PARKE BANCORP, INC. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[☒] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2022 or

[☐] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File No. 000-51338


PARKE BANCORP, INC.
(Exact name of Registrant as specified in its Charter)


New Jersey						65-1241959
(State or other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)


601 Delsea Drive, Washington Township, New Jersey						08080
(Address of Principal Executive Offices)						(Zip Code)

Registrant’s telephone number, including area code: 856-256-2500

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.10 par value	PKBK	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for compliance with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant’s common stock as quoted on the Nasdaq Capital Market on June 30, 2022 was approximately $209.4 million.

As of March 14, 2023 there were 11,946,671 outstanding shares of the Registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE

1.Portions of the Proxy Statement for the 2023 Annual Meeting of Shareholders. (Part III)

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022

INDEX


PART 1		Page
Item 1.	Business	1
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	16
Item 4.	Mine Safety Disclosures	16

PART II
Item 5.	Market for Common Equity, Related stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	[Reserved]	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 8.	Financial Statements and Supplementary Data	28
Item 9.	Changes and Disagreements with Accountants on Accounting and Financial Disclosure	72
Item 9A.	Controls and Procedures	72
Item 9B.	Other Information	73
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	73

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	73
Item 11.	Executive Compensation	73
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	73
Item 13.	Certain Relationships and Related Transactions, and Director Independence	74
Item 14.	Principal Accountant Fees and Services	74

PART IV
Item 15.	Exhibits and Financial Statement Schedules	74
Item 16.	Form 10-K Summary	76
	Signatures	76

Forward-Looking Statements

Parke Bancorp, Inc. (the “Company”) may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the Securities and Exchange Commission (including this Annual Report on Form 10-K and the exhibits hereto), in its reports to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

As used in this Annual Report on Form 10-K, the terms "Parke Bancorp", "the Company", "registrant", "we", "us", and "our" mean Parke Bancorp, Inc. and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.

This Annual Report on Form 10-K contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

•statements of our goals, intentions and expectations;

•statements regarding our business plans, prospects, growth and operating strategies;

•statements regarding the quality of our loan and investment portfolios; and

•estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of the Annual Report on Form 10-K.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•the continued adverse impact of the COVID-19 pandemic on the local and national economy and our business and results of operations;

•general economic conditions, either nationally or in our market areas, that are worse than expected;

•changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

•our ability to access cost-effective funding;

•fluctuations in real estate values and both residential and commercial real estate market conditions;

•demand for loans and deposits in our market area;

•economic factors in the U.S. and globally due to COVID-19 or otherwise, including business disruptions, reductions in employment, supply chain interruptions, inflation, Federal Reserve actions impacting the level of market interest rates and an increase in business failures;

•the continued impact of COVID-19 on our employees and our ability to provide services to our customers and respond to their needs as more cases and new variants of COVID-19 may arise in our primary markets;

•our ability to implement changes in our business strategies;

•competition among depository and other financial institutions;

•inflation and changes in the interest rate environment that reduce our margins and yields, or reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets

•adverse changes in the securities markets;

•changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

•changes in laws or government regulations or policies affecting financial institutions engaged in the cannabis related business;

•our ability to manage market risk, credit risk and operational risk in the current economic conditions;

•our ability to enter new markets successfully and capitalize on growth opportunities;

•our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

•changes in consumer demand, borrowing and savings habits;

•changes in accounting policies and practices, as may be adopted by bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

•our ability to retain key employees;

•technological changes;

•significant increases in our loan losses;

•cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information and destroy data or disable our systems;

•technological changes that may be more difficult or expensive than expected;

•the ability of third-party providers to perform their obligations to us;

•the ability of the U.S. Government to manage federal debt limits;

•changes in the financial condition, results of operations or future prospects of issuers of securities that we own; and

•other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing products and services described elsewhere in this Annual Report on Form 10-K.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. The Company cautions that the listed factors are not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

Part I

Item 1. Business.

General

We are a bank holding company incorporated under the laws of the State of New Jersey in January 2005. Our business and operations primarily consist of our ownership of Parke Bank (the "Bank"). The Bank is a full service commercial bank and is chartered by the New Jersey Department of Banking and insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank conducts its business through offices in Gloucester, Atlantic and Camden Counties in New Jersey and the Philadelphia area in Pennsylvania.

We, through our wholly owned subsidiary Parke Bank, provide personal and business financial services to individuals and small to mid-sized businesses. We offer a range of loan products, deposits services, and other financial products through our retail branches and other channels to our customers. Our core lending businesses are commercial real estate lending, residential real estate lending, and construction lending. We also offer a variety of commercial and industry loan and consumer loan products to our customers. We fund our lending business primarily with deposits generated through retail deposits and commercial relationships. Our deposit products include checking, savings, money market deposit, time deposits, and other traditional deposit services. In addition to traditional products and services, we offer contemporary products and services, such as debit cards, internet banking and online bill payment.

We commenced operations on June 1, 2005, upon completion of the reorganization of the Bank into the holding company form of ownership following approval of the reorganization by shareholders of the Bank at its 2005 Annual Meeting of Shareholders. Our headquarters is located at 601 Delsea Drive, Washington Township, New Jersey. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available for free of charge at www.parkebank.com as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). Investors are encouraged to access these reports and other information about our business on our website.

At December 31, 2022, we had total assets of $1.98 billion, including loans of $1.75 billion, total deposits of $1.58 billion and total equity of $266.0 million.

Market Area

Substantially all of the Bank’s business is with customers in its market areas of Southern New Jersey, the Philadelphia area of Pennsylvania, and New York, New York. We have carefully expanded our lending footprint in other areas also. Most of the Bank’s customers are individuals and small to medium-sized businesses which are dependent upon the regional economy. Adverse changes in economic and business conditions in the Bank’s markets could adversely affect the Bank’s borrowers, their ability to repay their loans and to borrow additional funds, and consequently the Bank’s financial condition and performance.

Additionally, most of the Bank’s loans are secured by real estate located in Southern New Jersey and the Philadelphia area. A decline in local economic conditions could adversely affect the values of such real estate. Consequently, a decline in local economic conditions may have a greater effect on the Bank’s earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse.

Competition

The Bank faces significant competition, both in making loans and attracting deposits. The Bank’s competition in both areas comes principally from other commercial banks, thrift and savings institutions, including savings and loan associations and credit unions, and other types of financial institutions, including brokerage firms and credit card companies. The Bank faces additional competition for deposits from short-term money market mutual funds and other corporate and government securities funds.

Most of the Bank’s competitors, whether traditional or nontraditional financial institutions, have a longer history and significantly greater financial and marketing resources than does the Bank. Among the advantages these institutions have over the Bank are their ability to finance wide-ranging and effective advertising campaigns, to access international money markets and to allocate their investment resources to regions of highest yield and demand. Major banks operating in the primary market area offer certain services, such as international banking and trust services, which are not offered directly by the Bank.

In commercial transactions, the Bank’s legal lending limit to a single borrower enables the Bank to compete effectively for the business of individuals and smaller enterprises. However, the Bank’s legal lending limit is considerably lower than that of various competing institutions, which have substantially greater capitalization. The Bank has a relatively smaller capital base than most other competing institutions which, although above regulatory minimums, may constrain the Bank’s effectiveness in competing for loans.

Cannabis Related Business

In 2021, cannabis in the State of New Jersey became legal for recreational use. An amendment legalizing cannabis became part of the New Jersey State Constitution, and enabling legislation and related bills were signed into law in 2021. The new law legalized and regulated cannabis use and possession for adults 21 years and older. The new law also clarifies marijuana and cannabis use and possession penalties for individuals younger than 21 years old. Retail sales of cannabis began in New Jersey in April 2022. We provide banking services to customers that are licensed by various States to do business in the cannabis industry as growers, processors and dispensaries and who participate in retail sales of cannabis in New Jersey. Cannabis businesses are legal under the laws of these States and now in New Jersey, although it is not legal under federal law. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state legal cannabis businesses. A financial institution that provides services to cannabis-related businesses can comply with Bank Secrecy Act (“BSA”) disclosure standards by following the FinCEN guidelines. We maintain stringent written policies and procedures related to the acceptance of such businesses and to the monitoring and maintenance of such business accounts. We conduct a significant due diligence review of the cannabis business before the business is accepted, including confirmation that the business is properly licensed by the applicable state. Throughout the relationship, we continue monitoring the business, including site visits, to ensure that the business continues to meet our stringent requirements, including maintenance of required licenses and periodic financial reviews of the business.

While we believe we are operating in compliance with the FinCEN guidelines, there can be no assurance that federal enforcement guidelines will not change. Federal prosecutors have significant discretion and there can be no assurance that the federal prosecutors will not choose to strictly enforce the federal laws governing cannabis. Any change in the Federal government’s enforcement position, could cause us to immediately cease providing banking services to the cannabis industry.

total at December 31, 2022 and 2021. At December 31, 2022 and 2021, there were cannabis-related loans in the amounts of $3.8 million and $5.4 million, respectively.

Lending Activities

Our lending relationships are primarily with small to mid-sized businesses and individual consumers residing primarily in and around southern New Jersey, southeastern Pennsylvania, and the Brooklyn and Bronx sections of New York, New York. We focus our lending efforts primarily in four lending areas: residential mortgage loans, commercial mortgage loans, commercial and industrial loans, and construction loans.

Loan Maturity. The following table sets forth the contractual maturity of certain loan categories and the dollar amount of loans in certain loan categories due after December 31, 2022, which have predetermined interest rates and which have floating or adjustable interest rates at December 31, 2022.


	Due within one year or less		Due after one through five years		Due after five through fifteen years		Due after fifteen years		Total
	(Dollars in thousands)
Commercial and Industrial	$	19,222	$	3,468	$	9,693	$	—	$	32,383
Construction	139,856		52,501		—		—		192,357
Commercial Real Estate Mortgage:
Commercial - Owner Occupied	13,583		24,164		86,413		1,790		125,950
Commercial - Non-Owner Occupied	33,838		96,063		247,551		—		377,452
Residential - 1 to 4 family	4,531		29,107		126,625		760,767		921,030
Residential - multifamily	5,230		12,131		78,195		—		95,556
Consumer	5		242		2,616		3,868		6,731
Total	$	216,265	$	217,676	$	551,093	$	766,425	$	1,751,459

Loans at fixed interest rates	$	27,530	$	35,404	$	241,701	$	32,319	$	336,954
Loans at floating/variable interest rates	188,735		182,272		309,392		734,106		1,414,505
Total	$	216,265	$	217,676	$	551,093	$	766,425	$	1,751,459

Commercial and Industrial Loans. The Bank originates secured loans for business purposes. Loans are made to provide working capital to businesses in the form of lines of credit, which may be secured by accounts receivable, inventory, equipment or other assets. The financial condition and cash flow of commercial borrowers are closely monitored by means of corporate financial statements, personal financial statements and income tax returns. The frequency of submissions of required financial information depends on the size and complexity of the credit and the collateral that secures the loan. The Bank’s general policy is to obtain personal guarantees from the principals of the commercial loan borrowers. Such loans are made to businesses located in the Bank’s market area.

Commercial business loans generally involve a greater degree of risk than residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the mobility of collateral, the effects of general economic conditions and the increased difficulty of evaluating and monitoring these types of loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income and which are secured by real property the value of which tends to be more easily ascertainable, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the general economic environment. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired.

Construction Loans. The Bank originates construction loans to individuals and real estate developers in its market area. The advantages of construction lending are that the market is typically less competitive than more standard mortgage products, the interest rate typically charged is a variable rate, which permits the Bank to protect against sudden changes in its costs of funds, and the fees or “points” charged by the Bank to its customers can be amortized over the shorter term of a construction loan, typically, one to two years, which permits the Bank to recognize income received over a shorter period of time.

The Bank provides interim real estate acquisition development and construction loans to builders and developers. Construction loans to provide interim financing on the property are based on acceptable percentages of the appraised value of the property securing the loan in each case. Construction loan funds are disbursed periodically at pre-specified stages of completion. Interest rates on these loans are generally adjustable. The Bank carefully monitors these loans with on-site inspections and control of disbursements. These loans are generally made on properties located in the Bank’s market area.

Construction loans are secured by the properties under development and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Bank considers the financial condition and reputation of the borrower and any guarantors, the amount of the borrower’s equity in the project, independent appraisals, costs estimates and pre-construction sale information.

Loans to residential builders are for the construction of residential homes for which a binding sales contract exists and the prospective buyers have been pre-qualified for permanent mortgage financing. Loans to residential developers are made only to developers with a proven sales record. Generally, these loans are extended only when the borrower provides evidence that the lots under development will be sold to potential buyers satisfactory to the Bank.

The Bank also originates loans to individuals for construction of single family dwellings. These loans are for the construction of the individual’s primary residence. They are typically secured by the property under construction, occasionally include additional collateral (such as a second mortgage on the borrower’s present home), and commonly have maturities of six to twelve months.

Construction financing is labor intensive for the Bank, requiring employees of the Bank to expend substantial time and resources in monitoring and servicing each construction loan to completion. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction and development, the accuracy of projections, such as the sales of homes or the future leasing of commercial space, and the accuracy of the estimated cost (including interest) of construction. Substantial deviations can occur in such projections. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. Also, a construction loan that is in default can cause problems for the Bank such as selecting replacement builders for a project, considering alternate uses for the project and site and handling any structural and environmental issues that might arise.

Commercial Real Estate Mortgage Loans. The Bank originates mortgage loans secured by commercial real estate. Such loans are primarily secured by office buildings, retail buildings, warehouses and general purpose business space. Although terms may vary, the Bank’s commercial mortgages generally have maturities of twenty years, but re-price within five years.

Loans secured by commercial real estate are generally larger and involve a greater degree of risk than one-to four-family residential mortgage loans. Of primary concern in commercial and multi-family real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties are often dependent on the successful operation or management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy.

The Bank seeks to reduce the risks associated with commercial mortgage lending by generally lending in its primary market area and obtaining periodic financial statements and tax returns from borrowers. It is also the Bank’s general policy to obtain personal guarantees from the principals of the borrowers and assignments of all leases related to the collateral.

Residential Real Estate Mortgage Loans. The Bank originates adjustable and fixed-rate residential mortgage loans. Such mortgage loans are generally originated under terms, conditions and documentation acceptable to the secondary mortgage market. Although the Bank has placed all of these loans into its portfolio, a substantial majority of such loans can be sold in the secondary market or pledged for potential borrowings.

Consumer Loans. The Bank offers a variety of consumer loans. These loans are typically secured by residential real estate or personal property, including automobiles. Home equity loans (closed-end and lines of credit) are typically made up to 80% of the appraised or assessed value of the property securing the loan in each case, less the amount of any existing prior liens on the property, and generally have maximum terms of ten years. The interest rates on second mortgages are generally fixed, while interest rates on home equity lines of credit are variable.

Loans to One Borrower and Concentration of Loans. Federal regulations limit loans to one borrower in an amount equal to 15% of unimpaired capital and unimpaired surplus. At December 31, 2022, the Bank’s loan to one borrower limit was approximately $51.0 million and the Bank had no borrowers with loan balances in excess of this amount. At December 31, 2022, the Bank’s largest loan to one borrower was a commercial owner occupied real estate loan with a balance of $22.1 million that was secured by the property. At December 31, 2022, this loan was current and performing in accordance with the terms of the loan agreement.

The size of loans which the Bank can offer to potential borrowers is less than the size of loans which many of the Bank’s competitors with larger capitalization are able to offer. The Bank may engage in loan participations with other banks for loans in excess of the Bank’s legal lending limits. However, no assurance can be given that such participations will be available at all or on terms which are favorable to the Bank and its customers.

The Bank establishes policies and methods to determine concentrations of credit risk and to maintain discipline in lending practices with a focus on portfolio diversification. The Bank limits on loans to one borrower, one industry as well as product concentrations. At December 31, 2022, the Bank's loan portfolio consists of residential, commercial real estate loans, construction loans, commercial and industry loans as well as consumer loans.

Non-Performing and Problem Assets

Non-Performing Assets. Non-accrual loans are loans on which the accrual of interest has ceased. Loans are generally placed on non-accrual status if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more unless the collateral is considered sufficient to cover principal and interest and the loan is in the process of collection. Interest accrued, but not collected at the date a loan is placed on non-accrual status, is reversed and charged against interest income. Subsequent cash receipts are applied either to the outstanding principal or recorded as interest income, depending on management’s assessment of ultimate collectability of principal and interest. Loans are returned to an accrual status when the borrower’s ability to make periodic principal and interest payments has returned to normal (i.e., brought current with respect to principal or interest or restructured) and the paying capacity of the borrower and/or the underlying collateral is deemed sufficient to cover principal and interest.

A loan is considered impaired when it has been modified in a troubled debt restructuring or when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future discounted cash flows, the market price of the loan or the fair value of the underlying collateral if the loan is collateral dependent. The recognition of interest income on impaired loans is the same as for non-accrual loans discussed above. Total impaired loans, which include non-accrual loans and performing troubled debt restructurings (“TDRs”), were $21.7 million and $10.3 million at December 31, 2022 and 2021, respectively. Included in impaired loans at December 31, 2022 and 2021 were $5.5 million and $6.0 million, respectively, of loans classified as TDRs as defined within accounting guidance and regulatory literature.

As of December 31, 2022, there was $3.0 million in loans which were not then on non-accrual status or a TDR but where there is a potential weakness or pose unwarranted financial risk to the Bank, even though the asset value is not currently impaired. These loans require an increased degree of monitoring and servicing by Management as a result of internal or external conditions.

When a loan is more than 30 days delinquent, the borrower is contacted by mail or phone and payment is requested. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower. In certain instances, the Bank may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize their financial affairs. If the loan continues in a delinquent status for 90 days or more, the Bank generally will initiate foreclosure proceedings.

Loans are generally placed on non-accrual status when either principal or interest is 90 days or more past due. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Such interest, when ultimately collected, is applied either to the outstanding principal or recorded as interest income, depending on management’s assessment of ultimate collectability of principal and interest.

Foreclosed Real Estate. Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time as it is sold. When real estate owned is acquired, it is recorded at its fair value less disposal costs. Management also periodically performs valuations of real estate owned and establishes allowances to reduce book values of the properties to their net realizable values when necessary. Any write-down of real estate owned is charged to

operations. Real estate owned at December 31, 2022 was $1.6 million. Real estate owned consisted of two commercial owner occupied properties as of December 31, 2022.

Allowance for Losses on Loans. It is the policy of management to estimate for possible losses on all loans in its portfolio, whether classified or not. A provision for loan losses is charged to operations based on management’s evaluation of the inherent losses estimated to have occurred in the Bank’s loan portfolio.

Management’s judgment as to the level of probable losses on existing loans is based on its internal review of the loan portfolio, including an analysis of the borrower's current financial position; the level and trends in delinquencies, non-accruals and impaired loans; the consideration of national and local economic conditions and trends; concentrations of credit; the impact of any changes in credit policy; the experience and depth of management and the lending staff; and any trends in loan volume and terms. In determining the collectability of certain loans, management also considers the fair value of any underlying collateral. However, management’s determination of the appropriate allowance level, which is based upon the factors outlined above, which are believed to be reasonable, may or may not prove to be valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required.

Allocation of Allowance for Loan Losses. The following table sets forth the allocation of the Bank’s allowance for loan losses by loan category at the dates indicated and the related percentage of the loans in the portfolio. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses that may occur within the loan category as the total loan loss allowance is a valuation reserve applicable to the entire loan portfolio.


	December 31, 2022									December 31, 2021
	Amount			% of Loans to total Loans		Net charge off/(recovery)		Net charge off to average loans outstanding		Amount			% of Loans to total Loans		Net charge off/(recovery)		Net charge off to average loans outstanding
	(Dollars in thousands)
Commercial and Industrial	$	390		1.8	%	$	(14)	—	%	$	417		3.8	%	$	(18)	—	%
Construction	2,581			11.0		(100)		(0.01)	%	2,662			10.4		226		0.01	%
Real Estate Mortgage:
Commercial – Owner Occupied	2,298			7.2		(18)		—	%	2,997			8.3		100		0.01	%
Commercial – Non-owner Occupied	9,709			21.6		—		—	%	7,476			20.6		(4)		—	%
Residential – 1 to 4 Family	15,457			52.6		(68)		—	%	14,970			50.7		49		—	%
Residential – Multifamily	1,347			5.5		—		—	%	1,215			5.7		—		—	%
Consumer	63			0.4		—		—	%	108			0.5		—		—	%
Total allowance for loan losses	$	31,845		100.0	%	$	(200)	(0.01)	%	$	29,845		100.0	%	$	353	0.02	%
Period-end loans outstanding (net of deferred costs/fees)	$	1,751,459								$	1,484,847
Average loans outstanding	$	1,580,318								$	1,513,959
Total non-accrual loans	$16,276									$4,308
Allowance as a percentage of period end loans	1.82		%							2.01		%
Non-accrual loans as a percentage of period end loans	0.93		%							0.29		%
Allowance as a percentage of non-performing loans	195.66		%							692.78		%

Investment Activities

General. The investment policy of the Company is established by senior management and approved by the Board of Directors. It is based on asset and liability management goals and is designed to provide a portfolio of high quality investments that foster interest income within acceptable interest rate risk and liquidity guidelines. In accordance with accounting guidance, the Company classifies the majority of its portfolio of investment securities as “available for sale” with the remainder, which are a mix of municipal bonds and mortgage-backed-securities held for Community Reinvestment Act purposes, as “held to maturity.” At December 31, 2022, the Bank’s investment policy allowed investments in instruments such as: (i) U.S. Treasury obligations, (ii) U.S. government agency or government-sponsored agency obligations, (iii) local municipal obligations, (iv) mortgage-backed securities, (v) certificates of deposit, and (vi) investment grade corporate bonds, trust preferred securities and mutual funds. The Board of Directors may authorize additional investments. At December 31, 2022, no one issuer of investment securities represented 10% or more of the Company’s stockholders’ equity.

Investment Portfolio Maturities. The following table sets forth information regarding the scheduled maturities, amortized costs, estimated fair values, and weighted average yields for the Bank’s investment securities portfolio at December 31, 2022, by contractual maturity.


	At December 31, 2022
	One Year or Less			After One Through Five Years			After Five Years Through Ten Years			After Ten Years			Total Investment Securities
	Amortized Cost			Amortized Cost			Amortized Cost			Amortized Cost			Amortized Cost			Fair Value
	(Dollars in thousands)
Securities Held to Maturity:
State and political subdivisions	$	—		$	1,346		$	—		$	2,476		$	3,822		$	3,345
Yield	—		%	4.76		%	—		%	1.91		%	2.90		%
Residential mortgage-backed securities	—			—			—			5,556			5,556			4,460
Yield	—		%	—		%	—		%	1.79		%	1.79		%
Total securities held to maturity	—			1,346			—			8,032			9,378			7,805
Weighted Average Yield	—		%	4.76		%	—		%	1.83		%	2.23		%

Securities Available for Sale:
Corporate debt obligations	$	—		$	500		$	—		$	—		$	500		$	500
Yield	—		%	4.38		%	—		%	—		%	4.38		%
Residential mortgage-backed securities	—			1,756			3,641			4,178			9,575			8,866
Yield	—		%	1.83		%	2.33		%	2.47		%	2.29		%


Total securities available for sale	—			2,256			3,641			4,178			10,075			9,366
Weighted Average Yield	—		%	2.32		%	2.33		%	2.47		%	2.38		%
Total Investment Securities	$	—		$	3,602		$	3,641		$	12,210		$	19,453		$	17,171
Total Weighted Average Yield	—		%	3.14		%	2.33		%	2.06		%	2.31		%

As of December 31, 2022, Parke does not have any tax-exempt securities within the investment portfolio. Yields are calculated on a weighted average basis using the investments amortized cost and respective average yields for each investment category. Expected maturities of mortgage-backed securities may differ from contractual maturities due to calls or prepay obligations.

Sources of Funds

General. Deposits are the major external source of the Bank’s funds for lending and other investment purposes. In addition to deposits, the Bank derives funds from the amortization, prepayment or sale of loans, maturities of investment securities and operations. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.

Deposits. The Bank offers individuals and businesses a wide variety of accounts, including checking, savings, money market accounts, individual retirement accounts and certificates of deposit. Total deposits were $1.58 billion at December 31, 2022. Deposits are obtained primarily from communities that the Bank serves, however, the Bank held brokered deposits of $140.8 million and $9.1 million at December 31, 2022, and 2021, respectively. Brokered deposits are a more volatile source of funding than core deposits and do not increase the deposit franchise of the Bank. In a rising rate environment, the Bank may be unwilling or unable to pay a competitive rate. To the extent that such deposits do not remain with the Bank, they may need to be replaced with borrowings which could increase the Bank’s cost of funds and negatively impact its interest rate spread, financial condition and results of operation. To mitigate the potential negative impact associated with brokered deposits, the Bank joined the IntraFi network ("IntraFi") to secure an additional alternative funding source. IntraFi provides the Bank an additional source of external funds through their weekly CDARS™ settlement process. The rates are comparable to brokered deposits and can be obtained within a shorter period of time than brokered deposits. The Bank’s CDARS™ deposits included within the brokered deposit total amounted to $106.6 million and $4.5 million at December 31, 2022 and 2021, respectively.


	2022
	Average Balance		Yield/Rate	Percent of Total
	(Dollars in thousands)
NOWs	$	92,535	0.44%	5.75	%
Money markets	352,339		1.01%	21.89	%
Savings	195,029		0.44%	12.12	%
Time deposits	514,421		0.96%	31.96	%
Brokered CDs	26,785		1.88%	1.66	%
Total interest-bearing deposits	1,181,109		0.89%
Non-interest bearing demand deposits	428,549			26.62	%
Total deposits	$	1,609,658		100.00	%
Uninsured deposits at the end of the period	$	622,966


	2021
	Average Balance		Yield/Rate	Percent of Total
	(Dollars in thousands)
NOWs	$	75,502	0.43%	4.39	%
Money markets	322,201		0.66%	18.75	%
Savings	146,584		0.45%	8.53	%
Time deposits	632,874		1.01%	36.84	%
Brokered CDs	34,292		0.67%	2.00	%
Total interest-bearing deposits	1,211,453		0.81%
Non-interest bearing demand deposits	506,644			29.49	%
Total deposits	$	1,718,097		100.00	%
Uninsured deposits at the end of the period	$	802,665

The following table indicates the amount of the Company’s certificates of deposit of $250,000 or more, and the portion that are in excess of the Federal Deposit Insurance ("FDIC") limit, by time remaining until maturity as of December 31, 2022.


Maturity Period	Certificates of Deposit		Portion in Excess of FDIC Insurance Limit
	(Dollars in thousands)
Within three months	$	15,118	$	4,118
Over three through six months	6,279		3,029
Over six through twelve months	41,243		26,493
Over twelve months	56,369		26,119
Total	$	119,009	$	59,759

Under FDIC regulations, insured banks that are well capitalized with examination ratings in one of the two highest categories are permitted to accept brokered deposits and are not restricted as to the rates that can be paid on such deposits. Banks that are less than well capitalized or are not in one of the two highest examination rating categories may not accept brokered deposits absent a waiver from the FDIC and may not pay interest on brokered deposits that they are permitted to accept at a rate that is more than 75 basis points greater than the average national rate paid on deposits of similar size and maturity. Pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”) enacted in May 2018, the FDIC has amended its brokered deposit rule to exempt reciprocal deposits such as CDARs in an amount not exceeding the lesser of $5 billion or 20% of a bank’s total liabilities from the definition of brokered deposits. A bank that was well-capitalized and highly rated may continue to accept reciprocal deposits after it becomes less than well-capitalized or is no longer highly rated provided that reciprocal deposits do not exceed the average amount of reciprocal deposits as the preceding four quarter ends.

Subsidiary Activities

The largest subsidiary of the Company is the Bank. In 2018, the Company formed a joint venture with Bridgestone Capital LLC in PDL LLC, to originate short-term alternative real estate loan products. The Company had a 51% ownership interest in the joint venture, and Bridgestone Capital LLC made a $1.2 million capital contribution to PDL. In 2021, PDL LLC was fully liquidated and all earnings were distributed to the Company and Bridgestone Capital, LLC.

Personnel

At December 31, 2022, the Bank had 104 full-time and 7 part-time employees.

Regulation

Set forth below is a brief description of certain laws that relate to the regulation of the Bank and the Company. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

Consent Orders with Banking Regulators

In the fourth quarter of 2020, the Bank entered into a Stipulation to the Issuance of a Consent Order with each of the Federal Deposit Insurance Corporation (the “FDIC”) and the New Jersey Department of Banking and Insurance (the “NJDOBI”), consenting to the issuance of substantially identical consent orders (the “Consent Orders”) relating to weaknesses in the Bank’s Bank Secrecy Act and Anti-Money Laundering (collectively “BSA”) compliance program. In consenting to the issuance of the Consent Orders, the Bank did not admit or deny any charges of unsafe or unsound banking practices related to the BSA compliance program.

Under the terms of the Consent Orders, the Bank and/or its Board of Directors is required to take certain actions which include, but are not limited to:

•Increase supervision and direction of the Bank’s BSA compliance program and assume full responsibility for the approval and implementation of sound BSA policies and procedures;

•Creation of a compliance committee of the Board of Directors of the Bank with the responsibility of overseeing compliance with the Orders, BSA and the BSA compliance program;

•Designate a qualified individual(s) acceptable to the FDIC and the NJDOBI as a BSA Officer;

•Review and improve the Bank’s BSA compliance program, BSA risk assessment, system of BSA internal controls, and customer due diligence policies;

•Develop, adopt and implement effective training programs for the Board and management on all relevant aspects of laws, regulations and policies relating to BSA and ensure that an adequate number of qualified staff have been retained for the Bank’s BSA Department;

•Ensure the Bank’s adherence to a written program of policies and procedures to provide for BSA compliance and the appropriate identification and monitoring of transactions that pose greater than normal risk for BSA compliance;

•Development and implementation of a customer due diligence program to enhance customer due diligence and risk assessment processes;

•Review and improve policies and procedures for monitoring and reporting suspicious activity;

•Conduct independent testing for compliance with BSA by either a qualified outside party or Bank personnel who are independent of the BSA function and are qualified to perform such testing; and

•Hire a qualified firm acceptable to the FDIC and the NJDOBI to conduct a look back review of accounts and transaction activity for the time period beginning January 1, 2019, through the effective date of the Orders.

Numerous actions have already been taken or commenced by the Bank, which will assist in complying with the Consent Orders and strengthen its BSA compliance practices, policies, procedures and controls.

The Consent Orders have resulted, and are expected to continue to result, in additional BSA compliance expenses for the Bank and the Company. The Consent Orders do not otherwise impact the Bank’s business activities outside of BSA.

The Consent Orders do not require the Bank to pay any civil money penalty or require additional capital.

The foregoing summary description of the Consent Orders is not complete and is qualified by reference to the full text of the Consent Orders, copies of which are filed as Exhibits 99.1 and 99.2 to this Annual Report on Form 10-K.

The Consent Orders will remain in effect and be enforceable until they are modified, terminated, suspended or set aside by the FDIC and the NJDOBI. Management and the Board have expressed their full intention to comply with all parts of the Consent Orders at the earliest possible date. Issuance of the Consent Orders do not preclude further government action with respect to the Bank’s BSA program, including the imposition of fines, sanctions, additional expenses and compliance cost, and/or restrictions on the activities of the Bank.

Holding Company Regulation

General. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHC Act”), and is regulated by the Federal Reserve. The Federal Reserve has enforcement authority over the Company and the Company's non-bank subsidiary which also permits the Federal Reserve to restrict or prohibit activities that are determined to be a serious risk to the subsidiary bank. The Company is required to file periodic reports of its operations with, and is subject to examination by, the Federal Reserve. This regulation and oversight is generally intended to ensure that the Company limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of its subsidiary bank.

Under the BHC Act, the Company must obtain the prior approval of the Federal Reserve before it may acquire control of another bank or bank holding company, merge or consolidate with another bank holding company, acquire all or substantially all of the assets of another bank or bank holding company, or acquire direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the Company would directly or indirectly own or control more than 5% of such shares.

Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the BHC Act on extensions of credit to the bank holding company or any of its subsidiaries, on investments in the stock or other securities of the bank holding company or its subsidiaries, and on the taking of such stock or securities as collateral for loans to any borrower. Furthermore, under amendments to the BHC Act and regulations of the Federal Reserve, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of credit or providing any property or services. Generally, this provision provides that a bank may not extend credit, lease or

sell property, or furnish any service to a customer on the condition that the customer obtain additional credit or service from the bank, the bank holding company, or any other subsidiary of the bank holding company or on the condition that the customer not obtain other credit or service from a competitor of the bank, the bank holding company, or any subsidiary of the bank.

Source of Strength Doctrine. A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the policy of the Federal Reserve that a bank holding company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve regulations, or both.

Non-Banking Activities. The business activities of the Company, as a bank holding company, are restricted by the BHC Act and the Federal Reserve’s bank holding company regulations. Under the BHC Act and Federal Reserve regulation, the Company generally may only engage in, or acquire or control voting securities or assets of a company engaged in, (1) banking or managing or controlling banks and other subsidiaries authorized under the BHC Act and (2) any BHC Act activity the Federal Reserve has determined to be so closely related to banking or managing or controlling banks to be a proper incident thereto. These include any incidental activities necessary to carry on those activities, as well as a lengthy list of activities that the Federal Reserve has determined to be so closely related to the business of banking as to be a proper incident thereto.

In addition, a bank holding company that qualifies to be treated as a “financial holding company” and submits a financial holding company notice to the Federal Reserve may engage in a broad range of additional activities that are (i) financial in nature or incidental to such financial activities or (ii) complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. These activities include securities underwriting and dealing, insurance agency and underwriting, and making merchant banking investments. The Company has not submitted notice to the Federal Reserve of its intent to be deemed a financial holding company.

Regulatory Capital Requirements. The Federal Reserve has adopted regulatory capital requirements pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHC Act. The Federal Reserve’s capital requirements are similar to those imposed on the Bank by the FDIC. See “Regulation of the Bank-Regulatory Capital Requirements.” Under the Federal Reserve’s Small Bank Holding Company Policy Statement, however, such regulatory capital requirements generally do not apply on a consolidated basis to a bank holding company with total assets of less than $3 billion unless the holding company: (1) is engaged in significant nonbanking activities either directly or through a nonbank subsidiary; (2) conducts significant off-balance sheet activities (including securitization and asset management or administration) either directly or through a nonbank subsidiary; or (3) has a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the SEC. The Federal Reserve may apply the regulatory capital standards at its discretion to any bank holding company, regardless of asset size, if such action is warranted for supervisory purposes.

Dividends. The Company is subject to various restrictions relating to the payment of dividends. The Federal Reserve has issued guidance indicating that bank holding companies should generally pay dividends only if the company’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the company’s capital needs, asset quality and overall financial condition. The Federal Reserve’s guidance also states that a bank holding company should inform and consult with its regional Federal Reserve Bank in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure.

As a majority of the Company’s revenues result from dividends paid to the Company by the Bank, the Company’s ability to pay dividends to our shareholders largely depends on the receipt of such dividends from the Bank. The Bank is subject to various laws and regulations limiting the amount of dividends that it can pay. Under New Jersey law, no dividend may be paid if the dividend would impair the capital stock of the Bank. In addition, no dividend may be paid unless the Bank would, after payment of the dividend, have a surplus of at least 50% of its capital stock (or if the payment of dividend would not reduce surplus). Finally, if the Bank does not maintain the capital conservation buffer required by applicable regulatory capital rules, its ability to pay dividends or other capital distributions to the Company will be limited. See “- Regulation of the Bank - Regulatory Capital Requirements.”

Federal Securities Law. The Company’s common stock is registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the Company is subject to the periodic reporting and other requirements of Section 12(b) of the 1934 Act, as amended.

Regulation of the Bank

The Bank operates in a highly regulated industry. This regulation and supervision establishes a comprehensive framework of activities in which a bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors and not shareholders of the Bank.

Any change in applicable statutory and regulatory requirements, whether by the NJDOBI, the FDIC, the United States Congress or state legislatures, could have a material adverse impact on the Bank, and its operations. The adoption of regulations or the enactment of laws that restrict the operations of the Bank or impose burdensome requirements upon it could reduce its profitability and could impair the value of the Bank’s franchise, which developments could hurt the trading price of the Company’s stock.

As a New Jersey-chartered commercial bank, the Bank is subject to the regulation and supervision of the NJDOBI. As an FDIC-insured institution, the Bank is subject to regulation and supervision of the FDIC. The regulations of the FDIC and the NJDOBI affect virtually all activities of the Bank, including the minimum level of capital the Bank must maintain, the ability of the Bank to pay dividends, the ability of the Bank to expand through new branches or acquisitions and various other matters. The NJDOBI and the FDIC regularly examine the Bank and prepare reports to the Bank’s Board of Directors on deficiencies, if any, found in its operations. The regulatory authorities have substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements.

Federal Deposit Insurance. The FDIC insures deposits at federally insured financial institutions such as the Bank. Deposit accounts in the Bank are insured by the FDIC's Deposit Insurance Fund up to a maximum of $250,000 per separately insured depositor.

The Bank is subject to deposit insurance assessments established by the FDIC to maintain the Deposit Insurance Fund (the “DIF”). Under the FDIC’s risk-based assessment system, banks that are deemed to be less risky pay lower assessments. Assessment rates for small institutions (those with less than $10 billion in assets) are based on an institution’s weighted average CAMELS component ratings and certain financial ratios and are applied to the institution’s assessment base, which equals its average total assets minus its average tangible equity.

In October 2022, the FDIC adopted a final rule that increased the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023. The increased assessment is expected to improve the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the statutory deadline of September 30, 2028, consistent with the FDIC’s amended restoration plan. The FDIC assessment rates effective January 1, 2023 (which are subject to certain adjustments) range from 5 to 18 basis points for institutions with CAMELS composite ratings of 1 or 2, 8 to 32 basis points for those with a CAMELS composite score of 3, and 18 to 32 basis points for those with CAMELS composite scores of 4 or 5. Significant increases in assessments may have an adverse effect on the operating expenses and results of operations of the Bank.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.

Regulatory Capital Requirements. The Bank is required to comply with applicable capital adequacy rules adopted by the FDIC and other federal bank regulatory agencies (the “Basel III Capital Rules”). The Basel III Capital Rules apply to all depository institutions as well as to all top-tier bank and savings and loan holding companies that are not subject to the Federal Reserve Small Bank Holding Company Policy Statement.

Under the Basel III Capital Rules, banks are required to meet four minimum capital standards: (1) a “Tier 1” or “core” capital leverage ratio equal to at least 4% of total adjusted assets; (2) a common equity Tier 1 capital ratio equal to 4.5% of risk-weighted assets; (3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets; and (4) a total capital ratio equal to 8% of total risk-weighted assets. Common equity Tier 1 capital is defined as common stock instruments, retained earnings, any common equity Tier 1 minority interest and, unless the bank has made an “opt-out” election, accumulated other comprehensive income, net of goodwill and certain other intangible assets. Tier 1 or core capital is defined as common equity Tier 1 capital plus certain qualifying subordinated interests and grandfathered capital instruments. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, qualifying subordinated instruments and certain grandfathered capital instruments. An institution’s risk-based capital requirements are measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight. Risk weightings range

from 0% for cash to 100% for property acquired through foreclosure, commercial loans, and certain other assets to 150% for exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property.

In addition to the above minimum requirements, the Basel III Capital Rules require banks and covered financial institution holding companies to maintain a capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement effectively raises the minimum required risk-based capital ratios to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital on a fully phased-in basis.

In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.

Prompt Corrective Regulatory Action. Under applicable federal statute, the federal bank regulatory agencies are required to take “prompt corrective action” with respect to institutions that do not meet specified minimum capital requirements. For these purposes, the statute establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the implementing regulations, in order to be considered well capitalized, a bank must have a ratio of common equity Tier 1 capital to risk-weighted assets of 6.5%, a ratio of Tier 1 capital to risk-weighted assets of 8%, a ratio of total capital to risk-weighted assets of 10%, and a leverage ratio of 5%.

An institution is “adequately capitalized” if it has a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, a Common Equity Tier 1 Capital Ratio of 4.5% or better and a Leverage Ratio of 4.0% or greater. An institution is “undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital ratio of less than 6.0%, a Common Equity Tier 1 ratio of less than 4.5% or a Leverage Ratio of less than 4.0%. An institution is deemed to be “significantly undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of less than 4.0%, a Common Equity Tier 1 ratio of less than 3.0% or a Leverage Ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%

The prompt corrective action regulations provide for the imposition of a variety of requirements and limitations on institutions that fail to meet the above capital requirements. In particular, the FDIC may require any state non-member bank that is not “adequately capitalized” to take certain action to increase its capital ratios. If the non-member bank’s capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the bank’s activities may be restricted.

As of December 31, 2022, the Bank was in compliance with all regulatory capital standards and qualified as “well capitalized.” See Note 13 of Notes to Consolidated Financial Statements.

Bank Secrecy Act / Anti-Money Laundering Laws. The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions.

Transactions with Related Parties. The Bank is subject to the Federal Reserve’s Regulation W, which implements the restrictions of Sections 23A and 23B of the Federal Reserve Act on transactions between a bank and its “affiliates.” The sole “affiliate” of the Bank, as defined in Regulation W, is the Company. Section 23A and Regulation W generally place limits on the amount of a bank’s loans or extensions of credit to, investments in, or certain other transactions with its affiliates, and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Section 23B and Regulation W also require a bank’s transactions with affiliates to be on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies.

The Bank is also subject to certain restrictions under Sections 22(g) and 22(h) of the Federal Reserve Act on extensions of credit to the executive officers, directors, principal shareholders of the Bank and the Company, as well as to entities controlled by such persons. Among other things and subject to certain exceptions, these provisions generally require that the Bank’s extensions of credit to the insiders of the Bank and the Company must be made on substantially the same terms,

including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and must not involve more than the normal risk of repayment or present other unfavorable features.

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank (“FHLB”) of New York, which is one of 11 regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB.

As a member, the Bank is required to purchase and maintain restricted stock in the FHLB of New York (“FHLBNY”) in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of the Bank’s outstanding advances from the FHLB. At December 31, 2022, the Bank was in compliance with this requirement.

Community Reinvestment Act and Fair Lending Laws. Under the Community Reinvestment Act, every insured depository institution, including the Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The Community Reinvestment Act requires the depository institution’s record of meeting the credit needs of its community to be assessed and taken into account in the evaluation of certain applications by such institution, such as a merger or the establishment of a branch office by the Bank. An unsatisfactory Community Reinvestment Act examination rating may be used as the basis for the denial of an application. The Bank received a “satisfactory” rating in its most recent Community Reinvestment Act examination.

In May 2022, the FDIC and the other federal bank regulatory agencies issued a joint proposal to modernize the regulations implementing the CRA, which would change both the process and substantive tests that the regulators use to assess the record of each bank in fulfilling its obligation to the community. The regulatory agencies stated that the proposal is intended to achieve the following objectives: (i) expand access to credit, investment and basic banking services in low- and moderate-income communities, (ii) adapt to changes in the banking industry, including internet and mobile banking, (iii) provide greater clarity, consistency and transparency in the application of the regulations and (iv) tailor performance standards to account for differences in bank size, business model, and local conditions. The Company will evaluate the impact of the proposal’s potential changes to the regulations implementing the CRA and their impact to our financial condition and/or results of operations, which cannot be predicted at this time.

In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. A failure to comply with the Equal Credit Opportunity Act or the Fair Housing Act or with the federal fair lending regulations implementing those statutes could result in an enforcement action by the FDIC, as well as by the Department of Justice.

Incentive Compensation. The FDIC and the Federal Reserve review, as part of their regular, risk-focused examinations, the incentive compensation arrangements of banking organizations. These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. Deficiencies are incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In 2010, the FDIC and the other federal bank regulatory agencies issued comprehensive guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, is based upon the principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

In 2016, the U.S. financial regulators, including the FDIC, the Federal Reserve and the SEC, proposed revised rules on incentive-based payment arrangements at financial institutions having at least $1 billion in total assets. These proposed rules have not been finalized.

In October 2022, the SEC adopted a final rule directing national securities exchanges, including Nasdaq, to establish listing standards requiring listed companies to adopt policies providing for the recovery or “clawback” of excess incentive-based compensation earned by current or former executive officers during the three fiscal years preceding the date the listed company determines an accounting restatement is required. The SEC final rule will require us to adopt a clawback policy within 60 days after the Nasdaq listing standard becomes effective.

Item 1A. Risk Factors.

Not applicable

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

(a)Properties.

Office Location

Year Facility Opened

Lease or Owned

Parke Main Office

1999

Owned

601 Delsea Drive

Sewell, NJ 08080

Northfield Branch

2002

Leased

501 Tilton Road

Northfield, NJ 08225

Kennedy Branch

2003

Owned

567 Egg Harbor Road

Sewell, NJ 08080

Spruce Street Branch

2006

Leased

1610 Spruce Street

Philadelphia, PA 19103

Galloway Township Branch

2010

Owned

67 E. Jimmy Leeds Road

Galloway Township, NJ 08205

Collingswood Branch

2016

Leased

1150 Haddon Avenue

Collingswood, NJ 08108

Arch Street Branch

2016

Leased

1032 Arch Street

Philadelphia, PA 19108

Item 3. Legal Proceedings.

Absecon Gardens Condominium Association v. Parke Bank, One Mechanic Street, et al, Superior Court of New Jersey, Law Division, Atlantic County, Docket No. ATL-L-2321-21. The Company is the successor to the interests of the developer of the Absecon Gardens Condominium project in Absecon NJ. Some of the unit owners have suggested that the Company is responsible for contributions and/or repair for alleged damages purportedly relating to construction. The owners filed a Complaint, alleging that the damages total approximately $1.7 million. The matter is in the early stages of discovery so it is difficult to determine whether that amount accurately reflects the claimed damages, or whether the Company is in any way culpable for the damages. At this time it is too early to predict whether an unfavorable outcome will result. The Company is vigorously defending this matter. See "Note 15. Commitments and Contingencies" in the Notes to the Consolidated Financial Statements.

Other than the foregoing, neither the Company nor the Bank are involved in any other pending legal proceedings, other than routine legal matters occurring in the ordinary course of business, which in the aggregate involve amounts which are believed by management to be immaterial to the consolidated financial condition or results of operations of the Company.

Item 4. Mine Safety Disclosures.

Not Applicable.

Part II

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's common stock is listed on the Nasdaq Capital Market under the trading symbol of "PKBK". The number of shareholders of record of common stock as of December 31, 2022, was approximately 246. This does not reflect the number of persons or entities who held stock in nominee or "street" name through various brokerage firms. As of March 14, 2023, there were 11,946,671 shares of our common stock issued and outstanding.

The Company paid a $0.16 per share quarterly common stock cash dividend in the 1st and 2nd quarters of 2022, and $0.18 per share quarterly common stock cash dividend in the 3rd and 4th quarters of 2022. During 2022, the Company paid a total of $7.9 million in common stock cash dividends.

The Company also has 445 shares of 6% non-Cumulative Series B Preferred Stock outstanding at December 31, 2022. The preferred stock has a liquidation preference of $1,000 per share. Each share of Series B Preferred Stock is convertible, at the option of the holder into approximately 137.6 shares of Common Stock at December 31, 2022. Upon full conversion of the outstanding shares of the Series B Preferred Stock, the Company will issue approximately 61,232 shares of Common Stock assuming that the conversion rate does not change. The conversion rate and the total number of shares to be issued would be adjusted for future stock dividends, stock splits and other corporate actions.

The Company has recorded dividends on preferred stock in the approximate amount of $26,700 and $28,200 for the years ended December 31, 2022 and 2021, respectively. The Company paid quarterly cash dividends of $15 per share on the preferred stock for the years 2022 and 2021. The preferred stock qualifies, and is accounted, as equity securities and is included in the Company’s Tier I capital since issued.

The timing and amount of future dividends will be within the discretion of the Board of Directors and will depend on the consolidated earnings, financial condition, liquidity, and capital requirements of the Company and its subsidiaries, applicable governmental regulations and restrictions, and Board policies, and other factors deemed relevant by the Board.

The Company's ability to pay dividends is substantially dependent upon the dividends it receives from the Bank and is subject to other restrictions. Under current regulations, the Bank's ability to pay dividends is restricted as well.

Under the New Jersey Banking Act of 1948, a bank may declare and pay dividends only if after payment of the dividend the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank's surplus.

Pursuant to the terms of the Series B Preferred Stock, the Company may not pay a cash dividend on the common stock unless all dividends on the Series B Preferred Stock for the then-current dividend period have been paid or set aside.

The Federal Deposit Insurance Act generally prohibits all payments of dividends by any insured bank that is in default of any assessment to the FDIC. Additionally, because the FDIC may prohibit a bank from engaging in unsafe or unsound practices, it is possible that under certain circumstances the FDIC could claim that a dividend payment constitutes an unsafe or unsound practice. The New Jersey Department of Banking and Insurance has similar power to issue cease and desist orders to prohibit what might constitute unsafe or unsound practices. The payment of dividends may also be affected by other factors (e.g., the need to maintain adequate capital or to meet loan loss reserve requirements).

There were no repurchases of the Company’s Common Stock during the twelve months ended December 31, 2022.

Shareholders wishing to change the name, address or ownership of the Company’s stock, report lost certificates or consolidate accounts are asked to contact the Company’s Transfer Agent and Registrar directly: Computershare Investor Services ("Computershare"), P.O. Box 43078, Providence, Rhode Island 02940-3078. Shareholders may also contact Computershare at 1-800-942-5909 and www.computershare.com.

Item 6. [Reserved]

Not applicable

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We are a bank holding company and are headquartered in Washington Township, New Jersey. Through the Bank, we provide personal and business financial services to individuals and small to mid-sized businesses primarily in New Jersey, Pennsylvania, and New York. The Bank has branches in Galloway Township, Northfield, Washington Township, and Collingswood, New Jersey and Philadelphia, Pennsylvania. The vast majority of our revenue and income is currently generated through the Bank.

We manage our Company for the long term. We are focused on the fundamentals of growing customers, loans, deposits and revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our commitments to our customers, shareholders, employees and the communities where we do business. Our approach is concentrated on organically growing and deepening client relationships across our businesses that meet our risk/return measures.

We focus on small to mid - sized business and retail customers and offer a range of loan products, deposit services, and other financial products through our retail branches and other channels. The Company's results of operations are dependent primarily on its net interest income, which is the difference between the interest income earned on its interest earning-assets and the interest expense paid on its interest-bearing liabilities. In our operations, we have three major lines of lending: residential real estate mortgage, commercial real estate mortgage, and construction lending. Our interest income is primarily generated from our lending and investment activities. Our deposit products include checking, savings, money market accounts, and certificates of deposit. The majority of our deposit accounts are obtained through our retail banking business, which provides us with low cost funding to grow our lending efforts. The Company also generates income from loan and deposit fees and other non-interest related activities. The Company's non-interest expense primarily consists of employee compensation, administration, and other operating expenses.

As of December 31, 2022, we had total assets of $1.98 billion, total liabilities of $1.72 billion, and total shareholders' equity of $266.0 million. Net income available to common shareholders for 2022 was $41.8 million. In 2022, net income available to common shareholders increased 2.6% over the previous year primarily due to higher net interest income, partially offset by an increase in the provision for loan losses and higher non-interest expense. At December 31, 2022, total assets decreased 7.1% and total equity increased 14.5%, compared to December 31, 2021. Our risk based tier 1 capital ratio remained strong during the year and was 19.3% at December 31, 2022. In addition, during 2022 we returned $7.9 million of capital to our common shareholders through common stock dividends.

Our business operations are subject to risks and uncertainties that could materially affect our operating results, including the continued adverse impact of the COVID-19 pandemic on the local and national economy and our business and results of operations. The extent of such impact will depend on future developments, which are highly uncertain. There continues to be various other risks and uncertainties that could impact the Company’s businesses and future results, such as changes to the U.S. economic condition, market interest rates, the Federal Reserve Board's monetary policy, other government policies, and actions of regulatory agencies.

Results of Operations

Net Income

We recorded 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 year ended December 31, 2022, compared to $40.7 million, or $3.43 per basic common share and $3.36 per diluted common share, for the year ended December 31, 2021, an increase of $1.1 million or 2.6%.

Net Interest Income

Net interest income increased $4.2 million, or 6.1%, to $73.3 million for the year ended 2022 compared to $69.1 million for the year ended 2021. The increase in net interest income was primarily due to an increase in interest income of $5.4 million, partially offset by an increase in interest expense of $1.2 million. Interest income for 2022 increased to $87.5 million, an increase of $5.4 million, or 6.6%, from $82.1 million for 2021, primarily due to an increase in interest earned on average deposits held at the Federal Reserve Bank ("FRB") of $3.1 million and an increase in interest and fees on loans of $2.3 million due to higher average outstanding loan balances and higher interest rates. Interest expense increased to $14.2 million for 2022, from $13.0 million for 2021, an increase of $1.2 million, or 9.3%. The increase in interest expense was primarily due to an increase in market interest rates on our deposit accounts.

Comparative Average Balances, Yields and Rates

The following table presents the average daily balances of assets, liabilities and equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the years ended December 31, 2022 and 2021. Interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is net interest income divided by average earning assets. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances and have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.


	For the Years Ended December 31,
	2022						2021
	Average Balance		Interest Income/ Expense		Yield/ Cost		Average Balance		Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)
Assets
Loans (1) (2)	$	1,580,318	$	82,900	5.25	%	$	1,513,959	$	80,643	5.33	%
Investment securities	25,922		772		2.98	%	26,000		753		2.90	%
Deposits with banks	338,277		3,811		1.13	%	523,491		676		0.13	%
Total interest-earning assets	1,944,517		$	87,483	4.50	%	2,063,450		$	82,072	3.98	%
Non-interest earning assets	79,869						77,370
Allowance for loan losses	(30,449)						(30,019)
Total assets	$	1,993,937					$	2,110,801
Liabilities and Equity
Interest bearing deposits
NOWs	$	92,535	$	417	0.45	%	$	75,502	$	323	0.43	%
Money markets	352,339		3,927		1.11	%	322,201		2,140		0.66	%
Savings	195,029		905		0.46	%	146,585		664		0.45	%
Time deposits	514,421		4,890		0.95	%	632,874		6,399		1.01	%
Brokered certificates of deposit	26,785		932		3.48	%	34,292		228		0.66	%
Total interest-bearing deposits	1,181,109		11,071		0.94	%	1,211,454		9,754		0.81	%
Borrowings	119,422		3,085		2.58	%	158,943		3,202		2.01	%
Total interest-bearing liabilities	1,300,531		$	14,156	1.09	%	1,370,397		$	12,956	0.95	%
Non-interest bearing deposits	428,549						506,645
Other liabilities	14,389						15,030
Total liabilities	1,743,469						1,892,072
Equity	250,468						218,729
Total liabilities and equity	$	1,993,937					$	2,110,801
Net interest income			$	73,327					$	69,116
Interest rate spread					3.41	%					3.03	%
Net interest margin					3.77	%					3.35	%

(1) Interest income includes $5.0 million and $7.5 million of net fee income for the years ended 2022 and 2021, respectively.

(2) Average balances are net of unearned income and include nonperforming loans.

Net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.

Rate/Volume Analysis

For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by the previous rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.


	Years ended December 31,
	2022 vs 2021
	Variance due to change in
	Average Volume		Average Rate		Net Increase/ (Decrease)
	(Dollars in thousands)
Interest Income:
Loans (net of deferred costs/fees)	$	3,535	$	(1,278)	$	2,257
Investment securities	(2)		21		19
Deposits with banks	(239)		3,374		3,135
Total interest income	3,294		2,117		5,411
Interest Expense:
Deposits	(244)		1,561		1,317
Borrowed funds	(796)		679		(117)
Total interest expense	(1,040)		2,240		1,200
Net interest income	$	4,334	$	(123)	$	4,211

Provision for loan losses

Our provision for loan losses in each period is driven by net charge-offs and changes to the allowance for loan losses. We recorded a provision for loan losses of $1.8 million and $0.5 million in 2022 and 2021, respectively. The provision for loan losses as a percentage of interest income was 2.06% and 0.61% in 2022 and 2021, respectively.

Our provision for loan losses increased by $1.3 million in 2022 compared to 2021 primarily as a result of the growth of the loan portfolio. For more information about our provision and allowance for loan and lease losses and our loss experience, see “Risk Management and Asset Quality-Allowance for Loan and Lease Losses” and NOTE 4. Loans and Allowance for Loan and Lease Losses in the Notes to the Consolidated Financial Statements.

Non-interest Income

The table below displays the components of non-interest income for 2022 and 2021.


	2022		2021		$ Change		% Change
	(Dollars in thousands)
Service fees on deposit accounts	$	4,927	$	5,662	$	(735)	(13.0)	%
Other Loan fees	1,379		1,346		33		2.5	%
Bank owned life insurance income	568		575		(7)		(1.2)	%
Gain on sale of SBA loans	98		214		(116)		(54.2)	%
Gain on sale and valuation adjustments of OREO	328		60		268		446.7	%
Other	1,082		942		140		14.9	%
Total non-interest income	$	8,382	$	8,799	$	(417)	(4.7)	%

Non-interest income decreased by $0.4 million to $8.4 million in 2022 compared to 2021 primarily due to a decrease in fee income related to commercial deposit accounts, partially offset by an increase in the gain on sale of OREO.

The fee income for the year ended December 31, 2022 from the commercial deposit accounts of depositors who do business in the cannabis industry totaled $4.4 million and is included in service fees on deposit accounts in the accompanying consolidated statements of income. Such deposit fee income totaled $5.1 million during the year ended December 31, 2021. Please refer to Note 15. Commitments and Contingencies in the Notes to the Consolidated Financial Statements for our banking services to customers who do business in the cannabis industry.

Non-Interest Expense

The following table displays the components of non-interest expense for 2022 and 2021.


	2022		2021		$ Change		% Change
	(Dollars in thousands)
Compensation and benefits	$	10,835	$	9,731	$	1,104	11.3	%
Professional services	2,249		3,724		(1,475)		(39.6)	%
Occupancy and equipment	2,522		2,381		141		5.9	%
Data processing	1,293		1,306		(13)		(1.0)	%
FDIC insurance and other assessments	1,050		1,104		(54)		(4.9)	%
OREO expense	493		287		206		71.8	%
Other operating expense	5,391		3,970		1,421		35.8	%
Total non-interest expense	$	23,833	$	22,503	$	1,330	5.9	%

Non-interest expense increased $1.3 million to $23.8 million for 2022, from $22.5 million for 2021 primarily due to an increase in other operating expense of $1.4 million, an increase in compensation and benefits of $1.1 million, and an increase in OREO expense of $206 thousand, partially offset by a decrease in professional services expense of $1.5 million. The increase in other operating expense was primarily driven by a $793 thousand increase in Pennsylvania shares tax, a $172 thousand increase in director fees, and a $321 thousand increase in other loan expense. The increase in compensation and benefits was primarily due to a $425 thousand increase in salaries, and a $597 thousand increase in pension cost. The decrease in professional services expense was mainly due to the prior year remediation efforts related to our BSA Secrecy Act ("BSA") compliance.

Income Tax

Income tax expense increased $0.3 million to $14.3 million on income before taxes of $56.1 million for 2022, compared to income tax expense of $13.9 million on income before taxes of $54.9 million for 2021. The effective income tax rates for 2022 and 2021 were 25.4% and 25.4%, respectively.

Financial Condition

General

At December 31, 2022, the Company’s total assets were $1.98 billion, a decrease of $151.5 million or 7.1%, from December 31, 2021. The decrease in total assets was primarily attributable to a decrease in cash and cash equivalents, partially offset by an increase in loans. Cash and cash equivalents decreased $414.4 million, to $182.2 million at December 31, 2022, primarily due to a decrease in deposits, as well as in increase in loans receivable. Total loans outstanding increased $266.6 million at December 31, 2022, primarily due to an increase in residential 1 to 4 family loans of $165.1 million; commercial non-owner occupied loans of $72.3 million; and construction loans of $39.7 million; net of a decrease of $24.7 million in commercial and industrial loans. The decrease in the commercial and industrial loan portfolio is primarily due to the Paycheck Protection Program loans, which decreased $25.1 million to $2.8 million at December 31, 2022, from $27.8 million at December 31, 2021.

Total liabilities were $1.72 billion at December 31, 2022. This represented a $185.2 million, or 9.7%, decrease from $1.90 billion at December 31, 2021. The decrease in total liabilities was primarily due to a decrease in total deposits, partially offset by an increase in borrowings. Total deposits decreased $192.4 million, or 10.9%, to $1.6 billion at December 31, 2022, from $1.8 billion at December 31, 2021. Deposits from the cannabis industries decreased to $177.3 million at December 31, 2022, from $375.2 million at December 31, 2021. Total borrowings were $126.1 million at December 31, 2022, an increase of $5.2 million, compared to December 31, 2021, primarily due to an increase in FHLB advances of $5.0 million.

Total equity was $266.0 million and $232.4 million at December 31, 2022 and December 31, 2021, respectively, an increase of $33.7 million from December 31, 2021.

The following table presents certain key condensed balance sheet data as of December 31, 2022 and December 31, 2021:


	December 31, 2022		December 31, 2021		$ Change		% Change
	(Dollars in thousands)
Cash and cash equivalents	$	182,150	$	596,553	$	(414,403)	(69.5)	%
Investment securities	18,744		23,269		(4,525)		(19.4)	%

Loans, net of unearned income	1,751,459		1,484,847		266,612		18.0	%
Allowance for loan losses	(31,845)		(29,845)		(2,000)		6.7	%
Total assets	1,984,915		2,136,445		(151,530)		(7.1)	%
Total deposits	1,575,981		1,768,410		(192,429)		(10.9)	%
FHLBNY borrowings	83,150		78,150		5,000		6.4	%
Subordinated debt	42,921		42,732		189		0.4	%

Total liabilities	1,718,881		1,904,084		(185,203)		(9.7)	%
Total equity	266,034		232,361		33,673		14.5	%
Total liabilities and equity	1,984,915		2,136,445		(151,530)		(7.1)	%

Cash and cash equivalents

Cash and cash equivalents decreased $414.4 million to $182.2 million at December 31, 2022, from $596.6 million at December 31, 2021, a decrease of 69.5%. The decrease was primarily due to a decrease in deposits mainly attributed to a decrease in deposits from the cannabis businesses, as well as in increase in loans receivable. The decrease in cannabis deposits is primarily due to increased competition for such deposits from other banks. See “Deposits” below.

During 2022, an armored car company used by the Bank to transport and store cash for the Bank’s cannabis-related customers, informed the Company that some of the cash stored for the Bank is missing from its vault and is presumed to have been stolen. Based on preliminary estimates, the Company believes that the amount missing that is attributable to the Bank is approximately $9.5 million. The exact amount of the potential loss, if any, is unknown at this time. Please see Note 15 Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Investment securities

Total investment securities decreased to $18.7 million at December 31, 2022, from $23.3 million at December 31, 2021, a decrease of $4.5 million or 19.4%. The decrease was primarily due to pay downs of $2.9 million and $1.0 million valuation decline.

Loans, net unearned income

Loans receivable increased to $1.75 billion at December 31, 2022, from $1.48 billion at December 31, 2021. The increase was primarily due to an increase in residential 1 - 4 family of $165.1 million; commercial non-owner occupied of $72.3 million; and construction loans of $39.7 million; partially offset by a decrease of $24.7 million in commercial and industrial loans.

Allowance for loan losses

Allowance for loan losses increased $2.0 million, to $31.8 million, or 6.70%, at December 31, 2022, from $29.8 million at December 31, 2021. The increase was primarily due to the provision of $1.8 million due to the increase in the loan portfolio.

Deposits

At December 31, 2022, the Bank’s total deposits decreased to $1.6 billion from $1.8 billion at December 31, 2021, a decrease of $192.4 million, or 10.9%. The decrease in deposits was primarily attributed to a decrease in non-interest bearing demand deposits of $201.3 million, and time deposits of $91.9 million, partially offset by an increase in brokered CD balances of $101.3 million. Deposits from the cannabis businesses decreased to $177.3 million at December 31, 2022, from $375.2 million at December 31, 2021, a decrease of $197.9 million. The decrease in such deposits is primarily attributable to increased competition from other banks, as more banks are soliciting deposits from these businesses and offering favorable terms and fees for such deposits. The Bank expects this trend to continue in the foreseeable future.

Borrowings

At December 31, 2022, total borrowings increased $5.2 million to $126.1 million at December 31, 2022, from $120.9 million at December 31, 2021. The increase in borrowings was primarily due to an increase in FHLBNY advances of $5.0 million.

Equity

Total shareholders’ equity increased to $266.0 million at December 31, 2022, from $232.4 million at December 31, 2021, an increase of $33.7 million or 14.5%. The increase in total shareholders' equity was primarily due to the retention of earnings from the period, partially offset by the recognition of $8.1 million of cash dividends.

Liquidity and Capital Resources

Liquidity is a measure of our ability to generate cash to support asset growth, meet deposit withdrawals, satisfy other contractual obligations, and otherwise operate on an ongoing basis. At December 31, 2022, our cash position was $182.2 million. We invest cash that is in excess of our immediate operating needs primarily in our interest-bearing account at the Federal Reserve.

Our primary source of funding has been deposits. Funds from other operations, financing arrangements, investment securities available-for-sale also provide significant sources of funding. The Company seeks to rely primarily on core deposits from customers to provide stable and cost-effective sources of funding to support loan growth. We focus on customer service which we believe has resulted in a history of customer loyalty. Stability, low cost and customer loyalty comprise key characteristics of core deposits.

We also use brokered deposits as a funding source, which is more volatile than core deposits. The Bank also joined the IntraFi network to secure an additional alternative funding source. IntraFi provides the Bank an additional source of external funds through their weekly CDARS® settlement process. The rates are comparable to brokered deposits and can be obtained within a shorter period time than brokered deposits. While deposit accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLBNY. At December 31, 2022, the Company had a $693.7 million line of credit from the FHLBNY, of which $83.2 million was outstanding, $50.0 million was a letter of credit to secure public deposits, and $560.5 million was unused.

Our investment portfolio primarily consists of mortgage-backed available for sale securities issued by US government agency and government sponsored entities. These available for sale securities are readily marketable and are available to meet our additional liquidity needs. At December 31, 2022, the Company's investment securities portfolio classified as available for sale was $9.4 million.

We had unused loan commitments of $159.0 million at December 31, 2022. Our loan commitments are normally originated with the full amount of collateral. Such commitments have historically been drawn at only a fraction of the total commitment. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth.

Capital Adequacy

Consistent with the goal to operate a sound and profitable financial organization, the Company and Bank actively seeks to maintain their status as well-capitalized in accordance with regulatory standards. As of December 31, 2022, the Company and the Bank exceeded all applicable regulatory capital requirements. See Note 13 to our Consolidated Financial Statements for more information about the Company's and the Bank's regulatory capital compliance.

Interest Rate Sensitivity

Interest rate sensitivity is an important factor in the management of the composition and maturity configurations of earning assets and funding sources. The primary objective of asset/liability management is to ensure the steady growth of our primary earnings component, net interest income. Net interest income can fluctuate with significant interest rate movements. To lessen the impact of interest rate movements, management endeavors to structure the balance sheet so that repricing opportunities exist for both assets and liabilities in roughly equivalent amounts at approximately the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest rate sensitivity.

The measurement of our interest rate sensitivity, or "gap," is one of the principal techniques used in asset/liability management. Interest sensitive gap is the dollar difference between assets and liabilities that are subject to interest-rate pricing within a given time period, including both floating rate or adjustable rate instruments and instruments that are approaching maturity.

Our management and the Board of Directors oversee the asset/liability management function through the asset/liability committee of the Board that meets periodically to monitor and manage the balance sheet, control interest rate exposure, and evaluate our pricing strategies. The asset mix of the balance sheet is continually evaluated in terms of several variables: yield, credit quality, appropriate funding sources and liquidity. Management of the liability mix of the balance sheet focuses on expanding the various funding sources.

In theory, interest rate risk can be diminished by maintaining a nominal level of interest rate sensitivity. In practice, this is made difficult by a number of factors, including cyclical variation in loan demand, different impacts on interest-sensitive assets and liabilities when interest rates change, and the availability of funding sources. Accordingly, we undertake to manage the interest-rate sensitivity gap by adjusting the maturity of and establishing rates on the earning asset portfolio and certain interest-bearing liabilities commensurate with management's expectations relative to market interest rates. Management generally attempts to maintain a balance between rate-sensitive assets and liabilities as the exposure period is lengthened to minimize our overall interest rate risk.

The interest rate sensitivity position as of December 31, 2022 is presented in the following table. Assets and liabilities are scheduled based on maturity or re-pricing data except for mortgage loans and mortgage-backed securities, which are based on prevailing prepayment assumptions and expected maturities and deposits which are based on recent retention experience of core deposits. The difference between rate-sensitive assets and rate-sensitive liabilities, or the interest rate sensitivity gap, is shown at the bottom of the table.


	As of December 31, 2022
	3 Months or Less			Over 3 Months Through 12 Months			Over 1 Year Through 3 Years			Over 3 Years Through 5 Years			Over 5 Years			Total
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	320,454		$	314,500		$	704,350		$	238,135		$	155,871		$	1,733,310
Investment securities	6,019			1,791			4,769			4,960			1,205			18,744
Cash and cash equivalents	154,985			—			—			—			—			154,985
Total interest-earning assets	$	481,458		$	316,291		$	709,119		$	243,095		$	157,076		$	1,907,039
Interest-bearing liabilities:
NOW, Saving and Money market deposits	$	32,216		$	96,649		$	257,730		$	212,712		$	20,993		$	620,300
Retail time deposits	87,377			168,588			218,085			18,648			—			492,698
Brokered time deposits	11,667			97,537			1,233			—			—			110,437
Borrowed funds	23,403			73,150			—			—			30,000			126,553
Total interest-bearing liabilities	$	154,663		$	435,924		$	477,048		$	231,360		$	50,993		$	1,349,988
Interest rate sensitive gap	$	326,795		$	(119,633)		$	232,071		$	11,735		$	106,083		$	557,051
Cumulative interest rate gap	$	326,795		$	207,162		$	439,233		$	450,968		$	557,051		$	—
Ratio of rate-sensitive assets to rate-sensitive liabilities	311.3		%	72.6		%	148.6		%	105.1		%	308.0		%	141.3		%
Cumulative interest sensitivity gap to total assets	16.5		%	10.4		%	22.1		%	22.7		%	28.1		%	—

(1) Loan balances exclude nonaccruing loans, deferred fees and costs, and loan discounts.

Off-Balance Sheet Arrangements and Contractual Obligations

In the ordinary course of business, we engage in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements include commitments to extend credit, standby letters of credit and other commitments. These transactions are primarily designed to meet the financial needs of our customers.

We enter into commitments to lend funds to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we make commitments, we are exposed to credit risk. However, the maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments is expected to expire without being used by the customer. In addition, we manage the potential risk in commitments to lend by limiting the total amount of commitments, by monitoring maturity structure of these commitments and by applying the same credit standards for these commitments as for all of our credit activities.

For commitments to lend, we generally require collateral or a guarantee. We may require various types of collateral, including accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. Collateral requirements for each loan or commitment may vary based on the commitment type and our assessment of a customer’s credit risk according to the specific credit underwriting, including credit terms and structure.

Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. These commitments generally have fixed expiration dates, may require payment of a fee, and contain termination clauses in the event the customer’s credit quality deteriorates. At December 31, 2022 and December 31, 2021, unused commitments to extend credit amounted to approximately $159.0 million and $117.7 million, respectively. Commitments to fund fixed-rate loans were immaterial at December 31, 2022. Variable-rate commitments are generally issued for less than one year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. Management believes that off-balance sheet risk is not material to the results of operations or financial condition of the Company.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At December 31, 2022 and December 31, 2021, standby letters of credit with customers were $1.5 million and $1.5 million, respectively.

At December 31, 2022, we had contractual obligations primarily relating to commitments to extent credits, deposits, secured and unsecured borrowings, and operating leases. We have adequate resources to fund all unfunded commitments to the extent required and meet all contractual obligations as they come due. Please refer to Notes 6, 7, 9, and 15 of the Notes to the Consolidated Financial Statements for detailed information regarding our contractual obligations.

Impact of Inflation and Changing Prices

The financial statements included in this document have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturities of our assets and liabilities are critical to the maintenance of acceptable performance levels.

The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of non-interest expense. Expense items such as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.

Critical Accounting Policies

The Company’s accounting policies are more fully described in Note 1 - Description of Business and Summary of Significant Accounting Policies in the Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP") requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Allowance for Loan and Lease Losses: Our allowances for loan and lease losses represents management's best estimate of probable losses inherent in our loan portfolio excluding those loans accounted for under fair value. Our process for determining the allowance for loan and lease losses is discussed in Note 1 to the Consolidated Financial Statements.

We maintain the ALLL at levels that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan and lease portfolios as of the balance sheet date. Our determination of the allowances is based on periodic evaluations of the

loan and lease portfolios and other relevant factors. These critical estimates include significant use of our own historical data and other qualitative, quantitative data. These evaluations are inherently subjective, as they require material estimates and may be susceptible to significant change. Our allowance for loan and lease losses is comprised of two components. The specific allowance covers impaired loans and is calculated on an individual loan basis. The general based component covers loans and leases on which there are incurred losses that are not yet individually identifiable. The allowance calculation and determination process is dependent on the use of key assumptions. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower, projected industry outlook, and economic conditions.

The process of determining the level of the allowance for loan and lease losses requires a high degree of judgment. To the extent actual outcomes differ from our estimates, additional provision for loan and lease losses may be required that would reduce future earnings.

Fair Value Estimates: ASC 820 - Fair Value Measurements defines fair value as a market-based measurement and is the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The Company uses valuation techniques that are consistent with the market approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability and developed based on the best information available in the circumstances. In that regard, a fair value hierarchy has been established for valuation inputs that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlations or other means.

Level 3 Inputs - Significant unobservable inputs that reflect an entity's own assumptions that market participants would use in pricing the assets or liabilities.

The majority of our assets recorded at fair value are our investment securities available for sale. The fair value of our available for sale securities are provided by independent third-party valuation services. We also may have a small balance of SBA loans recorded at fair value, which represents the face value of the guaranteed portion of the SBA loans pending settlement. Other real estate owned (OREO) is recorded at fair value on a non-recurring basis and is based on the values of independent third-party full appraisals, less costs to sell (a range of 5% to 10%). Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value. Refer to Note 16 - Fair Value in the Notes to the Consolidated Financial Statements for further information.

Income Taxes: In the normal course of business, we and our subsidiaries enter into transactions for which the tax treatment is unclear or subject to varying interpretations. We evaluate and assess the relative risks and merits of the tax treatment of transactions, filing positions, filing methods and taxable income calculations after considering statutes, regulations, and other information, and maintain tax accruals consistent with our evaluation of these relative risks and merits. The result of our evaluation and assessment is by its nature an estimate.

When tax returns are filed, it is highly likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax

positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable

Item 8. Financial Statements and Supplementary Data.

Report On Management’s Assessment Of Internal Control Over Financial Reporting

To The Shareholders Of Parke Bancorp, Inc.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a- 15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Under supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2022.

March 15, 2023


/s/ Vito S. Pantilione						/s/ John S. Kaufman
Vito S. Pantilione						John S. Kaufman
President and Chief Executive Officer						Senior Vice President and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Parke Bancorp, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Parke Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2022; the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended; and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loan Losses (ALL) – Qualitative Factors

Description of the Matter

The Company’s loan portfolio totaled $1.8 billion as of December 31, 2022, and the associated ALL was $31.8 million. As discussed in Notes 1 and 4 to the consolidated financial statements, the historical loss experience is measured by type of credit and internal risk grade, loss severity, and specific homogeneous risk pools. A historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events, which are then adjusted for other qualitative risk factors both internal and external to the Company. It is generally determined by evaluating, among other things: (i) the experience, ability, and effectiveness of the Bank's lending management and staff; (ii) the effectiveness of the Bank's loan policies, procedures, and internal controls; (iii) changes in asset quality; (iv) changes in loan portfolio volume; (v) the composition and concentrations of credit; (vi) the impact of competition on loan structuring and pricing; (vii) the effectiveness of the internal loan review function; (viii) the impact of environmental risks on portfolio risks; and (ix) national and local economic trends and conditions, and industry conditions. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, high-moderate, moderate, low-moderate, or low degree of risk.

We identified these qualitative adjustments within the ALL as critical audit matters because they involve a high degree of subjectivity. In turn, auditing management’s judgments regarding the qualitative factors applied in the ALL calculation involved a high degree of subjectivity.

How We Addressed the Matter in Our Audit

We gained an understanding of the Company’s process for establishing the ALL, including the qualitative adjustments made to the ALL and the anchoring calculation completed to support the magnitude of the adjustments. We evaluated the design and tested the operating effectiveness of controls over the Company’s ALL process, which included, among others, management’s review and approval controls designed to assess the need and level of qualitative adjustments to the ALL, as well as the reliability of the data utilized to support management’s assessment.

Regarding the measurement of the qualitative adjustments, we evaluated the completeness, accuracy, and relevance of the data and inputs utilized in management’s estimate. We tested management’s anchoring calculations to ensure that the magnitude of the adjustments was supportable. Furthermore, we analyzed the changes in the components of the qualitative reserves relative to changes in external market factors and internal data points supporting management’s assessment of each factor to test the directional consistency and the overall magnitude of the qualitative factor adjustments.

We also utilized internal credit review specialists with knowledge to evaluate the appropriateness of management’s risk-rating processes, to ensure that the risk ratings applied to the commercial loan portfolio were reasonable.

We have served as the Company’s auditor since 2022.

/s/ S.R. Snodgrass, P.C.

Cranberry Township, Pennsylvania

March 15, 2023

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Parke Bancorp, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Parke Bancorp, Inc. and Subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of income, comprehensive income, equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below are matter arising from the audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Allowance for Loan Losses—Qualitative Factors

The allowance for loan losses as of December 31, 2021 was $29.9 million. As described in Notes 1 and 4 to the consolidated financial statements, the allowance for loan losses is established through a provision for loan losses and represents an amount which, in management’s judgement, will be adequate to absorb losses on existing loans.

The allowance consists of specific and general components in the amounts of $0.6 million and $29.3 million, respectively.

The specific component relates to loans that are classified as impaired. The Company measures impairment and the related asset specific allowance for impaired loans based on the difference between the recorded investment of the loan and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan. If the loan is collateral dependent, the Company measures impairment based upon the fair value of the underlying collateral, which the Company determines based on the current fair value of the collateral less estimated selling costs, instead of discounted cash flows. Loans are identified as collateral dependent if the Company believes that collateral is the sole source of repayment.

The general component is based on historical losses, general economic conditions, and other qualitative risk factors both internal and external to the Company. The historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events. The qualitative risk factors are generally determined by evaluating, among other things: (i) lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices; (ii) national and local economic trends and conditions; (iii) nature and volume of the portfolio and terms of loans; (iv) experience, ability, and depth of lending management and staff; (v) volume and severity of past due, classified and nonaccrual loans as well as other loan modifications; (vi) quality of the Company’s loan

review system; and (vii) existence and effect of any concentrations of credit and changes in the level of such concentrations. The evaluation of the qualitative factor adjustments requires a significant amount of judgement by management and involves a high degree of subjectivity.

We identified the qualitative factor portion of the general reserve component of the allowance for loan losses as a critical audit matter as auditing the underlying qualitative factors required significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.

Our audit procedures related to the qualitative factors included the following, among others:

•We obtained an understanding of the relevant controls related to management’s establishment of the factor, assessment, and review of the qualitative factors, and tested such controls for design and operating effectiveness, including controls over management’s establishment, review and approval of the qualitative factors and the data used in determining the qualitative factors.

•We obtained an understanding of how management developed the estimates and related assumptions, including:

◦Testing completeness and accuracy of key data inputs used in forming assumptions or calculations and testing the reliability of the underlying data on which these factors are based by comparing information to source documents and external information sources as well as evaluating the estimated correlation to potential loss.

◦Evaluating the reasonableness of the qualitative factors established by management as compared to the underlying internal or external information sources.

/s/ RSM US LLP

We served as the Company's auditor from 2000 to May 2022.

Blue Bell, Pennsylvania

March 21, 2022

Parke Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2022 and 2021

(Dollars in thousands except share and per share data)


	December 31,		December 31,
	2022		2021
Assets
Cash and due from banks	$	27,165	$	25,321
Interest earning deposits with banks	154,985		571,232
Cash and cash equivalents	182,150		596,553
Investment securities available for sale, at fair value	9,366		13,351
Investment securities held to maturity (fair value of $7,805 at December 31, 2022 and $10,025 at December 31, 2021)	9,378		9,918
Total investment securities	18,744		23,269

Loans, net of unearned income	1,751,459		1,484,847
Less: Allowance for loan losses	(31,845)		(29,845)
Net loans	1,719,614		1,455,002
Accrued interest receivable	8,768		7,681
Premises and equipment, net	5,958		6,265
Restricted stock	5,439		5,144
Bank owned life insurance (BOLI)	28,145		27,577
Deferred tax asset	9,184		7,608
Other	6,913		7,346
Total Assets	$	1,984,915	$	2,136,445
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing deposits	$	352,546	$	553,810
Interest-bearing deposits	1,223,435		1,214,600
Total deposits	1,575,981		1,768,410
FHLBNY borrowings	83,150		78,150

Subordinated debentures	42,921		42,732
Accrued interest payable	2,664		1,603
Accrued expenses and other liabilities	14,165		13,189
Total liabilities	1,718,881		1,904,084
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, $1,000 liquidation value Series B non-cumulative convertible; 445 shares and 445 shares outstanding at December 31, 2022 and 2021, respectively	445		445
Common stock, $0.10 par value; authorized 15,000,000 shares; Issued: 12,225,097 shares and 12,182,081 shares at December 31, 2022 and 2021, respectively	1,223		1,218
Additional paid-in capital	136,201		135,451
Retained earnings	131,706		98,017
Accumulated other comprehensive (loss) income	(526)		245
Treasury stock, 284,522 shares at December 31, 2022 and 2021, at cost	(3,015)		(3,015)
Total shareholders’ equity	266,034		232,361


Total liabilities and shareholders' equity	$	1,984,915	$	2,136,445

See accompanying notes to consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

Years Ended December 31, 2022 and 2021

(Dollars in thousands except per share data)


	2022		2021
Interest income:
Interest and fees on loans	$	82,900	$	80,643
Interest and dividends on investments	772		753
Interest on deposits with banks	3,811		676
Total interest income	87,483		82,072
Interest expense:
Interest on deposits	11,071		9,754
Interest on borrowings	3,085		3,202
Total interest expense	14,156		12,956
Net interest income	73,327		69,116
Provision for loan losses	1,800		500
Net interest income after provision for loan losses	71,527		68,616
Non-interest income
Service fees on deposit accounts	4,927		5,662
Other loan fees	1,379		1,346
Bank owned life insurance income	568		575
Gain on sale of SBA loans	98		214
Net gain on OREO	328		60
Other	1,082		942
Total non-interest income	8,382		8,799
Non-interest expense
Compensation and benefits	10,835		9,731
Professional services	2,249		3,724
Occupancy and equipment	2,522		2,381
Data processing	1,293		1,306
FDIC insurance and other assessments	1,050		1,104
OREO expense	493		287
Other operating expense	5,391		3,970
Total non-interest expense	23,833		22,503
Income before income tax expense	56,076		54,912
Income tax expense	14,253		13,937
Net income attributable to Company and noncontrolling interest	41,823		40,975
Less: Net income attributable to noncontrolling interest	—		(215)
Net income attributable to Company	41,823		40,760
Less: Preferred stock dividend	(27)		(28)
Net income available to common shareholders	$	41,796	$	40,732
Earnings per common share
Basic	$	3.51	$	3.43
Diluted	$	3.44	$	3.36
Weighted average common shares outstanding
Basic	11,918,319		11,888,429
Diluted	12,175,440		12,120,716

See accompanying notes to consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2022 and 2021


	For the Year ended December 31,
	2022		2021
	(Dollars in thousands)
Net income	$	41,823	$	40,975
Unrealized losses on investment securities, net of reclassification into income:
Unrealized losses on available for sale securities	(1,039)		(294)
Tax impact on unrealized loss	268		76

Total other comprehensive loss	(771)		(218)
Comprehensive income	41,052		40,757
Less: Comprehensive income attributable to noncontrolling interests	—		(215)
Comprehensive income attributable to the Company	$	41,052	$	40,542

See accompanying notes to consolidated financial statements


Parke Bancorp, Inc. and Subsidiaries
Consolidated Statements of Equity
Years Ended December 31, 2022 and 2021
(Dollars in thousands except share data)
	Preferred Stock		Shares of Common Stock issued	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Shareholders’ Equity		Non-Controlling Interest		Total Equity
Balance, December 31, 2020	$	480	12,136,567	$	1,214	$	134,989	$	66,794	$	463	$	(3,015)	$	200,925	$	1,672	$	202,597

Earnings distribution to non-controlling interest	—		—	—		—		—		—		—		—		(1,887)		(1,887)
Net income	—		—	—		—		40,760		—		—		40,760		215		40,975
Stock compensation issued/exercised	—		40,701	4		197		—		—		—		201		—		201
Preferred stock shares conversion	(35)		4,813	—		35		—		—		—		—		—		—
Other comprehensive loss	—		—	—		—		—		(218)		—		(218)		—		(218)
Stock compensation expense	—		—	—		230		—		—		—		230		—		230

Dividend on preferred stock	—		—	—		—		(28)		—		—		(28)		—		(28)
Dividend on common stock	—		—	—		—		(9,509)		—		—		(9,509)		—		(9,509)
Balance, December 31, 2021	$	445	12,182,081	$	1,218	$	135,451	$	98,017	$	245	$	(3,015)	$	232,361	$	—	$	232,361

Net income	—		—	—		—		41,823		—		—		41,823		—		41,823
Stock compensation issued/exercised	—		43,016	5		401		—		—		—		406		—		406

Other comprehensive loss	—		—	—		—		—		(771)		—		(771)		—		(771)
Stock compensation expense	—		—	—		349		—		—		—		349		—		349

Dividend on preferred stock	—		—	—		—		(27)		—		—		(27)		—		(27)
Dividend on common stock	—		—	—		—		(8,107)		—		—		(8,107)		—		(8,107)
Balance, December 31, 2022	$	445	12,225,097	$	1,223	$	136,201	$	131,706	$	(526)	$	(3,015)	$	266,034	$	—	$	266,034

See accompanying notes to consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2022 and 2021

(Dollars in thousands)


	2022		2021
Cash Flows from Operating Activities
Net income	$	41,823	$	40,975
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	646		687
Provision for loan losses	1,800		500
Increase in value of bank-owned life insurance	(568)		(575)
Gain on sale of SBA loans	(98)		(214)
SBA loans originated for sale	(1,723)		(1,650)
Proceeds from sale of SBA loans originated for sale	1,821		1,864
Net gain on OREO	(328)		(60)
Net accretion of purchase premiums and discounts on securities	(9)		40
Stock based compensation	349		230
(Increase) decrease in deferred income tax	(1,325)		1,079
Net changes in:
Increase in accrued interest receivable and other assets	(727)		(1,059)
Increase (decrease) in accrued interest payable and other accrued liabilities	1,789		(3,176)

Net cash provided by operating activities	43,450		38,641
Cash Flows from Investing Activities
Repayments and maturities of investment securities available for sale	2,905		6,139
Repayments and maturities of investment securities held to maturity	590		57
Purchases of investment securities held to maturity	—		(8,693)
Net (increase) decrease in loans	(268,420)		78,996
Purchases of bank premises and equipment	(150)		(64)
Proceeds from sale of OREO, net	2,426		356
Redemptions of restricted stock	912		2,543
Purchases of restricted stock	(1,207)		(145)
Net cash (used in) provided by investing activities	(262,944)		79,189
Cash Flows from Financing Activities
Cash dividends	(7,886)		(7,633)
Proceeds from exercise of stock options	406		201

Earnings distribution from non-controlling interest	—		(1,887)
Decrease in FHLBNY and short-term borrowings	(20,000)		(56,500)
Increase in FHLBNY and short-term borrowings	25,000		—
Net decrease in other borrowed funds	—		(90,026)
Net (decrease) increase in noninterest-bearing deposits	(201,264)		124,950
Net increase in interest-bearing deposits	8,835		51,017
Net cash (used in) provided by financing activities	(194,909)		20,122
(Decrease) increase in cash and cash equivalents	(414,403)		137,952
Cash and Cash Equivalents, January 1,	596,553		458,601
Cash and Cash Equivalents, December 31,	$	182,150	$	596,553

Supplemental Disclosure of Cash Flow Information:
Interest paid	$	13,095	$	13,691
Income taxes paid	$	13,923	$	16,808

Non-cash Investing and Financing Items
Loans transferred to OREO	$	1,994	$	1,811

See accompanying notes to consolidated financial statements

PARKE BANCORP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

Note 1. Description of Business and Summary of Significant Accounting Policies

Business:

Parke Bancorp, Inc. (the “Company, we, us, our”) is a bank holding company headquartered in Sewell, New Jersey. Through subsidiaries, the Company provides individuals, corporations and other businesses, and institutions with commercial and retail banking services, principally loans and deposits. The Company was incorporated in January 2005 under the laws of the State of New Jersey for the sole purpose of becoming the holding company of Parke Bank (the "Bank").

The Bank is a commercial bank, which was incorporated on August 25, 1998, and commenced operations on January 28, 1999. The Bank is chartered by the New Jersey Department of Banking and Insurance and its deposits are insured by the Federal Deposit Insurance Corporation. The Bank maintains seven branch offices with its principal office at 601 Delsea Drive, Sewell, New Jersey, and additional branch office locations; 631 Tilton Road, Northfield, New Jersey, 567 Egg Harbor Road, Washington Township, New Jersey, 67 East Jimmie Leeds Road, Galloway Township, New Jersey, 1150 Haddon Avenue, Collingswood, New Jersey, 1610 Spruce Street, Philadelphia, Pennsylvania, and 1032 Arch Street, Philadelphia, Pennsylvania.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with GAAP. We have reclassified certain prior year amounts to conform to the 2022 presentation, which did not have a material impact on our consolidated financial condition or results of operations. The accounting policies that materially affect the determination of financial position, results of operations and cash flows are summarized below.

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Parke Bank. Also included are the accounts of Parke Direct Lending LLC ("PDL"), a joint venture formed in 2018 to originate short-term alternative real estate loan products. Parke Bank had a 51% ownership interest in the joint venture. The joint venture was liquidated in 2021. Parke Capital Trust I, Parke Capital Trust II and Parke Capital Trust III are wholly-owned subsidiaries but are not consolidated because they do not meet the requirements for consolidation under applicable accounting guidance. All material inter-company balances and transactions have been eliminated.

Cash and cash equivalents: Consists of cash and due from banks, and interest-bearing deposits and other-short term investments, all of which, if applicable, have stated maturities of three months or less when acquired.

Investment Securities: Debt securities are recorded on a trade-date basis. We classify debt securities as held to maturity if we have the positive intent and ability to hold the securities to maturity. We report securities held to maturity on our consolidated balance sheets at carrying value, which generally equals amortized cost. Amortized cost reflects historical cost adjusted for amortization of premiums, accretion of discounts and any previously recorded impairments. Debt securities not classified as held to maturity or trading are designated as securities available for sale ("AFS") and carried at fair value with unrealized gains and losses, net of income taxes, reflected in accumulated other comprehensive income (loss). We did not have any securities classified as trading securities during 2022 or 2021.

Interest on debt securities, including amortization of premiums and accretion of discounts, is included in interest income. Premiums and discounts are amortized or accreted to interest income at a constant effective yield over the contractual lives of the securities. Realized gains and losses from the sales of debt securities are determined on a specific security basis. These securities gains/(losses) are included in other noninterest income.

On at least a quarterly basis, we review all debt securities that are in an unrealized loss position for Other Than Temporary Impairment ("OTTI"). An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. If the present value of the cash flows expected to be collected, discounted at the security’s effective yield, is less than the security’s amortized cost, OTTI is considered to have occurred. For a debt security for which there has been a decline in the fair value below the amortized cost basis, if we intend to sell the security, or if it is more likely than not we will be required to sell the security before recovery of the amortized cost basis, an OTTI write-down is recognized in earnings equal to the entire difference between the amortized cost basis and fair value of the security. For debt securities that are considered OTTI and that we do not intend to sell and will not be required to sell prior to recovery of our amortized cost basis, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value

of its expected future cash flows discounted at the security’s effective yield. The remaining difference between the security’s fair value and the present value of expected future cash flows is due to factors that are not credit-related and, therefore, is recognized in other comprehensive income.

Restricted Stock: Restricted stock includes investments in the common stock of the FHLBNY and the Atlantic Central Bankers Bank for which no readily available market exists and, accordingly, is carried at cost. The stocks have no quoted market value and are subject to redemption restrictions. Management reviews these stocks for impairment based on the ultimate recoverability of the cost basis in the stock. The stocks’ values are determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. Management considers such criteria as the significance of the decline in net assets, if any, the length of time this situation has persisted and the financial performance of the issuers. In addition, management considers any commitments by the FHLBNY to make payments required by law or regulation, the impact of legislative and regulatory changes on the customer base of the FHLBNY and the liquidity position of the FHLBNY.

Loans: We classify loans as held for investment or held for sale based on our investment strategy and management’s intent and ability with regard to the loans which may change over time. The accounting and measurement framework for loans differs depending on the loan classification. Loans that we have the ability and intent to hold for the foreseeable future or until maturity or pay-off are classified as held for investment. Loans classified as held for investment are reported at their amortized cost, which is the outstanding principal balance, adjusted for any unearned income, unamortized deferred fees and costs, unamortized premiums and discounts and charge-offs. Interest income on the loans is recognized as earned based on contractual interest rates applied to daily principal amounts outstanding. Loan origination fees, direct loan origination costs, and loan premiums and discounts are deferred and accreted or amortized into net interest income using the constant effective yield method, over the contractual life of the loan.

Loans originated with the intent to sell or for which we do not have the ability and intent to hold for the foreseeable future are classified as held for sale. Interest on these loans is recognized on an accrual basis. These loans are recorded at the lower of cost or fair value. Our Small Business Administration ("SBA") loans that management has the intention to sell are designated as held for sale and are reported at fair value. Fair value represents the face value of the guaranteed portion of SBA loans pending settlement. Loan origination fees and direct loan origination costs are deferred until the loan is sold and are recognized as part of the total gain or loss on sale. We calculate the gross gain or loss on loan sales as the difference between the proceeds received and the carrying value of the loans sold.

Loan Fees: Loan fees and direct costs associated with loan originations are netted and deferred. The deferred amount is recognized as an adjustment to loan interest over the term of the related loan using the interest method. Prepayment penalties on loans are recognized in loan interest. Loan brokerage fees represent commissions earned for facilitating loans between borrowers and other companies and is recorded as other loan fee income.

Non-accrual Loans: Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet contractual payment obligations as they become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due.

Troubled Debt Restructurings: Troubled debt restructurings (“TDRs”) are loans for which the Company, for legal or economic reasons related to a debtor’s financial difficulties, has granted a concession to the debtor that it otherwise would not have considered in the normal course of business. Concessions that result in the categorization of a loan as a TDR include but are not limited to:

•Reduction (absolute or contingent) of the stated interest rate;

•Extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk;

•Reduction (absolute or contingent) of the face amount or maturity amount of the debt as stated in the instrument or other agreement; or

•Reduction (absolute or contingent) of accrued interest.

TDRs are reported as impaired loans. Interest income on TDR loans is recognized consistent with the Company’s non-accrual loan policy stated above.

Allowance for Loan and Lease Losses: The allowance for loan and lease losses represents management’s estimate of probable losses inherent in the Company’s lending activities excluding loans accounted for under fair value. The allowance for loan losses is maintained through charges to the provision for loan losses in the Consolidated Statements of Income as losses are estimated to have occurred. Loans or portions thereof that are determined to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.

The Company performs periodic reviews of its loan and lease portfolios to identify credit risks and to assess the overall collectability of those portfolios. The Company's allowance for loan losses includes a general based component and a specific component. The specific component of the allowance relates to loans considered to be impaired, which includes performing TDRs as well as nonperforming loans. To determine the specific component of the allowance, the loans are evaluated individually based on the borrower's ability to repay amounts owed, collateral, relative risk grade of the loans, and other factors given current events and conditions. The Company generally measures the specific allowance as the difference between the fair value (net realizable value) and the recorded investment of a loan.

The general component of the allowance evaluates the impairments of pools of the loan and lease portfolio collectively. It incorporates a historical valuation allowance and general valuation allowance. The historical loss experience is measured by type of credit and internal risk grade, loss severity, specific homogeneous risk pools. A historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events. The general valuation allowance is based on general economic conditions and other qualitative risk factors both internal and external to the Company. It is generally determined by evaluating, among other things: (i) the experience, ability and effectiveness of the Bank's lending management and staff; (ii) the effectiveness of the Bank's loan policies, procedures and internal controls; (iii) changes in asset quality; (iv) changes in loan portfolio volume; (v) the composition and concentrations of credit; (vi) the impact of competition on loan structuring and pricing; (vii) the effectiveness of the internal loan review function; (viii) the impact of environmental risks on portfolio risks; and (ix) national and local economic trends and conditions, and industry conditions. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, high-moderate, moderate, low-moderate or low degree of risk. The results are then input into a "general allocation matrix" to determine an appropriate general valuation allowance.

Impaired Loans: A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Factors considered by management when evaluating impaired loans include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Generally, we report loans as impaired based on the method for measuring impairment in accordance with applicable accounting guidance. Loans held for sale are not reported as impaired, as these loans are recorded at lower of cost or fair value. Loans classified as nonperforming and loans that have been modified in a troubled debt restructuring are reported as impaired. Loans modified in a TDR continue to be reported as impaired. The majority of impaired loans are evaluated for an asset-specific allowance. We generally measure impairment and the related asset-specific allowance for impaired loans based on the difference between the recorded investment of the loan and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan. If the loan is collateral dependent, we measure impairment based upon the fair value of the underlying collateral, which we determine based on the current fair value of the collateral less estimated selling costs, instead of discounted cash flows. Loans are identified as collateral dependent if we believe that collateral is the sole source of repayment.

Charge-Offs: We charge off loans as a reduction to the allowance for loan and lease losses when we determine the loan is uncollectible and record subsequent recoveries of previously charged off amounts as an increase to the allowance for loan and lease losses.

Concentration of Credit Risk: The Company’s loans are generally to customers in Southern New Jersey, the Philadelphia area of Pennsylvania, and New York, New York. Loans to general building contractors, general merchandise stores, restaurants, motels, warehouse space, and real estate ventures (including construction loans) constitute a majority of commercial loans. The

concentrations of credit by type of loan are set forth in Note 4. Generally, loans are collateralized by assets of the borrower and are expected to be repaid from the borrower’s cash flow or proceeds from the sale of selected assets of the borrower.

Other Real Estate Owned (“OREO”): Real estate acquired through foreclosure or other proceedings is carried at the lower of cost or estimated fair value, less estimated costs to sell. When a property is acquired, the excess of the loan balance over the estimated fair value is charged to the allowance for loan losses. Costs of improving OREO are capitalized to the extent that the carrying value does not exceed its fair value less estimated selling costs. Subsequent valuation adjustments, declines, if any, are recognized as a charge against current earnings. Holding costs are charged to expense. Gains and losses on sales are recognized in noninterest income as they occur. The OREO balance is included in other assets on the balance sheets.

Interest Rate Risk: The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other borrowed and brokered funds, to make commercial, commercial mortgage, residential mortgage, and consumer loans, and to invest in overnight and term investment securities. Inherent in such activities is interest rate risk that results from differences in the maturities and repricing characteristics of these assets and liabilities. For this reason, management regularly monitors the level of interest rate risk and the potential impact on net income.

Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed and charged to expense using the straight-line method over the estimated useful lives of the assets, generally three years for computers and software, five to ten years for equipment and forty years for buildings. Leasehold improvements are amortized to expense over the shorter of the term of the respective lease or the estimated useful life of the improvements.

Lease: Lease classification is determined at inception for all lease transactions with an initial term greater than one year. Operating leases are included as right-of-use (“ROU”) assets within other assets, and operating lease liabilities are classified as other liabilities on our consolidated balance sheets. Our operating lease expense is included in occupancy and equipment within non-interest expense in our consolidated statements of income.

Stock-Based Compensation: Stock-based compensation expense is based on the grant date fair value, which is estimated using a Black-Scholes option pricing model. The fair value of stock-based compensation used in determining compensation expense generally equals the fair market value of our common stock on the date of grant. We generally recognize compensation expense on a straight-line basis over the award’s requisite service period based on the fair value of the award at grant date. Stock-based compensation expense is included in compensation and benefits in the consolidated statements of income.

Revenue recognition: Our revenue includes net interest income on financial instruments and non-interest income. Interest income and fees on loans, investment securities, and other financial instruments are recognized based on the contractual provisions of the underlying arrangements according to applicable accounting guidance. Deposit-related-fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers (Topic 606) is included in non-interest income in our consolidated statements of income.

Our deposit-related-fee-based revenues are recognized when or as those services are transferred to the customer and are generally recognized either immediately upon the completion of our service or over time as we perform services. Any services performed over time generally require that we render services each period and therefore we measure our progress in completing these services based upon the passage of time. Deposit-related fees are recognized over the period in which the related service is provided. Service charges on deposit accounts are earned on depository accounts for customers and include fees for account and overdraft services. Account services include fees for event-driven services and fees for periodic account maintenance activities. Our obligation for event-driven services is satisfied at the time of the event when the service is delivered, while our obligation for maintenance services is satisfied over the course of each month. Our obligation for overdraft services is satisfied at the time of the overdraft.

Income Taxes: We recognize the current and deferred tax consequences of all transactions that have been recognized in the financial statements using the provisions of the enacted tax laws. Current income tax expense represents our estimated taxes to be paid or refunded for the current period. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Thus, at the enactment date, deferred taxes are remeasured and the change is recognized in income tax expense. The recognition of deferred tax assets requires an assessment to determine the realization of such assets. Realization refers to the incremental benefit achieved through the reduction in future taxes payable or refunds receivable. We establish a valuation allowance for tax assets when it is more likely than not that they will not be realized, based

upon all available evidence. Realization of deferred tax assets is dependent on generating sufficient taxable income in the future.

When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits would be recognized in income tax expense on the income statement.

The Company did not recognize any interest or penalties related to income tax during the years ended December 31, 2022 and 2021, respectively. The Company does not have an accrual for uncertain tax positions as of December 31, 2022 and 2021, as deductions taken and benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. All years after 2018 are open under the original federal statute of limitations. For state tax returns, the Company is subject to income tax examinations by local tax authorities for years 2019 and after, except for the State of New Jersey which is still subject to income tax examinations for years 2018 and after.

Fair value: Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. Fair value measurement of a financial asset or liability is assigned to a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The accounting guidance for fair value requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Our most significant estimates pertain to our allowances for loan and lease losses, fair value measurements, impaired loans, the carrying value of OREO, and the valuation of deferred income taxes. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.

Segment Reporting: The Company operates one reportable segment of business, “community banking”. Through its community banking segment, the Company provides a broad range of retail and community banking services.

Other Comprehensive Income: Comprehensive income consists of net income and other gains and losses affecting shareholders' equity that, under GAAP, are excluded from net income, including unrealized gains and losses on available for sale securities.

For year 2022 and 2021, we did not reclassify any amounts from accumulated other comprehensive (loss) income to income. The following table provides the components of other comprehensive income, reclassifications to net income and the related tax effect for the year ended December 31, 2022 and 2021:


Year ended December 31,	2022		2021
	(Dollars in thousands)
Investment securities:
Net unrealized (loss) gain	$	(1,039)	$	(294)
Tax effect related to the unrealized loss (gain)	268		76

Accumulated other comprehensive income	$	(771)	$	(218)

Earnings Per Common Share: Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share considers common stock equivalents (when dilutive) outstanding during the period such as options outstanding and

convertible preferred stock. To the extent that stock equivalents are anti-dilutive, they have been excluded from the earnings per share calculation. Earnings per common share have been computed based on the following for 2022 and 2021:


	2022		2021
	(Dollars in thousands, except per share data)
Basic earnings per common share
Net income available to common shareholders	$	41,796	$	40,732
Basic weighted-average common shares outstanding	11,918,319		11,888,429
Basic earnings per common share	$	3.51	$	3.43
Diluted earnings per common share
Net income available to common shareholders	$	41,796	$	40,732
Dividend on Preferred Series B	27		28
Net income attributable to diluted common shares	$	41,823	$	40,760
Basic weighted-average common shares outstanding	11,918,319		11,888,429
Dilutive potential common shares	257,121		232,287
Total diluted weighted-average common shares outstanding	12,175,440		12,120,716
Diluted earnings per common share	$	3.44	$	3.36

For 2022 and 2021, there were 125,938 and 67,994 weighted average option shares outstanding, respectively, that were not included in the computation of diluted EPS because these shares were anti-dilutive.

Statement of Cash Flows: Cash and cash equivalents include cash and due from financial institutions and federal funds sold. For the purposes of the statement of cash flows, changes in loans and deposits are shown on a net basis.

Recently Issued Accounting Pronouncements:

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): During June 2016, the Financial Accounting Standard Board (FASB) issued ASU 2016-13, Financial Instruments-Credit Losses. ASU 2016-13 (Topic 326), replaces the incurred loss impairment methodology in current GAAP with an expected credit loss (CECL) methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. The ASU was amended in some aspects by subsequent Accounting Standards Updates. The guidance of the Financial Instruments-Credit Losses became effective for public entities except small reporting companies ("SRCs") for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all entities, early adoption will continue to be allowed. As a small reporting company, CECL is effective for fiscal years beginning after December 15, 2022 and interim periods within those years. The Company has selected a third-party software vendor for the CECL calculation and to assist in the implementation of the model. The Company will utilize a vintage loss rate calculation for all its loan portfolios, as well as supplement the loss estimate by including reasonable and supportable forecasts of macroeconomic conditions. The Company began to perform parallel runs of the new model to its current ALLL model during the first quarter of 2022, and results were consistent with management's expectations. Upon adoption, management anticipates an increase of between $0 and $3.0 million to the total balance of the allowance for credit losses and an increase of $0 and $1 million related to the allowance for credit losses on off-balance sheet commitments. All adjustments will be posted directly to retained earnings at adoption, net of tax.

ASU 2020-04, Reference Rate Reform (Topic 848): In March 2020, the FASB issued ASU No. 2020.-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance to entities for a limited period of time to ease the transition in accounting for and recognizing the effects of reference rate reform on financial reporting. Under the guidance, modifications of contracts due to reference rate reform will not require contract remeasurement or reassessment of a previous accounting determination. For hedge accounting, modification of critical terms of the hedge due to changes in reference rate reform will not affect hedge accounting or dedesignate the hedging relationship. The guidance also provides specific expedients for fair value hedges, cash flow hedges, and excluded components. Further, the guidance provides a none-time election to sell or transfer held to maturity debt

securities that are affected by the reference rate change. The guidance is effective upon issuance through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis. The Company does not expect the application of this guidance to have a material impact on the Consolidated Financial Statements.

Note 2. Cash and Due from Banks

The Company maintains various deposit accounts with other banks to meet normal funds transaction requirements, to satisfy deposit reserve requirements, and to compensate other banks for certain correspondent services. Management is responsible for assessing the credit risk of its correspondent banks. At December 31, 2022 and 2021, the vast majority of the Company's cash deposits with other banks were due from the Federal Reserve Bank of Philadelphia and the Federal Home Loan Bank of New York.

Note 3. Investment Securities

The following is a summary of the Company's investments in available for sale and held to maturity securities as of December 31, 2022 and 2021:


As of December 31, 2022	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
	(Dollars in thousands)
Available for sale:
Corporate debt obligations	$	500	$	—	$	—	$	500
Residential mortgage-backed securities	9,575		3		712		8,866

Total available for sale	$	10,075	$	3	$	712	$	9,366

Held to maturity:
States and political subdivisions	$	3,822	$	56	$	533	$	3,345
Residential mortgage-backed securities	5,556		—		1,096		4,460
Total held to maturity	$	9,378	$	56	$	1,629	$	7,805


As of December 31, 2021	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
	(Dollars in thousands)
Available for sale:
Corporate debt obligations	$	500	$	—	$	—	$	500
Residential mortgage-backed securities	12,513		372		42		12,843
Collateralized mortgage obligations	8		—		—		8
Total available for sale	$	13,021	$	372	$	42	$	13,351

Held to maturity:
States and political subdivisions	$	3,761	$	241	$	16	$	3,986
Residential mortgage-backed securities	6,157		—		118		6,039
Total held to maturity	$	9,918	$	241	$	134	$	10,025

The amortized cost and fair value of debt securities classified as available for sale and held to maturity, by contractual maturity as of December 31, 2022, are as follows:


	Amortized Cost		Fair Value
	(Dollars in thousands)
Available for sale:
Due within one year	$	—	$	—
Due after one year through five years	2,256		2,097
Due after five years through ten years	3,641		3,436
Due after ten years	4,178		3,833
Total available for sale	$	10,075	$	9,366

Held to maturity:
Due within one year	$	—	$	—
Due after one year through five years	1,346		1,402
Due after five years through ten years	—		—
Due after ten years	8,032		6,403
Total held to maturity	$	9,378	$	7,805

Expected maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without any penalty.

During the year ending December 31, 2022 and 2021, the Company did not sell any investment securities.

The following tables show the gross unrealized losses and fair value of the Company's investments which are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2022 and December 31, 2021.


As of December 31, 2022	Less Than 12 Months				12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
Available for sale:
Residential mortgage-backed securities	$	7,579	$	576	$	1,043	$	136	$	8,622	$	712
Total available for sale	$	7,579	$	576	$	1,043	$	136	$	8,622	$	712

Held to maturity:
States and political subdivisions	$	—	$	—	$	1,943	$	533	$	1,943	$	533
Residential mortgage-backed securities	—		—		4,460		1,096		4,460		1,096
Total held to maturity	$	—	$	—	$	6,403	$	1,629	$	6,403	$	1,629


As of December 31, 2021	Less Than 12 Months				12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
Available for sale:
Residential mortgage-backed securities	$	168	$	1	$	1,418	$	41	$	1,586	$	42
Total available for sale	$	168	$	1	$	1,418	$	41	$	1,586	$	42

Held to maturity:
States and political subdivisions	$	2,462	$	16	$	—	$	—	$	2,462	$	16
Residential mortgage-backed securities	6,039		118		—		—		6,039		118
Total held to maturity	$	8,501	$	134	$	—	$	—	$	8,501	$	134

The Company’s unrealized loss for the debt securities is comprised of 17 securities in the less than 12 months loss position and 7 securities in the 12 months or greater loss position at December 31, 2022. The mortgage-backed securities that had unrealized losses were issued or guaranteed by the US government or government sponsored entities. The unrealized losses associated with those mortgage-backed securities are generally driven by changes in interest rates and not due to credit losses given the explicit or implicit guarantees provided by the U.S. government. The states and political subdivisions securities that had unrealized losses were issued by a school district, and therefore the loss is attributed to changes in interest rates and not due to credit losses. Additionally, these securities are classified as held to maturity. Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, the Company does not consider the unrealized loss in these securities to be OTTI at December 31, 2022.

Other Than Temporarily Impaired Debt Securities (OTTI)

On at least a quarterly basis, we review all debt securities that are in an unrealized loss position for OTTI. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. Amortized cost includes adjustments (if any) made to the cost basis of an investment for accretion, amortization, previous other-than-temporary impairments. After an investment security is determined to be impaired, we evaluate whether the decline in value is other-than-temporary. Please refer to Note 1 - Description of Business and Summary of Significant Accounting Policies for a detailed description of our accounting policy for OTTI.

Note 4. Loans Receivable and Allowance for Loan and Lease Losses

Loans Receivable

As of December 31, 2022, the Company had $1.75 billion in loans receivable outstanding. Outstanding balances include a total net increase of $1.9 million and $1.7 million at December 31, 2022 and 2021, respectively, for net deferred loan costs, and unamortized discounts. The portfolios of loans receivable at December 31, 2022, and December 31, 2021, consist of the following:


	December 31, 2022		December 31, 2021
	(Dollars in thousands)
Commercial and Industrial	$	32,383	$	57,151
Construction	192,357		154,077
Real Estate Mortgage:
Commercial – Owner Occupied	125,950		123,672
Commercial – Non-owner Occupied	377,452		306,486
Residential – 1 to 4 Family	921,030		750,525
Residential – Multifamily	95,556		84,964
Consumer	6,731		7,972
Total Loans	$	1,751,459	$	1,484,847

An age analysis of past due loans by class at December 31, 2022 and December 31, 2021 as follows:


December 31, 2022	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Not Accruing		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
	(Dollars in thousands)
Commercial and Industrial	$	—	$	89	$	—	$	89	$	32,294	$	32,383	$	—
Construction	—		—		1,091		1,091		191,266		192,357		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—		400		400		125,550		125,950		—
Commercial – Non-owner Occupied	—		—		14,553		14,553		362,899		377,452		—
Residential – 1 to 4 Family	58		—		162		220		920,810		921,030		—
Residential – Multifamily	—		—		—		—		95,556		95,556		—
Consumer	78		—		70		148		6,583		6,731		—
Total Loans	$	136	$	89	$	16,276	$	16,501	$	1,734,958	$	1,751,459	$	—


December 31, 2021	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Not Accruing		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
	(Dollars in thousands)
Commercial and Industrial	$	—	$	349	$	224	$	573	$	56,578	$	57,151	$	—
Construction	—		—		1,139		1,139		152,938		154,077		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—		2,170		2,170		121,502		123,672		—
Commercial – Non-owner Occupied	—		—		242		242		306,244		306,486		—
Residential – 1 to 4 Family	81		—		533		614		749,911		750,525		—
Residential – Multifamily	—		—		—		—		84,964		84,964		—
Consumer	—		—		—		—		7,972		7,972		—
Total Loans	$	81	$	349	$	4,308	$	4,738	$	1,480,109	$	1,484,847	$	—

Allowance For Loan and Lease Losses (ALLL)

We maintain the ALLL at a level that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan portfolios as of the balance sheet date. The Company’s accounting policy for ALLL is more fully described in Note 1 - Description of Business and Summary of Significant Accounting Policies.

The following tables present the information regarding the allowance for loan and lease losses and associated loan data:


	Twelve Months Ended December 31, 2022
As of December 31, 2022					Real Estate Mortgage
(Dollars in thousands)	Commercial and Industrial		Construction		Commercial Owner Occupied		Commercial Non-owner Occupied		Residential 1 to 4 Family		Residential Multifamily		Consumer		Total
December 31, 2021	$	417	$	2,662	$	2,997	$	7,476	$	14,970	$	1,215	$	108	$	29,845
Charge-offs	—		—		—		—		(66)		—		—		(66)
Recoveries	14		100		18		—		134		—		—		266
Provisions (credit)	(41)		(181)		(717)		2,233		419		132		(45)		1,800
Ending Balance December 31 2022	$	390	$	2,581	$	2,298	$	9,709	$	15,457	$	1,347	$	63	$	31,845

Allowance for loan losses
Individually evaluated for impairment	$	—	$	—	$	31	$	500	$	18	$	—	$	—	$	549
Collectively evaluated for impairment	390		2,581		2,267		9,209		15,439		1,347		63		31,296
Balance at December 31, 2022	$	390	$	2,581	$	2,298	$	9,709	$	15,457	$	1,347	$	63	$	31,845

Loans
Individually evaluated for impairment	$	—	$	1,091	$	587	$	19,568	$	417	$	—	$	70	$	21,733
Collectively evaluated for impairment	32,383		191,266		125,363		357,884		920,613		95,556		6,661		1,729,726
Balance at December 31, 2022	$	32,383	$	192,357	$	125,950	$	377,452	$	921,030	$	95,556	$	6,731	$	1,751,459

The decrease in allowance for loan losses for commercial owner occupied is due to improved delinquency metrics. The increase in commercial non-owner occupied, residential 1-4 family, and multifamily is attributed to higher loan balances.


	Twelve Months Ended December 31, 2021
As of December 31, 2021					Real Estate Mortgage
(Dollars in thousands)	Commercial and Industrial		Construction		Commercial Owner Occupied		Commercial Non-owner Occupied		Residential 1 to 4 Family		Residential Multifamily		Consumer		Total
December 31, 2020	$	492	$	3,359	$	3,078	$	8,398	$	12,595	$	1,639	$	137	$	29,698
Charge-offs	—		(226)		(152)		—		(49)		—		—		(427)
Recoveries	18		—		52		4		—		—		—		74
Provisions	(93)		(471)		19		(926)		2,424		(424)		(29)		500
Ending Balance December 31 2021	$	417	$	2,662	$	2,997	$	7,476	$	14,970	$	1,215	$	108	$	29,845

Allowance for loan losses
Individually evaluated for impairment	$	8	$	300	$	5	$	218	$	60	$	—	$	—	$	591
Collectively evaluated for impairment	409		2,362		2,992		7,258		14,910		1,215		108		29,254
Balance at December 31, 2021	$	417	$	2,662	$	2,997	$	7,476	$	14,970	$	1,215	$	108	$	29,845

Loans
Individually evaluated for impairment	$	224	$	1,139	$	2,369	$	5,577	$	993	$	—	$	—	$	10,302
Collectively evaluated for impairment	56,927		152,938		121,303		300,909		749,532		84,964		7,972		1,474,545
Balance at December 31, 2021	$	57,151	$	154,077	$	123,672	$	306,486	$	750,525	$	84,964	$	7,972	$	1,484,847

Impaired Loans:

A loan is considered impaired when, based on the current information and events, it is probable that the Company will be unable to collect the payments of principal and interest as of the date such payments were due. Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet payment obligations as they become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provisions. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

All our impaired loans are assessed for recoverability based on an independent third-party full appraisal to determine the net realizable value (“NRV”) based on the fair value of the underlying collateral, less cost to sell and other costs or the present value of discounted cash flows in the case of certain impaired loans that are not collateral dependent.

The following tables provide further detail on impaired loans and the associated ALLL at December 31, 2022 and December 31, 2021:


December 31, 2022	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded:
Commercial and Industrial	$	—	$	—	$	—
Construction	1,091		5,808		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—		—
Commercial – Non-owner Occupied	11,116		11,116		—
Residential – 1 to 4 Family	162		162		—
Residential – Multifamily	—		—		—
Consumer	70		70		—
	12,439		17,156		—
With an allowance recorded:
Commercial and Industrial	—		—		—
Construction	—		—		—
Real Estate Mortgage:
Commercial – Owner Occupied	587		587		31
Commercial – Non-owner Occupied	8,452		8,452		500
Residential – 1 to 4 Family	255		255		18
Residential – Multifamily	—		—		—
Consumer	—		—		—
	9,294		9,294		549
Total:
Commercial and Industrial	—		—		—
Construction	1,091		5,808		—
Real Estate Mortgage:
Commercial – Owner Occupied	587		587		31
Commercial – Non-owner Occupied	19,568		19,568		500
Residential – 1 to 4 Family	417		417		18
Residential – Multifamily	—		—		—
Consumer	70		70		—
	$	21,733	$	26,450	$	549


December 31, 2021	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded:
Commercial and Industrial	$	216	$	216	$	—
Construction:	—		—		—
Real Estate Mortgage:
Commercial – Owner Occupied	2,170		2,170		—
Commercial – Non-owner Occupied	242		242		—
Residential – 1 to 4 Family	465		599		—
Residential – Multifamily	—		—		—
Consumer	—		—		—
	3,093		3,227		—
With an allowance recorded:
Commercial and Industrial	8		16		8
Construction:	1,139		5,856		300
Real Estate Mortgage:
Commercial – Owner Occupied	199		199		5
Commercial – Non-owner Occupied	5,335		5,335		218
Residential – 1 to 4 Family	528		528		60
Residential – Multifamily	—		—		—
Consumer	—		—		—
	7,209		11,934		591
Total:
Commercial and Industrial	224		232		8
Construction:	1,139		5,856		300
Real Estate Mortgage:
Commercial – Owner Occupied	2,369		2,369		5
Commercial – Non-owner Occupied	5,577		5,577		218
Residential – 1 to 4 Family	993		1,127		60
Residential – Multifamily	—		—		—
Consumer	—		—		—
	$	10,302	$	15,161	$	591

The following table presents by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2022 and 2021:


	Year Ended December 31,
	2022				2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Commercial and Industrial	$	114	$	—	$	48	$	1
Construction	1,129		—		1,275		—
Real Estate Mortgage:
Commercial – Owner Occupied	1,772		31		2,378		13
Commercial – Non-owner Occupied	11,108		645		5,644		365
Residential – 1 to 4 Family	541		20		937		28
Residential – Multifamily	—		—		—		—
Consumer	42		1		—		—
Total	$	14,706	$	697	$	10,282	$	407

Troubled Debt Restructuring (TDRs)

We reported performing TDR loans (not reported as non-accrual loans) of $5.5 million and $6.0 million, respectively, at December 31, 2022 and December 31, 2021. Non-performing TDRs were zero at December 31, 2022 and December 31, 2021, respectively. There were no new loans modified as a TDR and no additional commitments to lend additional funds to debtors whose loans have been modified in TDRs for the year ended December 31, 2022 and the year ended December 31, 2021, respectively.

A TDR is a loan the terms of which have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. TDRs result from our loss mitigation activities that include rate reductions, extension of maturity, or a combination of both, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. TDRs are classified as impaired loans and are included in the impaired loan disclosures. TDRs are also evaluated to determine whether they should be placed on non-accrual status. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is repaid in full, foreclosed, sold or it meets the criteria to be removed from TDR status.

At the time a loan is modified in a TDR, we consider the following factors to determine whether the loan should accrue interest:

•Whether there is a period of current payment history under the current terms, typically 6 months;

•Whether the loan is current at the time of restructuring; and

•Whether we expect the loan to continue to perform under the restructured terms with a debt coverage ratio that complies with the Bank’s credit underwriting policy of 1.25 times debt service.

TDRs are generally included in nonaccrual loans and may return to performing status after a minimum of six consecutive monthly payments under restructured terms and also meeting other performance indicators. We review the financial performance of the borrower over the past year to be reasonably assured of repayment and performance according to the modified terms. This review consists of an analysis of the borrower’s historical results; the borrower’s projected results over the next four quarters; and current financial information of the borrower and any guarantors. The projected repayment source needs to be reliable, verifiable, quantifiable and sustainable. At the time of restructuring, the amount of the loan principal for which we are not reasonably assured of repayment is charged-off, but not forgiven.

All TDRs are also reviewed quarterly to determine the amount of any impairment. The nature and extent of impairment of TDRs, including those that have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses. For the TDR loans, we had specific reserves of $151,000 and $254,000 in the allowance at December 31, 2022 and December 31, 2021, respectively. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and result in potential incremental losses. These potential incremental losses have been factored into our overall allowance for loan losses estimate.

Credit Quality Indicators

As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to the risk grades of loans, the level of classified loans, net charge-offs, nonperforming loans (see details above) and the general economic conditions in the region.

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 7. Grades 1 through 4 are considered “Pass”. A description of the general characteristics of the seven risk grades is as follows:

1.Good: Borrower exhibits the strongest overall financial condition and represents the most creditworthy profile.

2.Satisfactory (A): Borrower reflects a well-balanced financial condition, demonstrates a high level of creditworthiness and typically will have a strong banking relationship with the Bank.

3.Satisfactory (B): Borrower exhibits a balanced financial condition and does not expose the Bank to more than a normal or average overall amount of risk. Loans are considered fully collectable.

4.Watch List: Borrower reflects a fair financial condition, but there exists an overall greater than average risk. Risk is deemed acceptable by virtue of increased monitoring and control over borrowings. Probability of timely repayment is present.

5.Other Assets Especially Mentioned (OAEM): Financial condition is such that assets in this category have a potential weakness or pose unwarranted financial risk to the Bank even though the asset value is not currently impaired. The asset does not currently warrant adverse classification but if not corrected could weaken and could create future increased risk exposure. Includes loans which require an increased degree of monitoring or servicing as a result of internal or external changes.

6.Substandard: This classification represents more severe cases of #5 (OAEM) characteristics that require increased monitoring. Assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral. Asset has a well-defined weakness or weaknesses that impairs the ability to repay debt and jeopardizes the timely liquidation or realization of the collateral at the asset’s net book value.

7.Doubtful: Assets which have all the weaknesses inherent in those assets classified #6 (Substandard) but the risks are more severe relative to financial deterioration in capital and/or asset value; accounting/evaluation techniques may be questionable and the overall possibility for collection in full is highly improbable. Borrowers in this category require constant monitoring, are considered work out loans and present the potential for future loss to the Bank.

An analysis of the credit risk profile by internally assigned grades as of December 31, 2022 and 2021, is as follows:


At December 31, 2022	Pass		OAEM		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial and Industrial	$	32,383	$	—	$	—	$	—	$	32,383
Construction	191,266		—		1,091		—		192,357
Real Estate Mortgage:
Commercial – Owner Occupied	122,523		3,027		400		—		125,950
Commercial – Non-owner Occupied	362,899		—		14,553		—		377,452
Residential – 1 to 4 Family	920,868		—		162		—		921,030
Residential – Multifamily	95,556		—		—		—		95,556
Consumer	6,661		—		70		—		6,731
Total	$	1,732,156	$	3,027	$	16,276	$	—	$	1,751,459


At December 31, 2021	Pass		OAEM		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial and Industrial	$	56,927	$	—	$	224	$	—	$	57,151
Construction:	152,938		—		1,139		—		154,077
Real Estate Mortgage:
Commercial – Owner Occupied	118,473		3,029		2,170		—		123,672
Commercial – Non-owner Occupied	291,864		14,380		242		—		306,486
Residential – 1 to 4 Family	749,904		—		621		—		750,525
Residential – Multifamily	84,964		—		—		—		84,964
Consumer	7,972		—		—		—		7,972
Total	$	1,463,042	$	17,409	$	4,396	$	—	$	1,484,847

Loans to Related Parties: In the normal course of business, the Company has granted loans to its executive officers, directors and their affiliates (related parties). All loans to related parties were made in the ordinary course of business.

An analysis of the activity of such related party loans for 2022 is as follows:


	2022
	(Dollars in thousands)
Balance, beginning of year	$	8,282
Advances	527
Less: repayments	(1,145)
Balance, end of year	$	7,664

Pledged Loans: At December 31, 2022 and 2021, approximately $923.0 million and $751.1 million, respectively, of unpaid principal balance of loans were pledged to the FHLBNY on borrowings (Note 7). This pledge consists of a blanket lien on residential mortgages and certain qualifying commercial real estate loans.

Concentrations of Credit: Most of the Company's lending activity occurs within the areas of southern New Jersey and southeastern Pennsylvania, as well as other markets. We maintain discipline in our lending with a focus on portfolio diversification. In our underwriting process, we have limits on loans to one borrower, one industry as well as product concentrations. Our loan portfolio consists of residential, commercial real estate loans, construction loans, commercial and industry loans as well as consumer loans.

Note 5. OREO

Other real estate owned (OREO) at December 31, 2022 was $1.6 million, compared to $1.7 million at December 31, 2021, a decrease of $104,000. The OREO balances for 2022 and 2021 are included in the other assets in the balance sheets. The real estate owned at December 31, 2022, consisted of two properties. During 2022, the Company disposed of $2.4 million of OREO, recognizing a gain of $328,000, compared to $356,000 of OREO sold in 2021, recognizing a gain of $60,000. The Company did not write-down any OREO property during 2022 or 2021. Operating expenses related to OREO, net of related income, for 2022 and 2021, were $493,000 and $287,000, respectively.

An analysis of OREO activity for the years ended December 31, 2022 and 2021 is as follows:


	For the Year Ended December 31,
	2022		2021
	(Dollars in thousands)
Balance at beginning of period	$	1,654	$	139
Real estate acquired in settlement of loans	1,994		1,811
Sales of OREO, net	(2,426)		(356)
Valuation adjustments	328		60
Balance at end of period	$	1,550	$	1,654

Note 6. Deposits

Deposits at December 31, 2022 and 2021, consisted of the following:


	2022		2021
	(Dollars in thousands)
Noninterest-bearing demand	$	352,546	$	553,810
NOWs	83,080		93,189
Money market deposits	348,680		348,427
Savings deposits	188,540		179,238
Time deposits over $250,000	119,009		163,916
Other time deposits	373,689		420,710
Brokered time deposits	110,437		9,120
Total deposits	$	1,575,981	$	1,768,410

Scheduled maturities of certificates of deposit at December 31, 2022 are as follows:


Years Ending December 31,	(Dollars in thousands)
2023	$	364,878
2024	208,856
2025	10,752
2026	14,389
2027	4,260

Total	$	603,135

The following table is a summary of interest expense on deposits by category:


	2022		2021
	(Dollars in thousands)
NOWs	$	417	$	324
Money market deposits	3,927		2,140
Savings deposits	905		664
Time deposits	4,890		6,398
Brokered time deposits	932		228
Total	$	11,071	$	9,754

Note 7. Borrowings

An analysis of borrowings at December 31, 2022 and 2021 is as follows:


		2022				2021
	Maturity Date or Range	Amount		Weighted Average Rate		Amount		Weighted Average Rate
		(Dollars in thousands, except rates)
Borrowed funds:
Federal Home Loan Bank advances	Less than one year	$	83,150	1.84	%	$	20,000	0.45	%
	One to three years	—		—	%	58,150		0.51	%

	Total	$	83,150			$	78,150



Subordinated debentures, capital trusts	November 2035	$	5,155	6.35	%	$	5,155	1.82	%
	November 2035	5,155		6.35	%	5,155		1.82	%
	September 2037	3,093		6.27	%	3,093		1.70	%
	Total	$	13,403			$	13,403
Subordinated debentures notes, net	July 15, 2030	$	29,518	6.50	%	$	29,139	6.50	%

At December 31, 2022, the Company had a $693.7 million line of credit from the FHLBNY, of which $83.2 million, as detailed above, was outstanding, $50.0 million was a letter of credit to secure public deposits, and $560.5 million was unused.

Subordinated Debentures – Capital Trusts: On August 23, 2005, Parke Capital Trust I, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $5,000,000 of variable rate capital trust pass-through securities to investors. The variable interest rate re-prices quarterly at the three-month LIBOR plus 1.66% and was 6.35% at December 31, 2022. Parke Capital Trust I purchased $5,155,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after November 23, 2010, at par. The capital securities must be redeemed upon final maturity of the subordinated debentures on November 23, 2035. Proceeds of approximately $4.2 million were contributed to paid-in capital at the Bank. The remaining $955,000 was retained at the Company for future use.

On August 23, 2005, Parke Capital Trust II, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $5,000,000 of fixed/variable rate capital trust pass-through securities to investors. Currently, the interest rate is variable at 6.35%. The variable interest rate re-prices quarterly at the three-month LIBOR plus 1.66% beginning November 23, 2010. Parke Capital Trust II purchased $5,155,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after November 23, 2010, at par. The capital securities must be redeemed upon final maturity of the subordinated debentures on November 23, 2035. Proceeds of

approximately $4.2 million were contributed to paid-in capital at the Bank. The remaining $955,000 was retained at the Company for future use.

On June 21, 2007, Parke Capital Trust III, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $3,000,000 of variable rate capital trust pass-through securities to investors. The variable interest rate re-prices quarterly at the three-month LIBOR plus 1.50% and was 6.27% at December 31, 2022. Parke Capital Trust III purchased $3,093,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after December 15, 2012, at par. The capital securities must be redeemed upon final maturity of the subordinated debentures on September 15, 2037. The proceeds were contributed to paid-in capital at the Bank.

Subordinated Debentures – Notes: On July 15, 2020, Parke Bancorp, Inc. (the “Company”) issued and sold $30 million in aggregate principal amount of its 6.50% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “Notes”) to certain qualified institutional buyers and accredited investors (the “Purchasers”). The Notes were offered and sold by the Company to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and the provisions of Regulation D promulgated thereunder (the “Private Placement”). The Company intends to use the net proceeds from the offering for general corporate purposes. The Notes have a ten-year term and, from and including the date of issuance to but excluding July 15, 2025, will bear interest at a fixed annual rate of 6.50%, payable semi-annually in arrears. From and including July 15, 2025 to but excluding the maturity date or earlier redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then-current three-month SOFR (provided, that in the event the three-month SOFR is less than zero, the three-month SOFR will be deemed to be zero) plus 644 basis points, payable quarterly in arrears. The Notes are redeemable, in whole or in part, at the Company’s option, on any scheduled interest payment date on or after July 15, 2025, and at any time upon the occurrence of certain events. Any redemption of the Notes will be subject to prior regulatory approval to the extent required. There were approximately $948,000 in costs associated with the issuance of this debt.

Note 8. Premises and Equipment

A summary of the cost and accumulated depreciation and amortization of Company premises and equipment as of December 31, 2022 and 2021 is as follows:


	2022		2021
	(Dollars in thousands)
Land	$	1,044	$	1,044
Building and improvements	7,282		7,250
Furniture and equipment	4,044		3,926
Total premises and equipment	12,370		12,220
Less: accumulated depreciation and amortization	(6,412)		(5,955)
Premises and equipment, net	$	5,958	$	6,265

Depreciation and amortization expense was $457,000 and $496,000 in 2022 and 2021, respectively.

Note 9. Leases

We lease three retail branches and a parcel of land for a retail branch location. These leases generally have remaining terms of 10 years or less except the land lease, which has a remaining lease term of eighty-three years. Some of the leases may include options to renew the leases. The exercise of lease renewal is at our sole discretion.

Our right-of-use assets and lease liabilities for operating leases are included in other assets and other liabilities on our consolidated balance sheets. We use the interest rate implicit in the lease or incremental borrowing rate in determining the present value of lease payments. At December 31, 2022, we had future minimum lease payments of $27.6 million and imputed interest of $24.5 million and lease liability of $2.7 million. The weighted average remaining lease term was 46.3 years and weighted average discount rate was 7.14% at December 31, 2022, respectively. Our operating lease expense is included in

occupancy expenses within non-interest expense in our consolidated statements of income. Total operating lease expense consists of operating lease cost, which is recognized on a straight-line basis over the lease term, and variable lease cost, which is recognized based on actual amounts incurred.

The following table presents information about our operating leases at the year ended December 31, 2022.


Dollars in thousands	2022
Lease right of use assets (ROU)	$	2,656
Lease liabilities	$	2,656

The following table presents future undiscounted cash flows on our operating leases:


Years Ending December 31,	(Dollars in thousands)
2023	$	332
2024	348
2025	352
2026	283
2027	187
Thereafter	26,114
Total undiscounted lease payments	$	27,616
Impact of present value discount	$	(24,535)

Note 10. Shareholders’ Equity

Common Stock Dividend: The Company paid a $0.16 per share dividend for the first and second quarters of 2022. The dividend was increased to $0.18 per share for the third and fourth quarters of 2022. During 2022, the Company paid a total of $7.9 million in common stock cash dividends. The Company paid a $0.16 per share quarterly dividend each quarter of 2021. During 2021, the Company paid a total of $7.6 million in common stock cash dividends.

The timing and amount of future dividends will be within the discretion of the Board of Directors and will depend on the consolidated earnings, financial condition, liquidity, and capital requirements of the Company and its subsidiaries, applicable governmental regulations and policies, and other factors deemed relevant by the Board.

Treasury Stock: No treasury stock was repurchased during 2022 and 2021.

Stock Options: After shareholder approval in 2020, the 2020 Equity Incentive Plan (the “2020 Plan”) became effective. In addition, the Company also has the 2015 Equity Incentive Plan (the “2015 Plan”). No future awards are being granted under the 2015 Plan. The 2020 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. Collectively, the 2015 Plan and the 2020 Plan are referred to as Stock Option Plans. Under the 2020 Plan, the Company may grant options to purchase up to 935,000 shares of Company's common stock and award up to 55,000 of restricted stock. At December 31, 2022, there were 469,000 shares remaining for future option grants, and 48,482 shares remaining for future restricted stock awards under the plan.

The Company did not grant any options in 2021.

During 2022, options to purchase 202,500 shares of common stock at $21.66 per share were awarded and will expire no later than ten years following the grant date. The options granted vest over a five-year service period, with 20% of the awards vesting on each anniversary of the date of grant. The fair value of the options granted, as computed using the Black-Sholes option-pricing model, was determined to be $4.96 per option based upon the following underlying assumptions: a risk-free interest rate, expected option life, expected stock price volatility, and dividend yield of 3.25%, 6.5 years, 27.07%, and 2.95%. respectively.

The risk-free interest rate was based on the U.S. Treasury yield at the option grant date for securities with a term matching the expected life of the options granted. The expected life was calculated using the "simplified" method provided for under Staff Accounting Bulletin No. 110. Expected volatility was calculated based upon the actual price history of the Company's common stock up until the date of the option grants. The dividend yield was calculated using the previous four quarter payment history.

During 2022, compensation expense for stock options was $348.7 thousand.

A summary of stock options at December 31, 2022 and 2021 was as follows:


	Year Ended December 31, 2022		Year Ended December 31, 2021
Stock Options:	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
Outstanding at beginning of period	532,461	$13.34	602,335	$12.87
Granted	202,500	$21.66	—	$—
Exercised	(41,136)	$9.87	(49,048)	$7.81
Forfeited	(4,698)	$21.60	(20,826)	$12.91

Outstanding at end of period	689,127	$15.93	532,461	$13.34
Non-vested at end of period	462,205	$17.21	282,700	$13.79
Exercisable at end of period	226,922	$13.33	249,761	$12.83

The total amount of compensation cost remaining to be recognized relating to unvested employees and directors option grants as of December 31, 2022 was $1.3 million. The weighted-average period over which the expense is expected to be recognized is 4.2 years. At December 31, 2022, the intrinsic value of options exercisable and all options outstanding was approximately $1.7 million and $3.3 million, respectively.

The total amount of compensation cost remaining to be recognized relating to unvested option grants as of December 31, 2021 was $516,600. The weighted-average period over which the expense is expected to be recognized was 2.8 years. At December 31, 2021, the intrinsic value of options exercisable and all options outstanding was approximately $2.0 million and $4.0 million, respectively.

Under the 2020 Plan, the Company was authorized to issue 55,000 shares of restricted stock upon the grant of awards. All restricted stocks vests over five years. The table below presents the status of the restricted stock units at December 31, 2022, and the changes during the year ended December 31, 2022.


	Restricted Stock Units	Weighted Average Grant-Date Fair Value
Outstanding and unvested at December 31, 2021	4,693	18.76
Granted	3,312	21.13
Vested	(2,314)	19.87
Outstanding and unvested at December 31, 2022	5,691	19.69

The Company recognized $46,007 and $32,006 compensation costs of the restricted shares during year 2022 and 2021.

Preferred Stock: In December of 2013, the Company completed a private placement of newly designated 6% Non-Cumulative Perpetual Convertible Preferred Stock, Series B, with a liquidation preference of $1,000 per share. The Company sold 20,000 shares in the placement for gross proceeds of $20.0 million. Each share of Series B Preferred Stock is convertible, at the option of the holder into approximately 137.6 shares of Common Stock at December 31, 2022. There were 445 shares of Series B Preferred Stock outstanding at December 31, 2022. Upon full conversion of the outstanding shares of the Series B Preferred Stock, the Company will issue approximately 61,232 shares of Common Stock assuming that the conversion rate does not change. The conversion rate and the total number of shares to be issued would be adjusted for future stock dividends, stock splits and other corporate actions. The conversion rate was set using a conversion price for the common stock of $10.64, which

was approximately 20% over the closing price of the Common Stock on October 10, 2013, the day the Series B Preferred Stock was priced.

During 2021, preferred stockholders converted 35 shares of preferred shares into 4,813 shares of common stock, respectively. There were no preferred shares converted to common stock during 2022.

The Company has recorded dividends on preferred stock in the approximate amount of $26,700 and $28,000 for the years ended December 31, 2022 and 2021, respectively. The Company paid quarterly cash dividends of $15 per share on the preferred stock for year 2022. The preferred stock qualifies for and is accounted for as equity securities and is included in the Company’s Tier I capital since issued.

Note 11. Income Taxes

Income tax expense for 2022 and 2021 consisted of the following:


	2022		2021
	(Dollars in thousands)
Current tax expense:
Federal	$	12,696	$	9,906
State	2,865		2,952
	15,561		12,858
Deferred tax (benefit)/expense	(1,308)		1,079
Income tax expense	$	14,253	$	13,937

The components of the net deferred tax asset at December 31, 2022 and 2021 were as follows:


	2022		2021
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses	$	7,758	$	7,398
Supplemental Executive Retirement Plan ("SERP")	1,537		1,512
Deferred Loan Fees	1,254		—

Nonaccrued interest	67		79
Non-qualified stock options and restricted stock	210		167
Write-down on partnership investment	133		135
Unrealized loss on securities	183		—
PPP Deferred Loan Fees	4		185

Other	54		61
	11,200		9,537
Valuation allowance	(133)		(135)
Total gross deferred tax assets	11,067		9,402
Deferred tax liabilities:
Depreciation	(79)		(107)
Partnership income	(55)		(35)
Unrealized gain	—		(85)
Deferred loan costs	(1,749)		(1,567)
Total gross deferred tax liabilities	(1,883)		(1,794)
Net deferred tax asset	$	9,184	$	7,608

A reconciliation of the Company’s effective income tax rate with the statutory federal rate for 2022 and 2021 is as follows:


	2022		2021
	(Dollars in thousands)
At Federal statutory rate	$	11,776	$	11,531
Adjustments resulting from:
State income taxes, net of Federal tax benefit	2,400		2,372
Non-controlling interest	—		(46)
Tax exempt income	(22)		(15)
BOLI	(119)		(121)
Stock compensation	(89)		(94)
Nondeductible expenses	1		8
Nondeductible executive compensation	84		87


Other	222		215
	$	14,253	$	13,937

Management has evaluated the Company’s tax positions and concluded that the Company has taken no uncertain tax positions that require adjustments to the financial statements. With few exceptions, the Company is no longer subject to income tax examinations by federal and local tax authorities for years before 2019, and by the State of New Jersey for years before 2018. The Company is still subject to examination for 2019 and after.

The Company recorded income tax expense of $14.3 million on income before taxes of $56.1 million on for the year ended December 31, 2022, resulting in an effective tax rate of 25.4%, compared to income tax expense of $13.9 million on income before taxes of $54.9 million for the same period of 2021, resulting in an effective tax rate of 25.4%.

Note 12. Retirement Plans

The Company has a Supplemental Executive Retirement Plan (“SERP”) covering certain members of management.

The net SERP pension cost was approximately $449,000 in 2022 and benefit was approximately $148,000 in 2021. The unfunded benefit obligation, which was included in other liabilities, was approximately $6.3 million at December 31, 2022 and $6.1 million at December 31, 2021.

The benefit obligation at December 31, 2022 and December 31, 2021 was calculated as follows:


	2022		2021
	(Dollars in thousands)
Benefit obligation, January 1	$	6,101	$	6,482
Service cost/(benefit)	121		(498)
Interest cost	328		350
Benefits paid	(239)		(233)
Accrued liability at December 31	$	6,311	$	6,101

The net SERP pension cost for 2022 and benefit for 2021 was calculated as follows:


	2022		2021
	(Dollars in thousands)
Service cost/(benefit)	$	121	$	(498)
Interest cost	328		350
	$	449	$	(148)

The service cost (benefit) for 2022 and 2021 are included in the compensation cost in the income statement. The discount rate used in determining the actuarial present value of the projected benefit obligation was 5.5% for 2022 and 2021. Annual benefit payments are estimated at $512,046 for 2023, $785,046 for 2024, $785,046 for 2025, $785,046 for 2026, $785,046 for 2027 and $5.0 million thereafter.

The Company has a 401(k) Plan covering substantially all employees. Under the Plan, the Company is required to contribute 3% of all qualifying employees’ eligible salary to the Plan. The Plan expense in 2022 was $246,000 and $222,000 in 2021.

Note 13. Regulatory Matters

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is 2.50%. The Bank made a one-time election to opt-out the net unrealized gain or loss on available for sale securities in computing regulatory capital. At December 31, 2022, the Bank was considered “well capitalized" under the regulatory framework for prompt corrective action.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2022 and 2021 the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.

Community Bank Leverage Ratio

The Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), enacted in May 2018, introduced an optional simplified measure of capital adequacy for qualifying community banking organizations with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of tangible equity capital divided by average consolidated assets (“CBLR”) of between 8 and 10 percent. Under the statute, any qualifying depository institution or holding company that maintains a leverage ratio exceeding the CBLR will be considered to satisfy the generally applicable leverage and risk-based regulatory capital requirements.

Under final regulations adopted by the federal banking agencies under the EGRRCPA, a community banking organization may opt into the CBLR framework if it has a Tier 1 leverage ratio of at least 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework will not be required to report or calculate compliance with risk-based capital requirements and will also be considered to have met the well-capitalized ratio requirements under the prompt corrective action regulations. We have elected to use the CBLR framework and is presented as of December 31, 2022.

On April 6, 2020, federal banking regulators issued two interim final rules that make changes to the CBLR ratio framework and implement certain directives of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The first of the April 2020 interim final rules reduced the minimum ratio from 9% to 8% as well as establishing a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition from the temporary 8% CBLR requirement to a 9% requirement. It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, an 8.5% minimum for 2021 and 9% thereafter, while maintaining a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.

The Company and Bank's regulatory capital as of December 31, 2022 and 2021, is presented in the following table.


As of December 31, 2022	Actual			For Capital Adequacy Purpose*
Company	Amount		Ratio	Amount		Ratio
	(Dollars in thousands except ratios)
Total risk-based capital	$	298,056	20.59%	$	115,797	8.00%
Tier 1 risk-based capital	279,963		19.34%	86,848		6.00%
Tier 1 leverage	279,963		14.40%	77,775		4.00%
Tier 1 common equity	266,115		18.38%	65,136		4.50%
Parke Bank


Community Bank Leverage Ratio	308,155		15.85%	175,009		9.00%


As of December 31, 2021	Actual			For Capital Adequacy Purpose*
Company	Amount		Ratio	Amount		Ratio
	(Dollars in thousands except ratios)
Total risk-based capital	$	290,965	22.57%	$	103,151	8.00%
Tier 1 risk-based capital	245,519		19.04%	77,363		6.00%
Tier 1 leverage	245,519		11.49%	85,494		4.00%
Tier 1 common equity	231,671		17.97%	58,023		4.50%
Parke Bank


Community Bank Leverage Ratio	273,884		12.82%	181,640		8.50%

* Combination of both community bank leverage approach and the regular rule of capital adequacy.

Note 14. Other Related Party Transactions

A member of the Board of Directors is a principal of an employee benefits insurance agency that provides all the medical, life and disability insurance coverage for the Company. The cost of these employee benefits for the Company and its employees totaled $1.3 million in 2022 and $1.2 million in 2021.

Note 15. Commitments and Contingencies

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of these instruments reflect the extent of the Company’s involvement in these particular classes of financial instruments. The Company’s exposure to the maximum possible credit risk in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The Company evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment and income-producing commercial properties. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to fund fixed-rate loans were immaterial at December 31, 2022. Variable-rate commitments are generally issued for less than one year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. Management believes that off-balance sheet risk is not material to the results of operations or financial condition. As of December 31, 2022 and 2021, unused commitments to extend credit amounted to approximately $159.0 million and $117.7 million, respectively.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of December 31, 2022 and 2021, standby letters of credit with customers were $1.5 million and $1.5 million, respectively.

The Company also has entered into an employment contract with the President of the Company, which provides for continued payment of certain employment salary and benefits prior to the expiration date of the agreement and in the event of a change in control, as defined. The Company has also entered into Change-in-Control Severance Agreements with certain officers which provide for the payment of severance in certain circumstances following a change in control.

We provide banking services to customers that are licensed by various States to do business in the cannabis industry as growers, processors and dispensaries. Cannabis businesses are legal in these States, although it is not legal at the federal level. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state legal cannabis businesses. A financial institution that provides services to cannabis-related businesses can comply with Bank Secrecy Act (“BSA”) disclosure standards by following the FinCEN guidelines. We maintain stringent written policies and procedures related to the acceptance of such businesses and to the monitoring and maintenance of such business accounts. We conduct a significant due diligence review of the cannabis business before the business is accepted, including confirmation that the business is properly licensed by the applicable state. Throughout the relationship, we continue monitoring the business, including site visits, to ensure that the business continues to meet our stringent requirements, including maintenance of required licenses and periodic financial reviews of the business.

At December 31, 2022 and 2021, deposit balances from cannabis customers were approximately $177.3 million and $375.2 million, or 11.3% and 21.2% of total deposits, respectively, with two customers accounting for 36.9% and 19.3% of the total at December 31, 2022 and 2021. At December 31, 2022 and 2021, there were cannabis-related loans in the amounts of $3.8 million and $5.4 million, respectively.

Armored Car Matter

An armored car company used by the Bank to transport and store cash for the Bank’s cannabis-related customers, has informed the Company that some of the cash stored for the Bank is missing from its vault and is presumed to have been stolen. The amount that the Bank had recorded as being held at the armored car company's facility on the last day that records were provided was $9.5 million. There is not enough information to determine the exact amount of the potential loss, if any, as well as the amount that could be recovered. The Bank is working with relevant state and federal law enforcement authorities to investigate this matter as well as pursuing judicial avenues of recovery. The Bank is pursuing various avenues of recovery that it may have, including, among others, possible insurance claims. If it is ultimately determined that a loss is probable and estimable, we will record the loss in the appropriate fiscal period. If we are successful in making recoveries, we will record the recoveries in the period received, or when the receipt of such recoveries becomes certain.

Absecon Gardens Condominium Association v. Parke Bank Matter

In the normal course of business, there are outstanding various contingent liabilities such as claims and legal action, which are not reflected in the financial statements. In the opinion of management, no material losses are anticipated as a result of these actions or claims.

Note 16. Fair Value

Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures (Topic 820) of FASB Accounting Standards Codification, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Fair value is a market-based measurement, not an entity-specific measurement. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:

Level 1 Input:

1)Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Inputs:

1)Quoted prices for similar assets or liabilities in active markets.

2)Quoted prices for identical or similar assets or liabilities in markets that are not active.

3)Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

Level 3 Inputs:

1)Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.

2)These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Fair Value on a Recurring Basis:

The following is a description of the Company’s valuation methodologies for assets carried at fair value on a recurring basis. These methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes that its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting measurement date.

Investments in Available for Sale Securities:

Where quoted prices are available in an active market, securities or other assets are classified in Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security, then fair values are provided by independent third-party valuation services. These valuation services estimate fair values using pricing models and other accepted valuation methodologies, such as quotes for similar securities and observable yield curves and spreads. As part of the Company’s overall valuation process, management evaluates these third-party methodologies to ensure that they are representative of exit prices in the Company’s principal markets. Securities in Level 2 include mortgage-backed securities, corporate debt obligations, and collateralized mortgage-backed securities.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis at December 31, 2022 and 2021.


Financial Assets	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Investment securities and loans held for sale
As of December 31, 2022
Corporate debt obligations	$	—	$	500	$	—	$	500
Residential mortgage-backed securities	—		8,866		—		8,866


Total	$	—	$	9,366	$	—	$	9,366
As of December 31, 2021
Corporate debt obligations	$	—	$	500	$	—	$	500
Residential mortgage-backed securities	—		12,843		—		12,843
Collateralized mortgage-backed securities	—		8		—		8

Total	$	—	$	13,351	$	—	$	13,351

For the year ended December 31, 2022, there were no transfers between the levels within the fair value hierarchy.

There were no level 3 assets or liabilities held for the year ended at December 31, 2022 and December 31, 2021.

Fair Value on a Non-Recurring Basis:

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).


Financial Assets	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
As of December 31, 2022
Collateral dependent impaired loans	$	—	$	—	$	1,091	$	1,091
OREO	$	—	$	—	$	1,550	$	1,550
As of December 31, 2021
Collateral dependent impaired loans	$	—	$	—	$	4,087	$	4,087
OREO	$	—	$	—	$	1,654	$	1,654

All collateral dependent impaired loans have an independent third-party full appraisal to determine the NRV based on the fair value of the underlying collateral, less cost to sell (a range of 5% to 10%) and other costs, such as unpaid real estate taxes, that have been identified. The appraisal will be based on an "as-is" valuation and will follow a reasonable valuation method that addresses the direct sales comparison, income, and cost approaches to market value, reconciles those approaches, and explains the elimination of each approach not used. Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value.

OREO consists of real estate properties which are recorded at fair value. All properties have an independent third-party full appraisal to determine the fair value, less cost to sell (a range of 5% to 10%) and other costs, such as unpaid real estate taxes, that have been identified. The appraisal will be based on an "as-is" valuation and will follow a reasonable valuation method that addresses the direct sales comparison, income, and cost approaches to market value, reconciles those approaches, and explains the elimination of each approach not used. Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value.

Fair Value of Financial Instruments

The Company discloses estimated fair values for its significant financial instruments in accordance with FASB ASC (Topic 825), Disclosures about Fair Value of Financial Instruments. The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for estimating the fair value of other financial assets and liabilities are discussed below.

For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include cash and cash equivalents, accrued interest receivable, demand and other non-maturity deposits and accrued interest payable.

The Company used the following methods and assumptions in estimating the fair value of the following financial instruments:

Investment Securities: Fair value of securities available for sale is described above. Fair value of held to maturity securities is based upon quoted market prices for identical or similar assets.

Loans Held for Sale: Fair value represents the face value of the guaranteed portion of SBA loans pending settlement.

Loans Receivable: For residential mortgages loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the risk adjusting current interest rates at which similar loans would be made to borrowers with similar credit ratings and same remaining maturities, adjusted for the liquidity discount and underwriting uncertainty.

Restricted stock: Carrying value of FHLBNY and the Atlantic Central Bankers Bank stocks represent the par values of the stocks and is adjusted for impairments if any. The carrying value approximated fair value.

Time deposits: The fair value of time deposits is based on the discounted value of contractual cash flows, where the discount rate is estimated using the market rates currently offered for deposits of similar remaining maturities.

Borrowings: The fair values of FHLBNY borrowings, other borrowed funds and subordinated debt are based on the discounted value of estimated cash flows. The discounted rate is estimated using market rates currently offered for debts with similar credit rating, terms and remaining maturities.

For a further discussion of the Company’s valuation methodologies for financial instrument measured at fair value, see the Note 1 - Description of Business and Summary of Significant Accounting Policies of the Consolidated Financial Statements.

Bank premises and equipment, customer relationships, deposit base and other information required to compute the Company’s aggregate fair value are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of the Company.

The following table summarizes the carrying amounts and fair values for financial instruments at December 31, 2022 and December 31, 2021:


December 31, 2022	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	182,150	$	182,150	$	182,150	$	—	$	—
Investment securities AFS	9,366		9,366		—		9,366		—
Investment securities HTM	9,378		7,805		—		7,805		—
Restricted stock	5,439		5,439		—		—		5,439

Loans, net	1,719,614		1,661,974		—		1,641,444		20,530
Accrued interest receivable	8,768		8,768		—		8,768		—

Financial Liabilities:
Non-time deposits	$	972,846	$	972,846	$	—	$	972,846	$	—
Time deposits	603,135		609,097		—		609,097		—
Borrowings	126,071		127,254		—		127,254		—
Accrued interest payable	2,664		2,664		—		2,664		—


December 31, 2021	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	596,553	$	596,553	$	596,553	$	—	$	—
Investment securities AFS	13,351		13,351		—		13,351		—
Investment securities HTM	9,918		10,025		—		10,025		—
Restricted stock	5,144		5,144		—		—		5,144

Loans, net	1,455,002		1,440,398		—		1,430,686		9,712
Accrued interest receivable	7,681		7,681		—		7,681		—

Financial Liabilities:
Non-time deposits	$	1,174,664	$	1,174,664	$	—	$	1,174,664	$	—
Time deposits	593,746		597,791		—		597,791		—
Borrowings	120,882		117,636		—		117,636		—
Accrued interest payable	1,603		1,603		—		1,603		—

Note 17. Parent Company Only Financial Statements

Condensed financial information of the parent company only is presented in the following two tables:


Balance Sheets	December 31,

	2022		2021
	(Dollars in thousands)
Assets:
Cash	$	4,059	$	3,394
Investments in subsidiaries	308,030		274,532
Other assets	—		—
Total assets	$	312,089	$	277,926
Liabilities and Equity:
Subordinated debentures	$	42,921	$	42,732
Other liabilities	3,134		2,833
Equity	266,034		232,361
Total liabilities and equity	$	312,089	$	277,926


Statements of Income	Years ended December 31,
	2022		2021
	(Dollars in thousands)
Income:
Dividends from bank subsidiary	$	10,766	$	12,008
Total income	10,766		12,008
Expense:
Interest on subordinated debentures	$	2,586	$	2,394
Salary	160		160
Other expenses	118		142
Total expenses	2,864		2,696
Net Income	7,902		9,312
Equity in undistributed income of subsidiaries	33,921		31,448
Net income	41,823		40,760
Preferred stock dividend and discount accretion	(27)		(28)
Net income available to common shareholders	$	41,796	$	40,732


Statements of Cash Flows
	Years ended December 31,
	2022		2021
	(Dollars in thousands)
Cash Flows from Operating Activities
Net income	$	41,823	$	40,760
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries	(33,921)		(31,448)
Amortization of subordinate debt issuance costs	190		190
Changes in
(Increase) decrease in other assets	(2)		3
Increase in accrued interest payable and other accrued liabilities	55		16
Other	—		21
Net cash provided by operating activities	8,145		9,542



Cash Flows from Financing Activities


Proceeds from exercise of stock options	406		201
Payment of dividend on preferred stock and common stock	(7,886)		(7,633)
Net cash used in financing activities	(7,480)		(7,432)
Increase in cash and cash equivalents	665		2,110
Cash and Cash Equivalents, January 1,	3,394		1,284
Cash and Cash Equivalents, December 31,	$	4,059	$	3,394

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures.

(a) Disclosure Controls and Procedures

Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), the Company’s principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Annual Report on Form 10-K such disclosure controls and procedures are effective.

(b) Internal Control Over Financial Reporting

1. Management’s Annual Report on Internal Control Over Financial Reporting.

Management’s report on the Company’s internal control over financial reporting appears in the Company’s financial statements that are contained in this Annual Report on Form 10-K immediately following Item 8. Such report is incorporated herein by reference.

2. Changes in Internal control over financial reporting

During the last quarter of the year under report, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information contained under the headings “Proposal I - Election of Directors,” “Corporate Governance” and “Delinquent Section 16(a) Reports” in the Company’s Proxy Statement for its 2023 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Code of Ethics will be furnished without charge upon written request to the Chief Financial Officer, Parke Bancorp, Inc., 601 Delsea Drive, Washington Township, New Jersey, 08080.

There have been no material changes to the procedures by which security holders may recommend nominees to the Registrant’s Board of Directors since the date of the Registrant’s last proxy statement mailed to its stockholders.

Item 11. Executive Compensation.

The information contained in the sections captioned “Executive Compensation,” and “Director Compensation,” in the Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

(a) Security Ownership of Certain Beneficial Owners

The information contained in the section captioned “Principal Holders of our Common Stock” in the Proxy Statement is incorporated herein by reference.

(b) Security Ownership of Management

The information contained in the sections captioned “Principal Holders of our Common Stock” and “Proposal I – Election of Directors” in the Proxy Statement is incorporated herein by reference.

(c) Management of the Registrant knows of no arrangements, including any pledge by any person of securities of the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.

(d) Securities Authorized for Issuance Under Equity Compensation Plans

Set forth below is information as of December 31, 2022, with respect to compensation plans under which equity securities of the Registrant are authorized for issuance.


Equity compensation plans approved by security holders	( a ) Number of Securities to be issued upon exercise of outstanding options	( b ) Weighted-average exercise price of outstanding options	( c ) Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a))
2020 Equity Incentive Plan	466,000	$16.27	469,000
2015 Equity incentive plan	223,127	$15.23	223,127
Equity compensation plans not approved by security holders
None
Total	689,127	$15.93	692,127

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information contained in the sections captioned “Related Party Transactions” and “Corporate Governance” in the Proxy Statement is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

The information contained in the section captioned “Independent Auditors” in the Proxy Statement is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules


(a)	Listed below are all financial statements, schedules and exhibits filed as part of this Form 10-K:
	1	The consolidated balance sheets of Parke Bancorp, Inc. and subsidiary as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2022, together with the related notes and the independent registered public accounting firm reports of S.R. Snodgrass, P.C., independent registered public accounting firm (PCAOB ID:74).
	2	Schedules omitted as they are not applicable.
	3	The following exhibits are included in this Report or incorporated herein by reference:
	3.1	Certificate of Incorporation of Parke Bancorp, Inc. (1)
	3.2	Bylaws of Parke Bancorp, Inc. (7)
	3.3	Certificate of Amendment setting forth the terms of the Registrant’s 6.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series B (2)
	4.1	Specimen stock certificate of Parke Bancorp, Inc. (1)
	4.2	Description of Capital Stock of Parke Bancorp, Inc. (7)
	10.1	Amended Employment Agreement Between Bancorp, Bank and Vito S. Pantilione (3)
	10.2	Supplemental Executive Retirement Plan (1)
	10.7	2015 Equity Incentive Plan (4)
	10.9	Management Change in Control Severance Agreement with Nicholas J. Pantilione
	10.12	Management Change in Control Severance Agreement with Paul Palmieri (3)
	10.13	Management Change in Control Severance Agreement with Ralph Gallo (3)
	10.14	Management Change in Control Severance Agreement with John S. Kaufman (7)
	10.15	2020 Equity Incentive Plan (6)


	21	Subsidiaries of the Registrant
	23.1	Consent of S.R. Snodgrass, P.C.
	23.2	Consent of RSM US LLP
	31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	Certification of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.1	Consent Order with the Federal Deposit Insurance Corporation dated October 8, 2020 (6)
	99.2	Consent Order with the New Jersey Department of Banking and Insurance (6)

101	The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

101.INS	Inline XBRL Instance Document (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded with the Inline XBRL document)

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1) Incorporated by Reference to the Company’s Registration Statement on Form S-4 filed with the SEC on January 31, 2005 (File No. 333-122406).
(2) Incorporated by Reference to Company’s Current Report on Form 8-K filed with the SEC on December 24, 2013 (File No. 000-51338).
(3) Incorporated by Reference to Company’s Current Report on Form 8-K filed with the SEC on July 20, 2016 (File No. 000-51338).
(4) Incorporated by Reference to Company's Registration Statement on Form S-8 filed with the SEC on November 16, 2015 (File No. 333-208051).
(5) Incorporated by Reference to Company's Quarterly Report on Form 10-Q for the period ended March 31, 2020, filed with the SEC on May 8, 2020 (File No. 000-51338).
(6) Incorporated by Reference to Company's Current Report on Form 8-K filed with the SEC on October 9, 2020 (File No. 000-51338).
(7) Incorporated by Reference to Company's Annual Report on Form 10-K filed with the SEC on March 31, 2021 (File No. 000-51338).

Item 16. Form 10-K Summary

Not applicable

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PARKE BANCORP, INC.

Dated: March 15, 2023

/s/ Vito S. Pantilione

By:

Vito S. Pantilione

President, Chief Executive Officer and Director

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 15, 2023.

/s/ Daniel J. Dalton

/s/ Vito S. Pantilione

Daniel J. Dalton

Vito S. Pantilione

Chairman of the Board and Director

President, Chief Executive Officer and Director

/s/ Arret F. Dobson

/s/ Anthony Jannetti

Arret F. Dobson

Anthony Jannetti

Director

/s/ Jack C. Sheppard, Jr.

/s/ Fred G. Choate

Jack C. Sheppard, Jr.

Fred G. Choate

Director

/s/ Jeffrey H. Kripitz

/s/ Edward Infantolino

Jeffrey H. Kripitz

Edward Infantolino

Director

/s/ John S. Kaufman

/s/ Elizabeth Milavsky

John S. Kaufman

Elizabeth Milavsky

Senior Vice President and Chief Financial Officer

Director

(Principal Financial and Accounting Officer)