1 million from $16.6 million, but the company recorded a $1.0 million write-down of real estate during the quarter. The largest OREO property was a condominium development valued at $5.5 million.
Liquidity was supported by deposit growth, marketable investment securities, monthly cash flows from mortgage-backed securities, potential secondary-market sales of residential loans, and FHLBNY borrowing capacity. The loan-to-deposit ratio was 114.2%, and the company had $130.0 million of FHLBNY lines, of which $89.7 million was outstanding.
Parke Bank exceeded the applicable well-capitalized thresholds at March 31, 2016. Its total risk-based capital ratio was 16.73%, Tier 1 risk-based capital ratio was 15.47%, common equity Tier 1 ratio was 15.47%, and Tier 1 leverage ratio was 14.06%.
A significant subsequent event occurred on April 29, 2016: Parke Bank and 44 Business Capital completed the sale of certain 44 Business Capital assets, a $42.6 million SBA loan portfolio, and related servicing rights to Berkshire Bank. The filing states that the transaction is expected to produce an approximately $9.3 million pretax gain.
The company is defending a federal lawsuit alleging RICO and other violations related to loans that subsequently defaulted. Management believes the allegations are without merit and has filed a motion to dismiss. The filing does not provide a quantified loss estimate.
The company declared a $0.08 quarterly cash dividend per common share and subsequently declared a 10% common stock dividend payable May 18, 2016.
Important facts for investors to verify
- Verify the closing accounting and cash-tax consequences of the Berkshire Bank SBA portfolio transaction and the approximately $9.3 million pretax gain.
- Monitor commercial real estate and construction loan growth, nonaccrual loans, impaired loans, OREO valuations, and future allowance requirements.
- Assess the sustainability of earnings after excluding unusual SBA loan sale gains, OREO write-downs, and BOLI income.
- Evaluate funding and liquidity risk associated with a 114.2% loan-to-deposit ratio, brokered certificates of deposit, and FHLBNY borrowings.
- Review the pending litigation and any developments that could create a material loss or affect lending operations.
- Confirm the impact of the 10% stock dividend and the continuing $0.08 per-share common dividend on per-share data and capital.