Parke Bancorp, Inc. 2019 Form 10-K Summary
Business Context and Reporting Period
Parke Bancorp, Inc. is a New Jersey bank holding company whose primary subsidiary, Parke Bank, provides commercial and consumer banking services in Southern New Jersey and the Philadelphia area. Core lending activities include commercial real estate, residential real estate, construction, commercial and industrial, and consumer lending.
The filing covers the fiscal year ended December 31, 2019, and was filed March 13, 2020. The company had 84 full-time and 17 part-time bank employees and operated offices in New Jersey and Pennsylvania.
Financial Position and Key Metrics
| Metric | December 31, 2019 |
|---|---|
| Total assets | $1.68 billion |
| Total loans | $1.42 billion |
| Total deposits | $1.34 billion |
| Total equity | $179.4 million |
| Non-accrual loans | $5.3 million |
| Non-performing loans as a percentage of loans | 0.38% |
| Allowance for loan losses | $21.8 million, or 1.54% of period-end loans |
| Foreclosed real estate | $4.7 million across nine properties |
| FHLB advances | $134.7 million; weighted-average rate of 2.79% during 2019 |
| Trust preferred debentures | $13.4 million |
The filing text provided does not include clear values for 2019 net income, revenue, net interest margin, return measures, operating cash flow, investing cash flow, financing cash flow, or liquidity ratios. Those financial statements and the annual shareholder report are incorporated by reference but were not included in the supplied text.
The Bank was in compliance with all regulatory capital standards and qualified as “well capitalized” at December 31, 2019. The company was evaluating whether to adopt the optional Community Bank Leverage Ratio framework effective January 1, 2020.
Material Changes Versus Prior Comparable Period
- Total loans increased to $1.42 billion from $1.24 billion at December 31, 2018.
- Allowance for loan losses increased to $21.8 million from $19.1 million. The 2019 provision for loan losses was $2.7 million versus $1.8 million in 2018.
- Non-accrual loans increased to $5.3 million from $3.1 million, while non-performing loans as a percentage of loans increased to 0.38% from 0.25%.
- Total impaired loans were $22.1 million versus $21.9 million, and troubled debt restructurings declined to $17.0 million from $18.8 million.
- Net charge-offs were approximately $36,000 in 2019 compared with $742,000 in 2018. The allowance ratio remained 1.54% in both years.
- Medical-use cannabis customer deposits declined to approximately $129.2 million, or 9.6% of total deposits, from $253.8 million, or 21.4%. Cannabis-related loans increased to $5.5 million from $970,000.
- Brokered deposits increased to $130.6 million from $92.4 million, and FHLB advances increased to $134.7 million from $104.7 million.
- The filing states that there were no common-stock repurchases during the fourth quarter of 2019.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management did not provide explicit earnings, revenue, margin, loan-growth, or capital guidance in the supplied filing text.
- The company’s cannabis-related banking business is legal under applicable state law but remains illegal under federal law. A change in federal enforcement policy could require the Bank to cease servicing the industry. Cannabis-related deposits were concentrated: two customers represented 13.6% of such deposits at December 31, 2019.
- The loan portfolio is concentrated geographically in Southern New Jersey and the Philadelphia area and is heavily exposed to real estate, including commercial real estate and construction lending. Local economic weakness or declining property values could increase credit losses.
- Management identified $6.4 million of loans that were not classified as non-accrual or troubled debt restructurings but presented possible future repayment concerns.
- Brokered deposits are described as more volatile than core deposits and could increase funding costs if they leave the Bank. FHLB advances are secured by qualifying loans, and trust preferred debentures reset quarterly based on three-month LIBOR.
- The company faces competition from larger financial institutions with greater capital, lending capacity, technology, and marketing resources.
- A lawsuit alleging RICO and other violations related to defaulted loans was dismissed with prejudice. The plaintiffs appealed, and the Third Circuit denied the appeal, according to the filing.
- Management concluded that disclosure controls and procedures were effective as of December 31, 2019, and reported no material change in internal control over financial reporting during the fourth quarter.
Important Facts for Investors to Verify
- Verify 2019 and 2018 net income, revenue, net interest margin, earnings per share, profitability ratios, and dividend information in the incorporated annual shareholder report.
- Review the complete cash-flow statement and liquidity disclosures, including reliance on deposits, brokered deposits, FHLB advances, and other borrowings.
- Assess commercial real estate, construction, cannabis-related, and geographically concentrated loan exposures, including collateral values and borrower concentrations.
- Reconcile the increase in non-accrual loans and classified assets with the allowance for loan losses and future provision requirements.
- Confirm year-end regulatory capital ratios and whether the company elected or intended to elect the Community Bank Leverage Ratio framework in 2020.
- Monitor federal regulatory and enforcement developments affecting cannabis-related banking services.