Parke Bancorp, Inc. 10-Q Summary
Business context and reporting period
Parke Bancorp, Inc. is a New Jersey bank holding company operating primarily through Parke Bank, which provides commercial and retail banking services in New Jersey and Pennsylvania. The filing covers the unaudited three and six months ended June 30, 2021, compared with the respective 2020 periods, and the balance sheet is compared with December 31, 2020.
Key financial metrics
| Metric | Q2 2021 | Six months 2021 | Comparable period |
|---|---|---|---|
| Net interest income | $18.1 million | $34.9 million | $14.9 million and $30.1 million, respectively |
| Provision for loan losses | $0 | $0.5 million | $2.0 million and $3.4 million, respectively |
| Non-interest income | $2.1 million | $4.3 million | $0.9 million and $1.9 million, respectively |
| Non-interest expense | $5.7 million | $11.5 million | $4.9 million and $9.7 million, respectively |
| Net income available to common shareholders | $10.8 million | $20.2 million | $6.5 million and $13.7 million, respectively |
| Basic/diluted EPS | $0.90/$0.89 | $1.70/$1.67 | $0.55/$0.55 and $1.16/$1.15, respectively |
| Net interest margin | 3.55% | 3.41% | 3.32% and 3.38%, respectively |
- Total assets were $2.10 billion at June 30, 2021, up 1.1% from year-end 2020. Total equity was $217.0 million, up 7.1% from $202.6 million.
- Loans were $1.52 billion, down $46.7 million from December 31, 2020. SBA PPP loans outstanding were $71.5 million; cumulative PPP originations were approximately $117.8 million.
- Deposits increased 8.3% to $1.72 billion, including $517.6 million of noninterest-bearing deposits.
- Cash and cash equivalents increased to $530.8 million from $458.6 million. Net cash provided by operating, investing and financing activities was $18.9 million, $50.2 million and $3.1 million, respectively.
- Total borrowings declined to $144.3 million from $267.2 million, primarily due to repayment of $90.0 million of Federal Reserve advances and a $33.0 million reduction in FHLBNY borrowings. FHLBNY borrowing capacity was $562.3 million, with $101.7 million outstanding.
- The allowance for loan losses was $30.1 million, or 1.98% of loans, compared with 1.90% at year-end 2020. Net delinquent loans were $5.4 million, or 0.4% of total loans; loans 90 days or more past due and not accruing were $5.1 million, or 0.3% of loans.
- The Company and Bank were classified as well capitalized. Tier 1 leverage ratios were 11.00% for the Company and 12.36% for Parke Bank, versus an 8.50% capital-adequacy benchmark shown in the filing.
Material changes versus prior comparable periods
- Second-quarter net income available to common shareholders increased 64.5%; six-month net income increased 46.8%.
- Net interest income increased 21.4% in the quarter and 15.9% year to date. Lower deposit costs were the primary driver, while loan interest and PPP-related fees also contributed.
- The loan-loss provision fell to zero in the quarter and $0.5 million year to date, compared with $2.0 million and $3.4 million, respectively, in 2020.
- Non-interest income rose substantially, primarily from higher service fees on deposit accounts associated with medical-use cannabis-related customers. Six-month cannabis-related commercial deposit fees were approximately $2.6 million, compared with $1.1 million in the prior-year period.
- Non-interest expense increased $0.9 million in the quarter and $1.8 million year to date, principally due to professional fees related to BSA remediation and costs associated with company growth.
- Credit quality improved from year-end: impaired loans declined to $11.2 million from $22.7 million, performing TDRs declined to $6.1 million from $13.9 million, and OREO declined to $1.7 million from $3.8 million.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or revenue guidance. Management states that results remain sensitive to economic conditions, interest rates, COVID-19 developments, loan growth, credit quality and regulatory requirements.
- The FDIC and New Jersey Department of Banking and Insurance consent orders issued in the fourth quarter of 2020 remain in effect regarding weaknesses in the Bank’s BSA and anti-money-laundering program. Remediation has increased compliance and professional expenses. Further fines, sanctions, restrictions or costs remain possible, although no civil money penalty or additional capital requirement was imposed under the orders.
- Cannabis-related deposits were approximately $327.9 million, or 19.0% of total deposits, at June 30, 2021. The business is legal in certain states but remains illegal under federal law; a change in federal enforcement could require the Bank to cease servicing these customers.
- COVID-19 could adversely affect loan demand, borrower liquidity, collateral values, delinquencies, foreclosures, loan-loss provisions and net interest margins. PPP-related litigation and reputational risk are also disclosed.
- Unused commitments to extend credit were approximately $138.4 million, and standby letters of credit were $1.7 million. The Bank also had a $40.0 million municipal letter of credit expiring March 7, 2022.
- The Company continues to use the incurred-loss allowance model; CECL adoption is not required for this small reporting company until fiscal years beginning after December 15, 2022. Management’s allowance, fair-value and tax estimates remain subject to judgment and could change materially.
Facts investors should verify
- Whether the improvement in earnings is sustained after the benefit from lower deposit costs, reduced provisions and cannabis-related fee income.
- The concentration, stability and regulatory sensitivity of cannabis-related deposits and related fee revenue.
- Progress and remaining costs or potential sanctions under the BSA/AML consent orders.
- Future credit performance, particularly in commercial real estate, construction, PPP and other pandemic-affected exposures, and whether additional loan-loss provisions become necessary.
- Liquidity and funding trends following the repayment of Federal Reserve advances and the reduction in FHLBNY borrowings.
- The timing and estimated effect of CECL adoption after the current incurred-loss methodology is replaced.