Parke Bancorp, Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2022. The unaudited consolidated results cover Parke Bancorp, Inc. and subsidiaries, principally Parke Bank, which provides commercial and retail banking services in New Jersey and Pennsylvania.
Financial Performance and Condition
| Metric | Q1 2022 | Q1 2021 or prior period |
|---|---|---|
| Net income attributable to common shareholders | $10.1 million | $9.4 million |
| Basic / diluted EPS | $0.85 / $0.83 | $0.79 / $0.78 |
| Net interest income | $17.1 million | $16.8 million |
| Net interest margin | 3.41% | 3.26% |
| Total non-interest income | $2.1 million | $2.2 million |
| Total non-interest expense | $5.7 million | $5.8 million |
| Income before taxes | $13.5 million | $12.8 million |
| Effective tax rate | 25.2% | 25.4% |
- Total assets were $2.05 billion at March 31, 2022, down 3.9% from December 31, 2021.
- Loans were $1.50 billion, up $11.0 million from year-end 2021. Residential 1-to-4-family loans represented 52.2% of total loans, and commercial non-owner-occupied real estate represented 21.1%.
- The allowance for loan losses was $30.0 million, or 2.00% of total loans. There were no charge-offs and $136,000 of recoveries during the quarter; no loan-loss provision was recorded.
- Cash and cash equivalents were $503.8 million, compared with $596.6 million at December 31, 2021.
- Total deposits declined 5.2% to $1.68 billion, primarily due to lower noninterest-bearing and time deposits.
- Borrowings totaled $120.9 million, consisting primarily of $78.2 million of FHLBNY borrowings and $42.8 million of subordinated debentures.
- Total equity increased to $240.3 million from $232.4 million at year-end 2021. The company declared a common dividend of $0.16 per share.
- Operating cash flow was $8.7 million. Investing activities used $8.4 million, and financing activities used $93.0 million, primarily reflecting deposit outflows. Cash declined by $92.7 million during the quarter.
- The Company had $465.2 million of remaining FHLBNY borrowing capacity after $78.2 million of outstanding borrowings and a $50.0 million municipal letter of credit.
- The Company and Bank were considered well capitalized. The Company’s Tier 1 leverage ratio was 12.21%; the Bank’s Community Bank Leverage Ratio was 13.60%.
Material Changes Versus Comparable Period
- Net income available to common shareholders increased 7.0%, primarily due to lower interest expense and the absence of a loan-loss provision, partly offset by lower interest income.
- Net interest income increased 1.7%. Interest expense declined $1.2 million as deposit rates and borrowing balances decreased, while interest income declined $0.9 million, principally because of lower loan interest and fees.
- Non-interest income declined $0.2 million, mainly because service fees from cannabis-related deposit accounts decreased approximately $0.3 million.
- Non-interest expense declined $0.1 million, including a $0.3 million reduction in professional fees related to BSA remediation efforts.
- Delinquent loans increased to $18.4 million, or 1.2% of total loans, from $4.7 million at December 31, 2021. The increase was driven primarily by two commercial non-owner-occupied real estate loans. Nonaccrual loans declined to $3.9 million from $4.3 million.
- Unrealized investment-security losses increased, reducing accumulated other comprehensive income by $433,000 during the quarter. Management attributed the losses primarily to interest-rate changes rather than credit deterioration.
- Other real estate owned declined to zero after property sales and valuation adjustments.
Outlook, Risks, Contingencies and Unusual Items
- Management emphasizes organic growth in customers, loans, deposits and revenue while managing risk, expenses and capital. The filing does not provide quantitative earnings or revenue guidance.
- COVID-19 remains a risk to customers, local economies, credit quality and operating results. The Company also identifies potential litigation and reputational exposure related to its participation in the SBA Paycheck Protection Program.
- Cannabis-related deposits were approximately $289.1 million, or 17.2% of total deposits, at March 31, 2022. Cannabis-related fee income was approximately $1.2 million during the quarter. Cannabis-related activity remains federally illegal, creating regulatory and enforcement risk; two customers represented 26.1% of cannabis-related deposits.
- The Company had $125.5 million of unused commitments to extend credit and $1.5 million of standby letters of credit. Management stated that off-balance-sheet risk was not material and that resources were adequate to fund commitments.
- The Company continued to use the incurred-loss model for the allowance. As a smaller reporting company, adoption of the current expected credit loss methodology is effective for fiscal years beginning after December 15, 2022; the Company was evaluating the impact.
- Management identifies interest-rate changes, inflation, economic conditions, liquidity, credit quality, regulatory restrictions, BSA compliance, cannabis enforcement, technology and COVID-19 as material risks. The filing also references potential adverse effects of Consent Orders, but provides no further detail in the supplied text.
- There were no legal proceedings, stock repurchases or reported defaults during the quarter. Disclosure controls and procedures were deemed effective.
Investor Verification Checklist
- Verify the sustainability of deposit balances and the effect of cannabis-related deposit concentration on liquidity and fee income.
- Monitor the two commercial real estate loans driving the increase in 30-to-89-day delinquencies and assess potential migration to nonaccrual status.
- Evaluate whether the $30.0 million allowance remains adequate as the loan portfolio grows and CECL adoption approaches.
- Assess sensitivity of net interest margin to Federal Reserve rate changes, deposit repricing and borrowing costs.
- Review the impact of continued unrealized securities losses on tangible capital, liquidity and future earnings.
- Confirm the Company’s borrowing capacity, deposit runoff trends and ability to fund $125.5 million of unused loan commitments.
- Review the forthcoming CECL implementation disclosures and any developments concerning BSA remediation, Consent Orders, PPP litigation or federal cannabis enforcement.