PARKE BANCORP, INC. ANNOUNCES FOURTH QUARTER 2023 EARNINGS
Highlights: | ||||
Net Income: | $8.2 million for Q4 2023 | |||
Revenue: | $31.8 million for Q4 2023 | |||
Total Assets: | $2.02 billion, increased 1.9% from December 31, 2022 | |||
Total Loans: | $1.79 billion, increased 2.0% from December 31, 2022 | |||
Total Deposits: | $1.55 billion, decreased 1.5% from December 31, 2022 | |||
WASHINGTON TOWNSHIP, N.J., Jan. 24, 2024 Parke Bancorp, Inc. ("Parke Bancorp" or the "Company") (NASDAQ: "PKBK"), the parent company of Parke Bank (the "Bank"), announced its operating results for the quarter ended December 31, 2023.
Highlights for the fourth quarter and year ended December 31, 2023:
Net income available to common shareholders was $8.2 million, or $0.68 per basic common share and $0.67 per diluted common share, for the three months ended December 31, 2023, a decrease of $2.3 million, or 21.8%, compared to net income available to common shareholders of $10.4 million, or $0.88 per basic common share and $0.86 per diluted common share, for the same quarter in 2022. The decrease is primarily driven by lower net interest income, partially offset by a decrease in the provision for credit losses.
Net interest income decreased 18.0% to $15.5 million for the three months ended December 31, 2023, compared to $18.9 million for the same period in 2022.
Provision for credit losses was a recovery of $0.5 million for the three months ended December 31, 2023, compared to a provision of $0.9 million for the same period in 2022.
Non-interest income decreased $0.3 million, or 18.0%, to $1.5 million for the three months ended December 31, 2023, compared to $1.8 million for the same period in 2022.
Non-interest expense increased $0.1 million, or 2.2%, to $6.3 million for the three months ended December 31, 2023, compared to $6.2 million for the same period in 2022.
Net income available to common shareholders was $28.4 million, or $2.38 per basic common share and $2.35 per diluted common share, for the fiscal year ended December 31, 2023, a decrease of $13.4 million, or 32.0%, compared to net income available to common shareholders of $41.8 million, or $3.51 per basic common share and $3.44 per diluted common share, for the fiscal year ended December 31, 2022. The decrease was primarily due to a $11.4 million increase in non-interest expenses resulting from the one-time recognition of a $9.5 million contingent loss previously disclosed by the Company in the third quarter as well as an increase in compensation and benefits expense, lower net interest income, and lower non-interest income, partially offset by lower provision for credit losses.
Net interest income decreased 12.4% to $64.2 million for the fiscal year ended December 31, 2023, compared to $73.3 million for the same period in 2022.
Provision for credit losses decreased $3.9 million to a recovery of $2.1 million for the fiscal year ended December 31, 2023, compared to a provision of $1.8 million for the same period in 2022.
Non-interest expense increased $11.4 million, or 48.0%, to $35.3 million, for the fiscal year ended December 31, 2023, compared to $23.8 million for the same period in 2022. The increase in non-interest expense in 2023 was primarily due to the recognition of the $9.5 million contingent loss referred to above.
The following is a recap of the significant items that impacted the fourth quarter of 2023 and the year ended December 31, 2023:
Interest income increased $5.3 million for the fourth quarter of 2023 compared to the same period in 2022, primarily due to an increase in interest and fees on loans of $5.1 million to $28.5 million, due to higher average outstanding loan balances and higher interest rates. Additionally, interest earned on average deposits held at the Federal Reserve Bank ("FRB") increased to $1.5 million from $1.4 million, due to higher interest rates paid on such deposits. For the year ended December 31, 2023, interest income increased $25.2 million from the same period in 2022, primarily driven by an increase in interest and fees on loans of $23.2 million, due to higher average outstanding loan balances and higher interest rates, as well as an increase in interest earned on average deposits held at the FRB of $1.8 million.
Interest expense increased $8.7 million for the three months ended December 31, 2023, compared to the same period in 2022, primarily due to higher market interest rates, as well as a change in the deposit mix with a reduction in non-interest bearing demand deposits and an increase in brokered deposits. For the year ended December 31, 2023, interest expense increased $34.3 million, primarily due to higher market interest rates, as well as a change in the deposit mix with a reduction in non-interest bearing demand deposits and an increase in brokered deposits.
The provision for credit losses decreased $1.3 million for the three months ended December 31, 2023, compared to the same period in 2022, as a result of a decrease in vintage loss rates partially offset by an increase in outstanding loan balances. For the year ended December 31, 2023, the provision for credit losses decreased $3.9 million from the same period in 2022 due to a decrease in vintage loss rates and a change in the loan portfolio mix, partially offset by an increase in outstanding loan balances.
Non-interest income decreased $0.3 million for the three months ended December 31, 2023 compared to the same period in 2022, primarily as a result of a decrease in service fees on deposit accounts of $0.4 million, partially offset by an increase in income on Bank Owned Life Insurance of $0.1 million. For the year ended December 31, 2023, non-interest income decreased $1.7 million, primarily driven by a decrease in service fees on deposit accounts of $1.1 million, a decrease in loan fees of $0.5 million, and a decrease in the net gain on OREO of $0.3 million, partially offset by an increase in Bank Owned Life Insurance Income of $0.2 million. The decrease in service fees on deposit accounts was primarily attributable to a decline in fees from our cannabis related businesses deposit accounts.
Non-interest expense increased $0.1 million for the three months ended December 31, 2023 compared to the same period in 2022, primarily driven by an increase in OREO expense of $0.1 million. For the twelve months ended December 31, 2023, non-interest expense increased $11.4 million, mainly due to a $9.1 million increase in other operating expenses resulting from the recognition of the previously mentioned $9.5 million contingent loss, an increase in compensation and benefits of $1.5 million, an increase in OREO expense of $0.4 million, an increase in FDIC insurance and other assessments of $0.2 million, and an increase in data processing of $0.1 million. The increase in compensation and benefits was primarily due to a $0.5 increase in salaries, and a $0.9 million decrease in deferred loan origination costs, attributable to a reduction in the number of loans originated.
Income tax expense decreased $0.3 million for the fourth quarter of 2022 and decreased $5.0 million for the quarter and fiscal year ended December 31, 2023, respectively, compared to the same periods in 2022. The effective tax rate for the fourth quarter of 2023 and the year ended December 31, 2023 was 26.8% and 24.5%, respectively, compared to 23.8% and 25.4% for the same periods in 2022.
December 31, 2023 discussion of financial condition
Total assets increased to $2.02 billion at December 31, 2023, from $1.98 billion at December 31, 2022, an increase of $38.6 million, or 1.9%.
Cash and cash equivalents totaled $180.4 million at December 31, 2023, as compared to $182.2 million at December 31, 2022.
The investment securities portfolio decreased to $16.4 million at December 31, 2023, from $18.7 million at December 31, 2022, a decrease of $2.4 million, or 12.6%, primarily due to pay downs of securities.
Gross loans increased to $1.79 billion at December 31, 2023, from $1.75 billion at December 31, 2022, an increase of $35.9 million or 2.0%. The increase in loans was primarily due to an increase in residential 1 to 4 family investment portfolio of $41.8 million; commercial owner occupied of $16.4 million; commercial non-owner occupied of $12.2 million, and residential 1 to 4 family of $11.1 million, partially offset by a decrease in construction other of $27.8 million.
Nonperforming loans at December 31, 2023 decreased to $7.3 million, representing 0.41% of total loans, a decrease of $9.0 million, from $16.3 million of nonperforming loans at December 31, 2022. The decrease was driven by two commercial real estate non-owner occupied loans that migrated to performing status during the year. OREO at December 31, 2023 was $1.6 million, which was unchanged from $1.6 million at December 31, 2022. Nonperforming assets (consisting of nonperforming loans and OREO) represented 0.44% and 0.90% of total assets at December 31, 2023 and December 31, 2022, respectively. Loans past due 30 to 89 days were $3.9 million at December 31, 2023, an increase of $3.5 million from December 31, 2022.
The allowance for credit losses was $32.1 million at December 31, 2023, as compared to $31.8 million at December 31, 2022. The ratio of the allowance for credit losses to total loans was 1.80% and 1.82% at December 31, 2023 and at December 31, 2022, respectively. The ratio of allowance for credit losses to non-performing loans was 442.5% at December 31, 2023, compared to 195.7%, at December 31, 2022.
Total deposits were $1.55 billion at December 31, 2023, down from $1.58 billion at December 31, 2022, a decrease of $23.2 million or 1.5% compared to December 31, 2022. The decrease in deposits was attributed to a decrease in non-interest demand deposits of $120.4 million, savings deposits of $105.1 million, and interest checking of $20.1 million, partially offset by an increase in money market and time deposit balances of $222.4 million. Brokered deposits, included in the above balances, increased $82.7 million, to $223.4 million at December 31, 2023, from $140.8 million at December 31, 2022. Deposits from our cannabis related businesses decreased $80.7 million to $96.7 million at December 31, 2023, compared to $177.3 million at December 31, 2022, due to increased competition for such deposits, and consolidation within the cannabis industry.
Total borrowings increased $42.0 million during the twelve months ended December 31, 2023, to $168.1 million at December 31, 2023 from $126.1 million at December 31, 2022, driven by an increase of $41.9 million in Federal Home Loan Bank of New York ("FHLBNY") advances.
Total equity increased to $284.3 million at December 31, 2023, up from $266.0 million at December 31, 2022, an increase of $18.3 million, or 6.9%, primarily due to the retention of earnings, partially offset by the payment of $8.6 million of cash dividends.
CEO outlook and commentary
Vito S. Pantilione, President and Chief Executive Officer of Parke Bancorp, Inc. and Parke Bank, provided the following statement:
"2023 was a challenging year for the country, our region and the banking industry. Inflation remained high, although some relief was experienced in the 4th quarter and interest rates remained high after an unprecedented 550 basis point increase over the last 18 months. There were also bank failures in 2023. World military conflicts continue to grow creating concern for the many innocent lives being lost and the uncertainty of the effect these wars are having on the world economy, including the United States. The concern over the future of our economy is growing, which some interpret as being confirmed by Fed statements indicating the possibility of lowering interest rates in 2024."
"The challenges in 2023 were compounded for our Company with the booking of a $9.5 million contingent loss. We previously reported the $9.5 million theft by one of our armored car courier companies and, are aggressively pursuing multiple avenues of restitution, including existing insurance policies."
"Maintaining deposits remained challenging in 2023, triggering higher rates and the offering of special deposit programs. This caused a substantial increase in our interest expense as rates continued to climb. If interest rates do moderate in 2024, we anticipate seeing a lower cost of funding and stronger deposits. Loan growth was less than projected, again due to higher interest rates and difficulties in the real estate industry. It became more difficult to qualify new loan requests with the higher debt service. Increased rents did not keep pace with the rising debt service cost. We have, however, seen an increase in loan activity in the beginning of 2024 due to the anticipated interest rate cuts."
"Although 2023 had many challenges as mentioned above, our Company generated a Return On Average Assets of 1.45% and a Return On Average Equity over 10%. The probability of a volatile, and potentially worsening, economy and market still exists. We continue to be well structured to face these challenges with strong capital, strong asset quality and strong reserves. This enables our company to move forward with a focus on growth and continued profitability, although with caution. The Board and Management of our company are committed to supporting the confidence and investment of our shareholders."
Forward Looking Statement Disclaimer
This release may contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from those currently anticipated due to a number of factors; our ability to maintain strong capital, strong asset quality and strong reserves; our ability to recover or partially offset any losses resulting from loss of stored or missing cash; our ability to generate strong revenues with increased interest income and net interest income;; our ability to continue the financial strength and growth of our Company and Parke Bank; our ability to continue to increase shareholders' equity, good credit quality; our ability to be well structured to face challenging economic conditions; our ability to ensure that our loan loss provision is well positioned for the future; our ability to continue to reduce our nonperforming loans and delinquencies and the expenses associated with them; our ability to realize a high recovery rate on disposition of troubled assets; our ability to continue to pay a dividend in the future; our ability to enhance shareholder value in the future; our ability to continue growing our Company, our earnings and shareholders' equity; and our ability to continue to grow our loan portfolio; the possibility of additional corrective actions or limitations on the operations of Parke Bancorp, Inc. and Parke Bank being imposed by banking regulators, therefore, readers should not place undue reliance on any forward-looking statements. Parke Bancorp, Inc. does not undertake, and specifically disclaims, any obligations to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such circumstance.
(PKBK-ER)
Financial Supplement:
Table 1: Condensed Consolidated Balance Sheets (Unaudited) | |||
Parke Bancorp, Inc. and Subsidiaries | |||
Condensed Consolidated Balance Sheets | |||
December 31, | December 31, | ||
2023 | 2022 | ||
(Dollars in thousands) | |||
Assets | |||
Cash and cash equivalents | $ 180,376 | $ 182,150 | |
Investment securities | 16,387 | 18,744 | |
Loans, net of unearned income | 1,787,340 | 1,751,459 | |
Less: Allowance for credit losses | (32,131) | (31,845) | |
Net loans | 1,755,209 | 1,719,614 | |
Premises and equipment, net | 5,579 | 5,958 | |
Bank owned life insurance (BOLI) | 28,415 | 28,145 | |
Other assets | 37,534 | 30,304 | |
Total assets | $ 2,023,500 | $ 1,984,915 | |
Liabilities and Equity | |||
Non-interest bearing deposits | $ 232,189 | $ 352,546 | |
Interest bearing deposits | 1,320,638 | 1,223,436 | |
FHLBNY borrowings | 125,000 | 83,150 | |
Subordinated debentures | 43,111 | 42,921 | |
Other liabilities | 18,245 | 16,828 | |
Total liabilities | 1,739,183 | 1,718,881 | |
Total shareholders' equity | 284,317 | 266,034 | |
Total equity | 284,317 | 266,034 | |
Total liabilities and equity | $ 2,023,500 | $ 1,984,915 | |
Table 2: Consolidated Income Statements (Unaudited) | |||||||
For the three months ended | For the twelve months ended | ||||||
2023 | 2022 | 2023 | 2022 | ||||
(Dollars in thousands, except share data) | |||||||
Interest income: | |||||||
Interest and fees on loans | $ 28,459 | $ 23,389 | $ 106,061 | $ 82,900 | |||
Interest and dividends on investments | 303 | 207 | 1,048 | 772 | |||
Interest on deposits with banks | 1,537 | 1,407 | 5,595 | 3,811 | |||
Total interest income | 30,299 | 25,003 | 112,704 | 87,483 | |||
Interest expense: | |||||||
Interest on deposits | 13,214 | 5,178 | 41,259 | 11,071 | |||
Interest on borrowings | 1,570 | 909 | 7,231 | 3,085 | |||
Total interest expense | 14,784 | 6,087 | 48,490 | 14,156 | |||
Net interest income | 15,515 | 18,916 | 64,214 | 73,327 | |||
(Recovery of) provision for credit losses | (451) | 850 | (2,051) | 1,800 | |||
Net interest income after (recovery of) provision for credit losses | 15,966 | 18,066 | 66,265 | 71,527 | |||
Non-interest income | |||||||
Service fees on deposit accounts | 724 | 1,165 | 3,872 | 4,927 | |||
Gain on sale of SBA loans | — | — | — | 98 | |||
Other loan fees | 239 | 241 | 851 | 1,379 | |||
Bank owned life insurance income | 294 | 144 | 737 | 568 | |||
Net gain on sale and valuation adjustment of OREO | — | — | 38 | 328 | |||
Other | 223 | 255 | 1,194 | 1,082 | |||
Total non-interest income | 1,480 | 1,805 | 6,692 | 8,382 | |||
Non-interest expense | |||||||
Compensation and benefits | 2,925 | 2,871 | 12,340 | 10,835 | |||
Professional services | 583 | 579 | 2,328 | 2,249 | |||
Occupancy and equipment | 666 | 631 | 2,604 | 2,522 | |||
Data processing | 348 | 308 | 1,385 | 1,293 | |||
FDIC insurance and other assessments | 332 | 239 | 1,292 | 1,050 | |||
OREO expense | 229 | 89 | 839 | 493 | |||
Other operating expense | 1,204 | 1,434 | 14,479 | 5,391 | |||
Total non-interest expense | 6,287 | 6,151 | 35,267 | 23,833 | |||
Income before income tax expense | 11,159 | 13,720 | 37,690 | 56,076 | |||
Income tax expense | 2,986 | 3,266 | 9,228 | 14,253 | |||
Net income attributable to Company | 8,173 | 10,454 | 28,462 | 41,823 | |||
Less: Preferred stock dividend | (6) | (7) | (26) | (27) | |||
Net income available to common shareholders | $ 8,167 | $ 10,447 | $ 28,436 | $ 41,796 | |||
Earnings per common share | |||||||
Basic | $ 0.68 | $ 0.88 | $ 2.38 | $ 3.51 | |||
Diluted | $ 0.67 | $ 0.86 | $ 2.35 | $ 3.44 | |||
Weighted average common shares outstanding | |||||||
Basic | 11,947,530 | 11,934,021 | 11,945,740 | 11,918,319 | |||
Diluted | 12,133,511 | 12,166,044 | 12,137,052 | 12,175,440 | |||
Table 3: Operating Ratios | |||||||
Three months ended | Twelve months ended | ||||||
December 31, | December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Return on average assets | 1.64 % | 2.13 % | 1.45 % | 2.10 % | |||
Return on average common equity | 11.50 % | 15.77 % | 10.21 % | 16.72 % | |||
Interest rate spread | 2.17 % | 3.33 % | 2.42 % | 3.08 % | |||
Net interest margin | 3.17 % | 3.91 % | 3.34 % | 3.77 % | |||
Efficiency ratio* | 36.99 % | 29.68 % | 48.34 % | 29.17 % | |||
* Efficiency ratio is calculated using non-interest expense divided by the sum of net interest income and non-interest income. |
Table 4: Asset Quality Data | |||
December 31, | December 31, | ||
2023 | 2022 | ||
(Amounts in thousands except ratio data) | |||
Allowance for credit losses | $ 32,131 | $ 31,845 | |
Allowance for credit losses to total loans | 1.80 % | 1.82 % | |
Allowance for credit losses to non-accrual loans | 442.51 % | 195.66 % | |
Non-accrual loans | $ 7,261 | $ 16,276 | |
OREO | $ 1,550 | $ 1,550 | |
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SOURCE Parke Bancorp, Inc.
