Parke Bancorp, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2011. The interim financial statements are unaudited. Parke Bancorp is a New Jersey bank holding company whose principal subsidiary, Parke Bank, operates branches in New Jersey and Pennsylvania.
Financial Highlights
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Net income attributable to Company | $1.6 million; $1.8 million in 2010 | $6.0 million; $5.6 million in 2010 |
| Net income available to common shareholders | $1.3 million; $1.6 million in 2010 | $5.3 million; $4.9 million in 2010 |
| Basic diluted EPS | $0.27 / $0.27; $0.32 / $0.32 in 2010 | $1.08 / $1.05; $1.00 / $0.98 in 2010 |
| Net interest income | $8.0 million; $7.7 million in 2010 | $23.9 million; $22.3 million in 2010 |
| Provision for loan losses | $2.4 million; $2.1 million in 2010 | $6.9 million; $6.4 million in 2010 |
| Noninterest income | $0.3 million; $0.8 million in 2010 | $3.9 million; $1.9 million in 2010 |
| Noninterest expense | $3.1 million; $3.3 million in 2010 | $9.5 million; $8.3 million in 2010 |
All dollar amounts are as reported; financial statement amounts are generally in thousands unless otherwise indicated.
- Net interest margin: 4.43% for the third quarter, compared with 4.42% in the prior-year quarter; 4.47% for the first nine months, unchanged from 2010.
- Interest-rate spread: 4.28% for the quarter and 4.32% year to date, compared with 4.23% and 4.26%, respectively, in 2010.
- Total assets: $767.0 million at September 30, 2011, versus $756.9 million at December 31, 2010.
- Loans: $638.2 million, up 1.8% from $626.7 million at year-end 2010. Net loans were $621.7 million after the allowance for loan losses.
- Deposits: $622.0 million, up 2.9% from $604.7 million. Core deposit growth of $46.1 million offset a planned $28.8 million runoff of brokered deposits.
- Borrowings: $64.0 million, consisting primarily of $40.6 million of FHLB borrowings, $10.0 million of other borrowed funds and $13.4 million of subordinated debentures.
- Cash and liquidity: Cash and due from financial institutions totaled $69.3 million, up from $57.6 million at year-end. The loan-to-deposit ratio was 104.7%. The company reported a $3.0 million unused short-term line of credit and $115.2 million of FHLB borrowing capacity, of which $40.7 million was outstanding.
- Capital: Total equity was $76.3 million, compared with $70.7 million at year-end. Parke Bank reported total risk-based capital of 14.98%, Tier 1 risk-based capital of 13.72% and a Tier 1 leverage ratio of 12.05%; management stated that the company and bank were well-capitalized.
- Cash flow: Nine-month operating cash flow was $11.3 million, investing cash flow was negative $15.4 million and financing cash flow was $15.8 million. Cash increased $11.7 million to $69.3 million.
Material Changes Versus Prior Comparable Period
- Year-to-date net income available to common shareholders increased 7.6% to $5.3 million, while third-quarter net income available to common shareholders declined 16.6% to $1.3 million.
- Net interest income increased 6.8% year to date, primarily because deposit and borrowing costs declined faster than asset yields. The average deposit cost decreased to 1.39% from 1.83%.
- Interest income was essentially flat year to date and declined 2.2% in the quarter as higher loan balances were offset by lower loan yields.
- Year-to-date gains on SBA loan sales increased to $3.9 million from $1.3 million. The increase included $1.3 million of previously deferred gains following a change in the SBA sales agreement that removed certain warranty language and permitted earlier gain recognition.
- Credit costs increased. The allowance for loan losses rose to $16.5 million from $14.8 million, and the allowance-to-loans ratio increased to 2.58% from 2.36%.
- Nonaccrual loans increased to $38.8 million, or 6.1% of total loans, from $27.4 million, or 4.4%, at December 31, 2010. Total delinquent loans were $43.3 million, or 6.8% of loans.
- Nonperforming assets increased to 7.41% of total assets from 5.82%. OREO increased to $18.2 million from $16.7 million, including a $12.3 million condominium development.
- Classified loan exposure shifted materially: substandard loans increased to $99.8 million from $69.4 million, while OAEM loans declined to $22.6 million from $58.6 million.
Outlook, Risks and Unusual Items
- Management stated that weakness in local residential and commercial real estate markets and high unemployment negatively affected credit quality. The company is emphasizing foreclosure, borrower workouts, updated appraisals and enhanced monitoring of impaired loans.
- Management increased certain loss factors during the third quarter, adding approximately $1.3 million to reserves, including $1.0 million for residential real estate and $0.3 million for construction loans.
- The company recognized $480,000 of OREO write-downs during the nine months, reflected in the loss on sale and write-down of real estate owned. Third-quarter noninterest income was also reduced by this charge.
- The company recorded $85,000 of credit-related other-than-temporary impairment on a private-label collateralized mortgage obligation. The filing also discloses significant Level 3 valuation exposure, including $4.0 million of collateralized debt obligations.
- Troubled debt restructurings totaled $53.9 million across 37 loans; $20.6 million was not accruing interest.
- No formal earnings or financial guidance was provided. Management cautioned that future results depend on economic conditions, real estate values, interest rates, regulation, competition, credit performance and the effectiveness of risk management.
- The allowance for loan losses and OREO valuations involve significant estimates. Management stated that additional provisions may be required if economic conditions, collateral values or regulatory assessments deteriorate.
- The filing reported no material legal proceedings, no defaults upon senior securities and no subsequent events requiring recognition or disclosure through the issuance date.
Investor Verification Items
- Reconcile the increase in nonaccrual loans, classified loans, OREO and TDRs with subsequent charge-offs and allowance coverage.
- Assess the sustainability of earnings excluding the $3.9 million of SBA loan-sale gains and the recognition of previously deferred gains.
- Monitor commercial real estate, construction and residential real estate concentrations, including the $99.8 million of substandard loans.
- Evaluate the sensitivity of Level 3 securities and OREO to changes in property values, default rates, loss severity, prepayment assumptions and discount rates.
- Confirm continued deposit growth, brokered-deposit runoff, borrowing availability and the elevated loan-to-deposit ratio.
- Verify that capital ratios remain well above regulatory minimums after future credit losses, dividends and any changes in regulatory capital treatment.