Parke Bancorp(PKBK) - 2021 Q4 - Annual Report

Part I Business Parke Bancorp, Inc. is a commercial bank holding company focused on real estate lending and medical-use cannabis banking, operating under BSA compliance consent orders - The company's core lending activities are focused on commercial real estate, residential real estate, and construction lending[22] - In the fourth quarter of 2020, the Bank entered into Consent Orders with the FDIC and NJDOBI due to weaknesses in its Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance program[82] Key Financial Metrics as of December 31, 2021 | Metric | Amount (Billions) | | :--- | :--- | | Total Assets | $2.14 | | Total Loans | $1.48 | | Total Deposits | $1.77 | | Total Equity | $0.232 | Medical-Use Cannabis Related Business The company provides banking services to state-licensed medical-use cannabis businesses, driving significant deposit and fee income growth despite federal illegality risks - The company maintains stringent due diligence, policies, and monitoring for its cannabis-related business customers to comply with FinCEN guidelines, but acknowledges the risk of changes in federal enforcement[31][32] Cannabis Business Financials (YoY Comparison) | Metric | 2021 (Millions) | 2020 (Millions) | | :--- | :--- | :--- | | Deposit Balances | $375.2 (21.2% of total) | $259.4 (16.3% of total) | | Fee Income | $5.1 | $2.2 | | Loan Balances | $5.4 | $8.0 | Lending Activities Lending is concentrated in residential, commercial real estate, and construction loans, with a $1.48 billion portfolio, predominantly floating/variable rate - The bank's legal lending limit to a single borrower was approximately $45.6 million at year-end 2021, with the largest single borrower relationship having a balance of $21.8 million[51] Loan Portfolio by Type and Maturity as of Dec 31, 2021 (in thousands) | Loan Category | Due within 1 year (Thousands) | Due 1-5 years (Thousands) | Due 5-15 years (Thousands) | Due after 15 years (Thousands) | Total (Thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial and Industrial | $23,190 | $22,625 | $11,336 | $— | $57,151 | | Construction | $131,416 | $22,196 | $— | $465 | $154,077 | | Commercial Real Estate | $36,481 | $145,496 | $331,483 | $1,662 | $515,122 | | Residential Real Estate | $7,998 | $21,176 | $128,358 | $592,993 | $750,525 | | Total | $199,096 | $211,629 | $474,219 | $599,903 | $1,484,847 | Non-Performing and Problem Assets Asset quality significantly improved in 2021, with total impaired loans decreasing by 54.6% to $10.3 million and non-accrual loans falling to $4.3 million - The allowance for loan losses as a percentage of total loans increased slightly to 2.01% in 2021 from 1.90% in 2020, while the coverage ratio improved dramatically to 692.78% from 340.22%[63] Asset Quality Indicators (YoY Comparison) | Metric | Dec 31, 2021 (Millions) | Dec 31, 2020 (Millions) | | :--- | :--- | :--- | | Total Impaired Loans | $10.3 | $22.7 | | Non-accrual Loans | $4.3 | $8.7 | | Troubled Debt Restructurings (TDRs) | $6.0 | $13.9 | | Real Estate Owned (OREO) | $1.7 | Not specified in chunk | Sources of Funds Deposits, primarily $1.77 billion at year-end 2021, are the main funding source, with non-interest bearing deposits growing to 29.5% of average total deposits - The company held brokered deposits of $9.1 million at the end of 2021, a significant decrease from $71.1 million at the end of 2020[69] Average Deposit Composition and Rates | Deposit Type | 2021 Avg Balance (Millions) | 2021 Avg Rate (%) | 2020 Avg Balance (Millions) | 2020 Avg Rate (%) | | :--- | :--- | :--- | :--- | :--- | | Non-interest bearing | $506.6 | 0.00 | $342.3 | 0.00 | | Interest-bearing | $1,211.5 | 0.81 | $1,173.1 | 1.51 | | Total Deposits | $1,718.1 | | $1,515.4 | | Risk Factors The report indicates that this section is not applicable - The report states that Item 1A. Risk Factors is not applicable[119] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[120] Properties The company operates its main office and several branches in New Jersey and Pennsylvania, with net property and equipment totaling $6.3 million - The company's main office is in Washington Township, NJ, with additional branches in Northfield, Galloway Township, and Collingswood, NJ, as well as two offices in Philadelphia, PA[121][122] - Net property and equipment totaled approximately $6.3 million as of December 31, 2021[122] Legal Proceedings The company reports no material legal proceedings - There are no legal proceedings to report[123] Mine Safety Disclosures This section is not applicable to the company - This item is not applicable to the company[123] Part II Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'PKBK', paid $0.16 quarterly dividends in 2021, and made no common stock repurchases - The company's common stock is listed on the Nasdaq Capital Market under the trading symbol 'PKBK'[123] - A quarterly cash dividend of $0.16 per common share was paid in each quarter of 2021, totaling $7.6 million for the year[124] - There were no repurchases of the Company's Common Stock during the twelve months ended December 31, 2021[132] Management's Discussion and Analysis of Financial Condition and Results of Operations Net income increased 43.4% to $40.7 million in 2021, driven by higher net interest income, lower loan loss provision, and increased non-interest income - The increase in net income was primarily driven by lower interest expense on deposits, a lower provision for loan losses, and higher fee income[137] Key Performance Indicators (2021 vs 2020) | Metric | 2021 (Millions) | 2020 (Millions) | % Change | | :--- | :--- | :--- | :--- | | Net Income (to common) | $40.7 | $28.4 | +43.4% | | Diluted EPS | $3.36 | $2.37 | +41.8% | | Net Interest Income | $69.1 | $62.6 | +10.3% | | Provision for Loan Losses | $0.5 | $7.6 | -93.4% | | Non-interest Income | $8.8 | $4.2 | +110.0% | | Non-interest Expense | $22.5 | $20.3 | +10.8% | Results of Operations Net interest income increased to $69.1 million in 2021 due to reduced interest expense, while non-interest income doubled to $8.8 million, largely from cannabis business fees - Net interest income increased by $6.5 million (10.3%) primarily due to an $8.9 million (40.8%) decrease in interest expense, which offset a $2.5 million decrease in interest income[140] - Service fees on deposit accounts from the medical-use cannabis industry totaled $5.1 million in 2021, up from $2.2 million in 2020, accounting for the majority of the growth in non-interest income[150] - Professional services expense increased by $1.7 million (87.4%) as a result of consent order remediation efforts surrounding BSA operations[152] Financial Condition Total assets grew 2.8% to $2.14 billion in 2021, with cash increasing by $138.0 million, deposits by $176.0 million, and borrowings decreasing by $146.3 million - The decrease in the loan portfolio was primarily due to a $63.4 million reduction in Paycheck Protection Program (PPP) loans[154] Balance Sheet Changes (Dec 31, 2021 vs Dec 31, 2020) | Account | 2021 Balance (Millions) | 2020 Balance (Millions) | Change (Millions) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $596.6 | $458.6 | +$138.0 | | Loans, net | $1,484.8 | $1,565.8 | -$81.0 | | Total Deposits | $1,768.4 | $1,592.4 | +$176.0 | | Total Borrowings | $120.9 | $267.2 | -$146.3 | | Total Equity | $232.4 | $202.6 | +$29.8 | Liquidity and Capital Resources The company maintained strong liquidity with $596.6 million cash and a $596.5 million FHLBNY credit line, remaining "well-capitalized" under regulatory standards - The company has a $596.5 million line of credit from the FHLBNY, with $478.3 million available at December 31, 2021[169] - The Company and the Bank exceeded all applicable regulatory capital requirements and were considered 'well-capitalized' as of December 31, 2021[172] Financial Statements and Supplementary Data This section presents effective internal controls, an unqualified auditor's opinion, and consolidated financial statements with notes on loan quality, regulatory capital, and cannabis business impact - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[209] - The independent auditor, RSM US LLP, issued an unqualified opinion on the financial statements[212] - The auditor identified the qualitative factor portion of the general reserve component of the allowance for loan losses as a critical audit matter due to the significant judgment and subjectivity involved[222] Consolidated Financial Statements Consolidated financial statements show a 43.4% increase in net income, 2.8% growth in total assets, and 15.6% increase in total equity for 2021 Consolidated Income Statement Highlights (in thousands) | Line Item | 2021 (Thousands) | 2020 (Thousands) | | :--- | :--- | :--- | | Net Interest Income | $69,116 | $62,645 | | Provision for loan losses | $500 | $7,646 | | Non-interest Income | $8,799 | $4,183 | | Non-interest Expense | $22,503 | $20,296 | | Net Income Attributable to Company | $40,760 | $28,428 | Consolidated Balance Sheet Highlights (in thousands) | Line Item | Dec 31, 2021 (Thousands) | Dec 31, 2020 (Thousands) | | :--- | :--- | :--- | | Total Assets | $2,136,445 | $2,078,322 | | Net Loans | $1,455,002 | $1,536,109 | | Total Deposits | $1,768,410 | $1,592,443 | | Total Equity | $232,361 | $202,597 | Notes to Financial Statements Notes detail loan portfolio quality, confirm the Bank's "well capitalized" status with a 12.82% CBLR, and highlight the cannabis industry's significant financial contribution - The Bank elected to use the Community Bank Leverage Ratio (CBLR) framework and reported a ratio of 12.82% as of December 31, 2021, well above the 8.5% minimum requirement for that period[348][351] - Total impaired loans decreased from $22.7 million at year-end 2020 to $10.3 million at year-end 2021, with a related allowance for these specific loans of $0.6 million[293][294] - The company's joint venture, Parke Direct Lending LLC (PDL), was fully liquidated in 2021, and all earnings were distributed[234][337] Controls and Procedures Executive officers concluded disclosure controls and internal controls were effective as of December 31, 2021, with no material changes reported in Q4 - The CEO and CFO concluded that the Company's effective disclosure controls and procedures were effective as of the end of the period[387] - There were no material changes in internal control over financial reporting during the last quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[390] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - This section incorporates information by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[394] Executive Compensation Executive and director compensation information is incorporated by reference from the 2022 Proxy Statement - This section incorporates information by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[397] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2022 Proxy Statement, with 532,461 options outstanding at a $13.34 weighted-average exercise price Equity Compensation Plan Information as of Dec 31, 2021 | Plan Category | Securities to be Issued Upon Exercise (Count) | Weighted-Average Exercise Price ($) | Securities Remaining for Future Issuance (Count) | | :--- | :--- | :--- | :--- | | Approved by security holders | 532,461 | $13.34 | 933,333 | | Not approved by security holders | None | N/A | N/A | | Total | 532,461 | $13.34 | 933,333 | Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the 2022 Proxy Statement - This section incorporates information by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[402] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2022 Proxy Statement - This section incorporates information by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[403] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including corporate documents and certifications - Lists all financial statements, schedules, and exhibits filed with the report, including consent orders with the FDIC and NJDOBI, and various corporate governance and compensation documents[405][406] Form 10-K Summary This section is not applicable - This item is not applicable[411]