Parke Bancorp, Inc. (PKBK) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Parke Bancorp, Inc. Please note that today's meeting is being recorded. During the meeting, we'll have a question-and-answer session. [Operator Instructions]. It is now my pleasure to turn today's meeting over to the Chairman of the Board, Daniel J. Dalton. Mr. Dalton, the floor is yours.

Thank you. The meeting will please come to order. Welcome to the Virtual Annual Meeting of Shareholders of Parke Bancorp, Inc. I am Daniel J. Dalton, Chairman of the Board of Directors of the company, and I will act as Chairman of the meeting. Any questions from stockholders attending the webcast will be addressed while the voting is underway. Linda A. Kaiser, Corporate Secretary of the company, will act as Secretary of the meeting. I would like to introduce members of your Board of Directors present today who are also participating in the meeting by remote communications. Arret Dobson, Fred Choate, Jack Sheppard, Jeffrey Kripitz, Dr. Edward Infontalino; Betty Milavsky and President, Vito Pantilione, we are also joined by our Chairman Emeritus, Chuck Pennoni. The Board of Directors has previously appointed Jonathan D. Hill as Inspector of Election to act at this meeting and any adjournment. The oath of the Inspector of Election will be attached to the minutes of this meeting. We posted the meeting procedures and rules for conduct of the annual meeting on the meeting web page for your review. In order to conduct an orderly meeting, we ask you to please follow these rules. The company has prepared a list of shareholders entitled to vote at the annual meeting as of the close of business on March 12, 2025, the record date for voting. The records of the company show that there were 11,842,596 shares of common stock outstanding on the record date and entitled to vote at this meeting. We have previously received an affidavit that the notice of meeting and a form of proxy were mailed on or about March 21, 2025 to each holder of record on the close of business on March 12, 2025. A copy of the affidavit will be attached to the minutes of this meeting. The company has delivered to the Inspector of Election the list of shareholders and all of proxies that have been received. The Secretary has informed me that more than a majority of the shares entitled to vote at the meeting are present online or by proxy. The Inspector of Election is making an exact count and will submit a formal report on the number of shares present during the course of the meeting. A quorum is declared present, subject to the confirmation of that fact by the Inspector of Elections report. In order to save time at this meeting, we have arranged the proceedings so that the votes will be taken at this time. And while the inspector is counting the votes, we will continue with other business. If you already voted by proxy, by mail, by telephone or by Internet, you need not vote online at this meeting. Stockholders participating in the webcast may vote on the web page as indicated by vote here, and here is selecting the vote now button. Now I'd like to officially open the polls. At this time, no additional proxies may be voted. The web page for online voting will close in a few minutes after we have to discuss the proposals to be voted on today. and those attending the meeting electronically have had the opportunity to vote on the matters. The first item of business to be acted upon at the meeting, as stated in the notice of annual meeting is the election of directors as follows: Fred G. Choate, Jeffrey H. Kripitz and Jack C. Sheppard Jr. each to serve for a 3-year term expiring in 2028 and until their successors have been elected and qualified. Under the company's bylaws, no nominations may be made at the meeting. Therefore, I declare nominations to be closed. The vote will now be taken on the election of directors. Remember, if you have already voted by proxy, you do not need to vote today unless you want to change your vote. In order to vote today, please press the vote now button on our meeting web page and follow the directions. At this time, while the online voting is underway, we will take questions from meeting participants through our meeting web page. If you have a question regarding proposal number one, please click on the question button on the meeting web page and send in your question electronically. The last item of business on the agenda is the ratification of the appointment of S.R. Snodgrass, P.C. as the company's independent auditor for fiscal year ending December 31, 2025. The vote will now be taken on this proposal. If you have already voted by proxy, you do not need to vote today unless you want to change your vote. In order to vote today, please press the vote now button on our meeting web page and follow the directions. At this time, while the online voting is underway, we will take questions from meeting participants regarding Proposal 2 through our meeting web page. If you have a question, please click on the question button on the meeting web page and send in your question electronically. We will now give everyone an opportunity to vote and submit any questions. Seeing no questions about either of the proposals, I now declare the polls closed. While the inspector of election is counting the votes, our President and Chief Executive Officer; Mr. Vito Pantilione, will report on the affairs of the company for the fiscal year ending December 31, 2024. Vito?

Thank you, Mr. Chairman, and good morning, and welcome to our Annual Shareholder Meeting. This morning, I'm going to talk a little bit about 2024, and that does include our financial performance. And I'm also going to touch base on our first quarter 2025 financial results and what the upcoming year could look like. But first, I want to introduce our senior management team, and we've had some changes this year. I'm going to start off with our Executive Vice President and Chief Operating Officer, Ralph and we call him Guy Gallo. Guy's responsible for IT, human resources, our retail branches, internal audit and asset quality. All of these responsibilities are very important. But possibly Guy's toughest job right now in the current environment is being our liaison with the banking regulators and that seems to get tougher every year. Next is Dolores, and we call her D Calvello. And as I reported last year, D has been with us for more than 25 years. She was here when we put the bank information and she was here on opening day. She's a Senior Vice President and Chief Administrative Officer. The responsible for our loan administration department, our construction lending and as our CAO, she coordinates the responsibilities of each Senior Vice President to ensure that we are operating effectively and efficiently. So that means he also has to jump in wherever she's needed. Nick Pantilione is next. Nick is a Senior Vice President and our Chief Lending Officer. Nick is responsible for hiring and managing our loan officers and for their loan production. Nick also continues to have the biggest book of loan business in the bank. I think many of you are probably familiar with the increase of the regulatory focus and residential lending requirements and low to moderate income census tracks. Last year, I mentioned we addressed this, and Nick is responsible for our residential mortgage expansion plan, and that was developed in response to the emphasis of residential lending in those neighborhoods to low and moderate income black and Hispanic census tracks in Philadelphia. And Nick is also responsible for our marketing department and that is critical in supporting our deposit growth and our deposits are very important to support our loan growth. Ralph Bonadies is next. He is a Senior Vice President, and he was hired as our Chief Risk Officer. And in that position, Ralph has the responsibility of identifying and protecting the bank against the many risks facing the banking industry and specifically Parke Bank. Due to the many regulatory changes of our BSA program, and that stands for the Bank Secrecy Act, and you're going to hear more about that this morning. Ralph also took on the responsibility of being our BSA officer, when our then BSA Officer resigned due to family obligations. BSA is a major responsibility in our bank. Next is Linda Kaiser. Linda is a Senior Vice President and our Corporate Secretary. Linda, unfortunately continues to be semiretired, but thankfully continues to be responsible for our Board meetings holding company meetings in our corporate filings. Linda is responsible for taking all of the board minutes of every bank board and holding company meetings in addition to filing the necessary documents from those meetings and she also has to jump in and bail me out when I get in a jam. So it's a tough job. So I guess, even if she is part time, we're glad that she's still here. Next is Jonathan Hill, John is the Senior Vice President and our Chief Financial Officer. John has been with us for a little over a year, and not only has he made the transition to CFO seamless. He's also implemented many improvements to our financial analysis process, reporting and forecasting. And he is also playing an important role as a member of our senior management team. There continues to be many challenges and changes in banking reporting requirements, and that's both by the SEC and banking regulations. John stays on top of these required changes and with his team make sure that our bank addresses them promptly and accurately. Next is a new member of our senior management team, James, and we call him JB, I guess we have a lot of nicknames for our management guys, Meadows. JB moved into the Senior Vice President, Chief Credit Officer position when Paul Palmieri retired. Previously, JB was a loan officer with Parke Bank, and JB is responsible for the bank's credit department, which includes the responsibility for the credit quality analysis of our existing loan portfolio in addition to loans that are generated by our lending team. And JB is also responsible for our credit policies and their periodic updates JB brings a lot of experience and expertise to this position. 2024 was both an interesting and a very challenging year. Obviously, the presidential election dominated the media for most of the year with everyone making their predictions on who would win and the effect that the winner would have on the economy and the world. However, I don't think there was too many that predicted the huge victory by President Trump. The economy remained volatile with many, and that includes the Fed, forecasting several rate cuts in 2024 which didn't materialize due to the stubborn inflation rates staying high and strong employment numbers. There were only 3 rate cuts in 24, not the anticipated 6 rate cuts and that continued to make forecasting very challenging. And unfortunately, future rate cuts remain uncertain with the Fed suggesting there should still be 2 rate cuts in 2025. The interest rate environment caused the continuing battle for deposits and the increased pressure on bank's net interest margin. The fierce competition for deposits causes a higher cost of funding than anticipated. Shrinking banks, and that includes our bank's net interest margin and lower net interest income. The geopolitical landscape also didn't improve in 2024 and in many instances worsened with the wars in Israel and Ukraine continuing and in some respect, expanding. Banking regulatory pressure continued on community banks in 2024. And again, in some areas, increased and that put additional financial burden on community banks, and that includes Parke Bank. BSA, as I mentioned, continued to be a primary focus of the regulators. And we also continued focusing on the fair lending and red lining requirements in urban low to moderate income black and Hispanic neighborhoods. I'm going to touch base on the bank's financial highlights in 2024. Our total assets grew 6% to over $2.1 billion, and this growth was primarily supported by a 5% growth in deposits, and that supported a 5% growth in our loans. The net income of our bank was $27.5 million, and that's $2.30 for common share and $2.27 per diluted common share. Our return on average assets was 1.38% and our return on average common equity was 9.36%. And my favorite ratio is our cost efficiency ratio, and that was 41.24%, and that's close to a 20% reduction from the previous year. And I like this ratio because it measures the controls of expenses that a bank has on its operation and the lower the ratio, the better. Shareholder equity increased to $300 million and that's a 6% increase from 2023. Capital remains king in banking, and we are at a Tier 1 capital ratio of 16.38% as of December 31, 2024, and that's more than double the regulatory definition of a well-capitalized bank, which is 8%. And we continue to focus on asset quality and maintain an allowance for credit losses of 1.74% and that's slightly less than 1.8% in 2023. Let's take a quick look at our first quarter results for 2025. I'm going to compare these numbers to the first quarter of 2024. Our total assets increased 6.6% to $2.14 billion. Our gross loans increased 5.5% to close to $1.9 billion, and our deposits supported that loan growth growing 6.6% from the first quarter of 2024 to $1.67 billion in the first quarter of '25. And I'm happy to report that our net income grew 26.5% from the first quarter of 2024 and for the first quarter of 2025 to $7.8 million. The growth in our net income was partially supported by the increased yield on our growing long portfolio and that was combined with our tight control of our expenses. Our efficiency ratio was 37.1% in the first quarter of 2025 and that compared to 43.23% in the first quarter of 2024. 2025 started off with President Trump being sworn in as the 47th President and he quickly brought in sweeping changes as promised in this campaign and DOGE, the Department of Government Efficiency was created and is headed by Elon Musk, who in a short period of time has cut billions of dollars from the government budget and has exposed billions of dollars of waste and fraud, although not without a lot of controversy. President Trump has also committed to reducing regulations in many, many industries, including banking, in order to bring back strong growth in the country. He wants banking regulators to focus on core issues of banks, and that's the safety and soundness of a bank and not government political issues, and boy, that can happen soon enough. So once again, it's going to be difficult to forecast our financial performance for the upcoming year, and there are several factors that will affect that. We have continued economic volatility. There's no clear message for interest rates. And as I mentioned, the Feds indicate there will be two more rate cuts in 2025. As I also stated, they anticipated 6 rate cuts in 2024, and that didn't happen. Inflation appears to be coming down, although slowly. However, there are concerns about what direction inflation will take once all of the President Trump tariffs kick in. And that's already caused a lot of turmoil in the stock market, plunging the market close to a bear market, if it's not in one already. And then skyrocketing 1 day when the pause was announced only to go back down again the following day. But some other people believe that the DOGE drastic cuts and government spending will help reduce inflation by reducing the government spending. And I feel like a politician. Are you in both sides of the discussion? And to complicate things even further, now there's a battle growing between President Trump and the Fed Chairman Powell. Trump points them out, Powell is not leaving. Fed wants the rate -- I mean, Trump wants the rate is reduced, and we're going to see if, in fact, that's going to happen. The good news as Parke Bank is structured with a high level of liquidity that is tiered to respond to fluctuating interest rates, and the majority of our loan portfolio are adjustable rate mortgages, and that also adjusts to market rates. One of the major challenges in 2025 is the continuing war for deposits. We are located in one of the most competitive markets in the country for deposits and that raises our cost of funding, and that reduces our net interest margin, and that affects our net income. We continue to invest in upgrading our data processing system and that includes utilizing AI tools, which seems to be taken over every industry. And that's in an effort to obtain more of the market's digital wallet. It's important to grow our deposits in order to support our loan growth. And our loan growth will be another challenge that we'll face in 2025. Loan demand appears to be increasing, and that includes residential construction loan projects, and we supported the growth of our loan portfolio by expanding our lending team and we opened a loan production office in South Carolina. South Carolina continues to be one of the top states in the country where more people are moving into the state than moving out of the state, unlike New Jersey. Fortunately, we already have existing customers of Parke Bank that have established offices and are currently developing projects in South Carolina, and that somewhat reduces the risk of expanding into a new market. The growth of our loan portfolio includes continued focus on asset quality, recognizing and addressing any loans that may move sideways. People pay a bank interest and fees because there is a risk, and that risk is mitigated with careful loan underwriting, loan portfolio monitoring and a strong allowance for credit losses. And although we continue to have one of the best cost efficiency ratios in the banking industry, it's very important that we maintain our focus on the tight controls of our expenses, including analyzing any new opportunities to reduce our expenses. One of the biggest factors in our expenses for the last few years is the cost of regulatory compliance. And yet that's BSA again. BSA costs for compliance alone are substantial and at times exceeded 10% of our operating expenses. BSA continues to be a major focus of our bank, and we have invested a substantial amount of money to improve our BSA platform with upgraded technology increased staff to help reduce the pressure that's imposed by the regulators, and hopefully, that's going to reduce some costs. And as already mentioned, there's a lot of discussion that the President Trump administration is working hard to bring back banking regulations to focus on the safety and soundness of a bank and not the outside programs that banks are required to perform. And I'm repeating that because I want to repeat that, that can't happen soon enough. So Parke Bank is well structured to face the challenges of 2025 and beyond. With strong capital, earnings, liquidity, cost controls and the focus of our Board and management team working hard to ensure that our loyal shareholders have made a great decision when they invested in our bank. So once again, I want to thank everyone for participating in today's meeting and for your loyalty to Parke Bank.

And I think we had one question, and I think the Main point of the question is if we've taken any steps, any additional steps in the event that these tariffs caused greater turmoil in the economy. And I did touch base on that, that we are prepared for another roller coaster ride. We have very, very strong capital, and we have tiered liquidity so that we could react quickly if the rates are lowered much faster than anticipated if a recession shall hit. And they were also structured that in the event that interest rates go up because they're tiered. So I think the strong capital and our liquidity helps us be prepared for anything that could -- not anything, but for any negative impact of the economy. So I thank you for that question. And I think that was it. So once again, thank you very much, and back to you, Mr. Chairman.

Thank you, Vito. The Inspector of Election has completed the count and I will now read the report. The report of the Inspector of Election confirms that a quorum is, and has been in attendance at this meeting for all purposes. The report shows that Fred G. Choate, Jeffrey H. Kripitz, Jack C. Sheppard Jr. have each been elected to serve for a 3-year term expiring in 2028 and until their successors are qualified and elected. The report also shows that more than a majority of shares present have been voted in favor of Proposal 2, ratification of the appointment of S.R. Snodgrass P.C. as the company's independent auditor for the fiscal year ending December 31, 2025. The report of the inspector of election has been accepted and approved and will be attached to the minutes of the meeting. There being no further business to come before the meeting, a motion to adjourn is in order. Mr. Sheppard has moved that the meeting be adjourned. Ms. Milavsky has seconded the motion. Those in favor, signify by saying aye. Those opposed, say no. The motion is carried and the meeting is adjourned. Thank you for attending online. We look forward to seeing you next year.

This concludes today's meeting. You may now disconnect.