Parke Bancorp, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Parke Bancorp, Inc. is a New Jersey-based bank holding company operating through Parke Bank, serving individuals and small to mid-sized businesses primarily in New Jersey and Pennsylvania. Its principal activities are commercial and retail banking, including residential and commercial real estate, construction, commercial and industrial lending, deposits, and related fee services. This unaudited report covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods; balance-sheet comparisons are primarily with December 31, 2020.
Financial Performance and Position
| Metric | Q3 2021 | Q3 2020 | Change |
|---|---|---|---|
| Net interest income | $17.5 million | $15.4 million | +13.2% |
| Provision for loan losses | $0 | $2.4 million | Decrease of $2.4 million |
| Non-interest income | $2.2 million | $0.7 million | +$1.5 million |
| Non-interest expense | $5.4 million | $4.8 million | +$0.6 million |
| Net income available to common shareholders | $10.5 million | $6.5 million | +60.6% |
| Basic / diluted EPS | $0.88 / $0.87 | $0.55 / $0.55 | Increased |
| Net interest margin | 3.41% | 3.14% | +27 basis points |
| Metric | Nine Months 2021 | Nine Months 2020 | Change |
|---|---|---|---|
| Net interest income | $52.4 million | $45.5 million | +15.0% |
| Provision for loan losses | $0.5 million | $5.8 million | Decrease of $5.3 million |
| Non-interest income | $6.5 million | $2.7 million | +143.1% |
| Non-interest expense | $16.9 million | $14.6 million | +$2.4 million |
| Net income available to common shareholders | $30.7 million | $20.3 million | +51.3% |
| Basic / diluted EPS | $2.58 / $2.53 | $1.71 / $1.69 | Increased |
| Net interest margin | 3.41% | 3.29% | +12 basis points |
At September 30, 2021, total assets were $2.16 billion, up 3.7% from December 31, 2020. Cash and cash equivalents increased to $623.8 million from $458.6 million. Total loans declined to $1.47 billion from $1.57 billion, primarily reflecting reductions in PPP, construction, multifamily, and other loan balances. Total deposits increased 11.9% to $1.78 billion, including noninterest-bearing deposits of $542.6 million. Total borrowings declined to $133.8 million from $267.2 million, including repayment of $90.0 million of Federal Reserve advances and a $43.5 million reduction in FHLBNY borrowings.
Total equity increased to $225.7 million from $202.6 million. The Company and Bank were reported as well capitalized. September 30, 2021 Tier 1 leverage ratios were 11.34% for the Company and 12.83% for Parke Bank, compared with an applicable capital-adequacy benchmark of 8.50% under the community bank leverage framework.
Nine-month cash flow from operating activities was $29.5 million, compared with $22.5 million in 2020. Investing activities provided $88.3 million, principally because of the net reduction in loans, compared with $145.4 million used in 2020. Financing activities provided $47.4 million, including deposit growth, partly offset by debt repayments and $7.6 million of dividends. Cash and cash equivalents increased by $165.2 million during the nine months.
Material Changes Versus the Prior Comparable Period
- Profitability improved substantially, driven by lower funding costs, lower loan-loss provisions, and higher fee income.
- Interest expense declined $2.3 million in Q3 and $7.2 million for the nine-month period, primarily due to lower deposit and borrowing rates and lower borrowings.
- Service fees on deposit accounts rose to $1.35 million in Q3 and $4.17 million for nine months. Cannabis-related commercial deposit accounts contributed $3.7 million of fee income for the nine-month period, compared with $1.4 million in 2020.
- Loan growth reversed: total loans decreased $92.0 million from year-end 2020, while deposits increased $188.8 million. PPP loans outstanding declined to $37.0 million from $91.2 million.
- Credit metrics improved. Delinquent loans declined to $4.7 million, or 0.3% of total loans, from $11.5 million at December 31, 2020. Loans over 90 days past due and not accruing declined to $4.4 million from $8.7 million.
- The allowance for loan losses was $29.8 million, or 2.02% of total loans, compared with $29.7 million, or 1.90%, at year-end 2020. Net charge-offs were $0.4 million for the nine months, compared with $0.1 million in the prior-year period.
- Non-interest expense increased, including higher professional fees related to Bank Secrecy Act and anti-money-laundering remediation.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide formal financial guidance. Management states that it remains focused on organically growing customers, loans, deposits, and revenue while managing expenses, risk, liquidity, and capital.
The Bank remains subject to FDIC and New Jersey Department of Banking and Insurance Consent Orders issued in late 2020 concerning weaknesses in its BSA and anti-money-laundering compliance program. Management reports that numerous remediation actions have been taken or completed, but the orders remain in effect. Potential future regulatory action could include fines, sanctions, additional compliance costs, or restrictions on activities.
Cannabis-related deposits were approximately $354.5 million, or 19.9% of total deposits, at September 30, 2021; two customers represented 20.6% of total deposits. Cannabis-related loans were $6.3 million. Although the customers operate in states where cannabis is legal and the Bank follows FinCEN guidance, cannabis remains illegal under federal law, and a change in federal enforcement could require the Bank to cease providing these services.
COVID-19 remains a material uncertainty. Potential effects include weaker loan demand, higher delinquencies and foreclosures, reduced collateral values, increased credit provisions, and pressure on asset yields and net interest margins. The Company also identifies potential PPP-related litigation risk.
Other notable items include $1.8 million of OREO at September 30, 2021, up from $0.1 million at year-end 2020, and $120.9 million of unused commitments to extend credit. Standby letters of credit totaled $1.7 million. The Company had $447.6 million of remaining FHLBNY borrowing capacity, excluding the $40.0 million municipal letter of credit used to support public deposits.
The Company elected to defer adoption of the current expected credit loss methodology until the required period for small reporting companies, beginning after December 15, 2022, and was evaluating the impact of adoption.
Important Facts for Investors to Verify
- Whether the improvement in earnings remains sustainable after the benefit from sharply lower loan-loss provisions and deposit funding costs.
- The concentration, stability, and regulatory sensitivity of cannabis-related deposits and fee income.
- Progress toward satisfying the BSA/AML Consent Orders and any subsequent regulatory findings, penalties, or restrictions.
- Future credit performance, particularly in construction, commercial real estate, residential mortgage, and PPP-related portfolios.
- The adequacy of the $29.8 million allowance for loan losses under changing economic conditions and the upcoming CECL implementation.
- Whether excess liquidity and deposit growth can be productively deployed as loans declined by $92.0 million from year-end.
- Changes in interest rates, deposit pricing, asset yields, and net interest margin.
- The valuation and disposition of OREO, impaired loans, and other assets dependent on appraisals or management estimates.