Parke Bancorp, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Parke Bancorp, Inc. is a New Jersey-based 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 months ended March 31, 2021, compared with the three months ended March 31, 2020; balance-sheet comparisons are against December 31, 2020.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 or March 31, 2021 |
|---|---|---|
| Net income available to common shareholders | $9.4 million | $7.2 million |
| Basic / diluted EPS | $0.79 / $0.78 | $0.61 / $0.60 |
| Net interest income | $16.8 million | $15.2 million |
| Net interest margin | 3.26% | 3.43% |
| Provision for loan losses | $0.5 million | $1.4 million |
| Total non-interest income | $2.2 million | $1.0 million |
| Total non-interest expense | $5.8 million | $4.9 million |
| Total assets | $2.10 billion | $2.08 billion at December 31, 2020 |
| Total loans, before allowance | $1.55 billion | $1.57 billion at December 31, 2020 |
| Total deposits | $1.73 billion | $1.59 billion at December 31, 2020 |
| Cash and cash equivalents | $504.4 million | $458.6 million at December 31, 2020 |
| Total equity | $209.9 million | $202.6 million at December 31, 2020 |
Net income increased 30.8% year over year. The effective tax rate was 25.4%, compared with 25.7% in the prior-year quarter. Net cash provided by operating activities was $11.1 million; investing activities provided $21.6 million; financing activities provided $13.2 million; and cash and cash equivalents increased $45.8 million during the quarter.
Material changes versus the prior comparable period
- Net interest income increased $1.6 million, primarily because lower deposit rates reduced interest expense by $2.6 million. This benefit was partly offset by lower income on Federal Reserve deposits and other bank balances.
- Interest-bearing deposit expense declined to $2.8 million from $5.5 million, while average interest-bearing deposit cost declined to 0.96% from 1.81%.
- Net interest margin narrowed to 3.26% from 3.43%, and the interest-rate spread narrowed to 2.91% from 2.99%.
- Non-interest income increased $1.2 million, principally because of higher service fees from medical-use cannabis-related deposit customers.
- Non-interest expense increased $0.9 million, including higher professional fees associated with Bank Secrecy Act remediation and other growth-related costs.
- Loans declined $18.1 million from year-end 2020, while deposits increased $138.3 million, or 8.7%.
- Borrowings declined $123.0 million, including repayment of $90.0 million of Federal Reserve advances related to the SBA PPP facility and a $33.0 million reduction in FHLBNY borrowings.
- The allowance for loan losses increased to $30.2 million from $29.7 million, equal to 1.95% of total loans versus 1.90% at year-end. There were no charge-offs and $12,000 of recoveries in the quarter.
Asset quality, liquidity, capital, and unusual items
- Delinquent loans were $7.6 million, or 0.5% of total loans, down from $11.5 million at December 31, 2020. Nonaccrual loans over 90 days were $7.2 million, or 0.5% of total loans.
- Impaired loans declined to $16.3 million from $22.7 million. Performing TDR loans were $9.2 million, and nonperforming TDR loans were $271,700.
- Other real estate owned declined to $124,000 from $4.0 million at year-end.
- Liquidity remained substantial, with $504.4 million of cash and cash equivalents. FHLBNY borrowing capacity was $551.4 million, of which $101.7 million was outstanding, leaving approximately $409.7 million of stated remaining borrowing capacity.
- Unused commitments to extend credit were approximately $128.7 million, and standby letters of credit were $1.7 million.
- The Company and Bank were considered well capitalized. The March 31, 2021 Tier 1 leverage ratios were 10.75% for the Company and 12.14% for Parke Bank, versus an 8.50% capital-adequacy requirement under the elected community bank leverage framework.
- Medical-use cannabis customers held approximately $355.7 million of deposits, or 20.6% of total deposits; two customers represented 21.7% of total deposits. Cannabis-related loans totaled $8.0 million.
- The Company adopted ASU 2019-12 in the first quarter without a material impact. CECL adoption is scheduled for the Company as a small reporting company for fiscal years beginning after December 15, 2022; management was evaluating the impact.
Guidance, outlook, management commentary, and risks
The filing does not provide quantitative earnings or revenue guidance. Management stated that results are not necessarily indicative of full-year results and remains focused on organic growth in customers, loans, deposits, and revenue while managing expenses, risk, and capital.
Management identified COVID-19 as an ongoing source of uncertainty. Potential effects include weaker loan demand, increased delinquencies and foreclosures, lower collateral values, higher credit-loss provisions, reduced asset yields and net interest margins, employee and operational disruption, cyber risk, and pressure on liquidity or funding markets. Most COVID-related loan deferrals were no longer in the deferral period as of March 31, 2021.
Additional material risks include potential litigation relating to PPP loan processing, regulatory or enforcement changes affecting cannabis banking, BSA remediation requirements, interest-rate and market risk, concentration in commercial and residential real estate lending, and the possibility that future credit losses exceed current allowance estimates. The filing states that no material legal proceedings were pending and that disclosure controls were effective.
Most important facts for investors to verify
- Whether the unusually large cannabis-related deposit concentration remains stable and whether federal enforcement or regulatory policy changes could require the Bank to exit those relationships.
- Whether the decline in delinquent, impaired, and OREO balances continues without significant future charge-offs or allowance increases.
- Whether deposit growth and excess cash can be redeployed profitably as low interest rates continue to pressure asset yields and the net interest margin.
- The future impact of PPP loan forgiveness, servicing economics, related litigation exposure, and repayment of associated funding facilities.
- The eventual effect of CECL adoption on the allowance for credit losses, retained earnings, and regulatory capital.
- Whether BSA remediation expenses or regulatory restrictions result in additional costs, business limitations, or enforcement actions.