PARKE BANCORP, INC. - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2022

[☐] 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)			(IRS Employer Identification No.)

601 Delsea Drive, Washington Township, New Jersey			08080
(Address of principal executive offices)			(Zip Code)

856-256-2500

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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


Title of each class	Trading Symbols	Name of Each Exchange on Which Registered
Common Stock, par value $0.10 per share	PKBK	The Nasdaq Stock Market, LLC

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 [☒] No [☐]

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [☒] No [☐]

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 [☐] Accelerated filer [ ] Non-accelerated filer [x] 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 complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes [☐ ] No [☒]

As of May 6, 2022, there were 11,913,497 shares of the registrant's common stock ($0.10 par value) outstanding.

INDEX


		Page
Part I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Consolidated Statements of Income for the three months ended March 31, 2022 and 2021	2
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021	3
	Consolidated Statements of Equity for the three months ended March 31, 2022 and 2021	4
	Consolidated Statements of Cash Flow for the three months ended March 31, 2022 and 2021	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41

SIGNATURES		42

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Parke Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)

(Dollars in thousands except share data)


	March 31, 2022		December 31, 2021
Assets
Cash and due from banks	$	25,334	$	25,321
Interest bearing deposits with banks	478,495		571,232
Cash and cash equivalents	503,829		596,553
Investment securities available for sale, at fair value	11,810		13,351
Investment securities held to maturity (fair value of $9,058 at March 31, 2022 and $10,025 at December 31, 2021)	9,897		9,918
Total investment securities	21,707		23,269

Loans, net of unearned income	1,495,839		1,484,847
Less: Allowance for loan losses	(29,981)		(29,845)
Net loans	1,465,858		1,455,002
Accrued interest receivable	7,344		7,681
Premises and equipment, net	6,185		6,265
Restricted stock	5,157		5,144
Bank owned life insurance (BOLI)	27,715		27,577
Deferred tax asset	7,742		7,608
Other	8,654		7,346
Total assets	$	2,054,191	$	2,136,445
Liabilities and Equity
Liabilities
Deposits
Noninterest-bearing deposits	$	471,940	$	553,810
Interest-bearing deposits	1,205,270		1,214,600
Total deposits	1,677,210		1,768,410
FHLBNY borrowings	78,150		78,150

Subordinated debentures	42,779		42,732
Accrued interest payable	1,029		1,603
Other	14,744		13,189
Total liabilities	1,813,912		1,904,084
Equity
Preferred stock, 1,000,000 shares authorized, $1,000 liquidation value Series B non-cumulative convertible; 445 shares and 445 shares outstanding at March 31, 2022 and December 31, 2021, respectively	445		445
Common stock, $0.10 par value; authorized 15,000,000 shares; Issued: 12,198,019 shares and 12,182,081 shares at March 31, 2022 and December 31, 2021, respectively	1,220		1,218
Additional paid-in capital	135,623		135,451
Retained earnings	106,194		98,017
Accumulated other comprehensive (loss) income	(188)		245
Treasury stock, 284,522 shares at March 31, 2022 and Dec. 31, 2021, at cost	(3,015)		(3,015)
Total shareholders’ equity	240,279		232,361


Total liabilities and equity	$	2,054,191	$	2,136,445

See accompanying notes to consolidated financial statements

Parke Bancorp Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	For the Three Months Ended March 31,
	2022		2021
	(Dollars in thousands except share data)
Interest income:
Interest and fees on loans	$	19,199	$	20,238
Interest and dividends on investments	189		200
Interest on deposits with banks	248		123
Total interest income	19,636		20,561
Interest expense:
Interest on deposits	1,840		2,827
Interest on borrowings	696		928
Total interest expense	2,536		3,755
Net interest income	17,100		16,806
Provision for loan losses	—		500
Net interest income after provision for loan losses	17,100		16,306
Non-interest income
Service fees on deposit accounts	1,316		1,612
Gain on sale of SBA loans	—		45
Other loan fees	276		265
Bank owned life insurance income	138		140
Net gain (loss) on sale and valuation adjustment of OREO	47		(21)
Other	298		196
Total non-interest income	2,075		2,237
Non-interest expense
Compensation and benefits	2,688		2,625
Professional services	551		853
Occupancy and equipment	645		544
Data processing	324		345
FDIC insurance and other assessments	287		261
OREO expense	34		15
Other operating expense	1,149		1,127
Total non-interest expense	5,678		5,770
Income before income tax expense	13,497		12,773
Income tax expense	3,406		3,247
Net income attributable to Company and noncontrolling interest	10,091		9,526
Less: Net income attributable to noncontrolling interest	—		(97)
Net income attributable to Company	10,091		9,429
Less: Preferred stock dividend	(7)		(7)
Net income available to common shareholders	$	10,084	$	9,422
Earnings per common share
Basic	$	0.85	$	0.79
Diluted	$	0.83	$	0.78
Weighted average common shares outstanding
Basic	11,905,330		11,872,246
Diluted	12,180,320		12,108,846

See accompanying notes to consolidated financial statements

Parke Bancorp Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	For the Three Months Ended March 31,
	2022		2021
	(Dollars in thousands)
Net income	$	10,091	$	9,526
Unrealized losses on investment securities, net of reclassification into income:
Unrealized losses on non-OTTI securities	(584)		(112)
Tax impact on unrealized loss	151		29
Total unrealized losses on investment securities	(433)		(83)
Comprehensive income	9,658		9,443
Less: Comprehensive loss attributable to noncontrolling interests	—		(97)
Comprehensive income attributable to the Company	$	9,658	$	9,346

See accompanying notes to consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)


	Preferred Stock		Shares of Common Stock issued	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total Shareholders' Equity		Non-Controlling Interest		Total Equity
	(Dollars in thousands except share data)
Balance, December 31, 2020	$	480	12,136,567	$	1,214	$	134,989	$	66,794	$	463	$	(3,015)	$	200,925	$	1,672	$	202,597
Net income	—		—	—		—		9,429		—		—		9,429		97		9,526

Earnings distribution to non-controlling interest	—		—	—		—		—		—		—		—		(447)		(447)
Common stock options exercised	—		29,945	3		197		—		—		—		200		—		200
Preferred stock shares conversion	(10)		1,375	—		10		—		—		—		—		—		—
Other comprehensive loss	—		—	—		—		—		(83)		—		(83)		—		(83)
Stock compensation expense	—		—	—		50		—		—		—		50		—		50


Dividend on common stock	—		—	—		—		(1,899)		—		—		(1,899)		—		(1,899)
Balance, March 31, 2021	$	470	12,167,887	$	1,217	$	135,246	$	74,324	$	380	$	(3,015)	$	208,622	$	1,322	$	209,944

Balance, December 31, 2021	$	445	12,182,081	$	1,218	$	135,451	$	98,017	$	245	$	(3,015)	$	232,361	$	—	$	232,361
Net income	—		—	—		—		10,091		—		—		10,091		—		10,091

Common stock options exercised	—		15,938	2		112		—		—		—		114		—		114

Other comprehensive loss	—		—	—		—		—		(433)		—		(433)		—		(433)
Stock compensation expense	—		—	—		60		—		—		—		60		—		60
Dividend on preferred stock	—		—	—		—		(7)		—		—		(7)		—		(7)
Dividend on common stock	—		—	—		—		(1,907)		—		—		(1,907)		—		(1,907)
Balance, March 31, 2022	$	445	12,198,019	$	1,220	$	135,623	$	106,194	$	(188)	$	(3,015)	$	240,279	$	—	$	240,279

See accompanying notes to consolidated financial statements

Parke Bancorp Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	For the Three Months Ended March 31,
	2022		2021
	(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	10,091	$	9,526
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	165		173
Provision for loan losses	—		500
Increase in value of bank-owned life insurance	(138)		(140)
Gain on sale of SBA loans	—		(45)
SBA loans originated for sale	—		(903)
Proceeds from sale of SBA loans originated for sale	—		402
Net (gain) loss on sale of OREO and valuation adjustments	(47)		21

Net accretion of purchase premiums and discounts on securities	—		18
Stock based compensation	60		50

Net changes in:
Increase in accrued interest receivable and other assets	(2,443)		(682)
Increase in accrued interest payable and other accrued liabilities	981		2,131
Net cash provided by operating activities	8,669		11,051
Cash Flows from Investing Activities:
Repayments and maturities of investment securities available for sale	944		1,870
Repayments and maturities of investment securities held to maturity	35		—

Net (increase) decrease in loans	(10,927)		18,227
Purchases of bank premises and equipment	(38)		(25)
Proceeds from sale of OREO, net	1,606		48
(Purchase) redemptions of restricted stock	(13)		1,435
Net cash (used in) provided by investing activities	(8,393)		21,555
Cash Flows from Financing Activities:
Cash dividends	(1,914)		(1,899)
Earnings distribution to non-controlling interest	—		(447)
Proceeds from exercise of stock options	114		200

Net decrease in FHLBNY and short-term borrowings	—		(33,000)
Net decrease in other borrowings	—		(90,026)
Net (decrease) increase in noninterest-bearing deposits	(81,870)		101,373
Net (decrease) increase in interest-bearing deposits	(9,330)		36,949
Net cash (used in) provided by financing activities	(93,000)		13,150
Net (decrease) increase in cash and cash equivalents	(92,724)		45,756
Cash and Cash Equivalents, January 1,	596,553		458,601
Cash and Cash Equivalents, March 31,	$	503,829	$	504,357

Supplemental Disclosure of Cash Flow Information:
Interest paid	$	3,110	$	4,665
Income taxes paid	$	3,894	$	—

Non-cash Investing and Financing Items
Loans transferred to OREO	$	71	$	55

See accompanying notes to consolidated financial statements

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

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 its principal office at 601 Delsea Drive, Sewell, New Jersey, and has six additional branch office locations; 501 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.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation: We prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Parke Bank (including certain partnership interests). 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. In 2021, PDL was fully liquidated and all earnings were distributed. Parke Capital Trust I, Parke Capital Trust II and Parke Capital Trust III are wholly-owned subsidiaries but are not consolidated as they do not meet the requirements for consolidation under applicable accounting guidance. We have eliminated inter-company balances and transactions. We have also reclassified certain prior year amounts to conform to the current year presentation, which did not have a material impact on our consolidated financial condition or results of operations.

The accompanying interim financial statements should be read in conjunction with the annual financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The accompanying interim financial statements for the three months ended March 31, 2022 and 2021 are unaudited. The balance sheet as of December 31, 2021, was derived from the audited financial statements. In the opinion of management, these financial statements include all normal and recurring adjustments necessary for a fair statement of the results for such interim periods. Results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results for the full year or any other period.

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. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the allowance for loan losses, the valuation of deferred income taxes, and the carrying value of other real estate owned ("OREO").

Recently Issued Accounting Pronouncements:

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

During June 2016, the Financial Accounting Standard Board (FASB) issued accounting standards update ("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. 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 is currently evaluating the impact of this new guidance on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-4 (Topic 848) provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

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 March 31, 2022 and December 31, 2021:


As of March 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	11,558		38		292		11,304
Collateralized mortgage obligations	6		—		—		6
Total available for sale	$	12,064	$	38	$	292	$	11,810

Held to maturity:
Residential mortgage-backed securities	$	6,121	$	—	$	527	$	5,594
States and political subdivisions	3,776		112		424		3,464
Total held to maturity	$	9,897	$	112	$	951	$	9,058


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 March 31, 2022 are as follows:


	Amortized Cost		Fair Value
	(Dollars in thousands)
Available for sale:
Due within one year	$	4	$	3
Due after one year through five years	752		742
Due after five years through ten years	6,512		6,359
Due after ten years	4,796		4,706
Total available for sale	$	12,064	$	11,810

Held to maturity:
Due within one year	$	—	$	—
Due after one year through five years	1,299		1,410
Due after five years through ten years	—		—
Due after ten years	8,598		7,648
Total held to maturity	$	9,897	$	9,058

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

The Company did not sell any securities during the three months ended March 31, 2022. 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 March 31, 2022 and December 31, 2021:


As of March 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 thousand)
Available for sale:
Residential mortgage-backed securities	$	8,572	$	194	$	1,230	$	98	$	9,802	$	292
Total available for sale	$	8,572	$	194	$	1,230	$	98	$	9,802	$	292
Held to maturity:
Residential mortgage-backed securities	$	5,594	$	527	$	—	$	—	$	5,594	$	527
States and political subdivisions	2,054		424		—		—		2,054		424
Total held to maturity	$	7,648	$	951	$	—	$	—	$	7,648	$	951


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:
Residential mortgage-backed securities	$	6	$	118	$	—	$	—	$	6	$	118
States and political subdivisions	2,462		16		—		—		2,462		16
Total held to maturity	$	2,468	$	134	$	—	$	—	$	2,468	$	134

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, and 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. Estimating recovery of the amortized cost basis of a debt security is based upon an assessment of the cash flows expected to be collected. 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.

We have a process in place to identify debt securities that could potentially have a credit impairment that is other than temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. We consider relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events; (4) any change in rating agencies’ credit ratings at evaluation date from acquisition date and any likely imminent action; (5) for asset-backed securities, the credit performance of the underlying collateral, including delinquency rates, level of

non-performing assets, cumulative losses to date, collateral value and the remaining credit enhancement compared with expected credit losses.

The Company’s unrealized loss for the debt securities is comprised of 15 securities in the less than 12 months loss position and 3 securities in the 12 months or greater loss position at March 31, 2022, and 5 securities in the less than 12 months loss position and 3 securities in the 12 months or greater loss position at December 31, 2021. The mortgage-backed securities that had unrealized losses were issued or guaranteed by the US government or US government sponsored entities. The unrealized losses associated with those mortgage-backed securities are generally driven by changes in interest rates and are 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 the loss is attributed to changes in interest rates and not due to credit losses. 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 March 31, 2022.

NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES

At March 31, 2022 and December 31, 2021, the Company had $1.50 billion and $1.48 billion, respectively, in loans receivable outstanding. Outstanding balances include a total net increase of $1.6 million and $1.7 million at March 31, 2022 and December 31, 2021, respectively, for unearned income, net deferred loan fees, and unamortized discounts and premiums. We had no loans held for sale at March 31, 2022 and December 31, 2021, respectively. Also, at March 31, 2022 and December 31, 2021, our commercial and industrial loan portfolio includes $10.0 million and $27.8 million, respectively, of loans to small businesses through the Paycheck Protection Program ("SBA PPP" loans), which is a loan designed by the Federal government to provide a direct incentive for small businesses to keep their workers on the payroll. The portfolios of loans receivable at March 31, 2022 and December 31, 2021, consist of the following:


	March 31, 2022		December 31, 2021
	Amount		Amount
	(Dollars in thousands)
Commercial and Industrial	$	38,825	$	57,151
Construction	136,010		154,077
Real Estate Mortgage:
Commercial – Owner Occupied	132,275		123,672
Commercial – Non-owner Occupied	316,253		306,486
Residential – 1 to 4 Family	779,882		750,525
Residential – Multifamily	84,970		84,964
Consumer	7,624		7,972
Total Loans	$	1,495,839	$	1,484,847

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


March 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	$	93	$	—	$	1,335	$	1,428	$	37,397	$	38,825	$	—
Construction	—		—		—		—		136,010		136,010		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—		1,016		1,016		131,259		132,275		—
Commercial – Non-owner Occupied	14,380		—		1,328		15,708		300,545		316,253		—
Residential – 1 to 4 Family	—		—		231		231		779,651		779,882		—
Residential – Multifamily	—		—		—		—		84,970		84,970		—
Consumer	—		—		—		—		7,624		7,624		—
Total Loans	$	14,473	$	—	$	3,910	$	18,383	$	1,477,456	$	1,495,839	$	—


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. We established our allowance in accordance with guidance provided in Accounting Standard Codification ("ASC") - Contingencies ("ASC 450") and Receivables ("ASC 310").

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 component and an asset-specific component. The asset-specific component of the allowance relates to loans considered to be impaired, which includes performing troubled debt restructurings (“TDRs”) as well as nonperforming loans. To determine the asset-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 asset-specific allowance as the difference between the net realizable value of loan collateral or present value of expected cash flow and the recorded investment of a loan.

The general component of the allowance evaluates the impairments of pools of the loan 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 lending policies, procedures and internal controls;(iii) volume and severity of loan credit quality; (iv) nature and volume of portfolio and term of loans (v) the composition and concentrations of credit; (vi) the effectiveness of the internal loan review system; and (vii) 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.

The process of determining the level of the allowance for loan and lease losses requires a high degree of estimate and judgment. It is reasonably possible that actual outcomes may differ from our estimates.

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


					Real Estate Mortgage
	Commercial and Industrial		Construction		Commercial Owner Occupied		Commercial Non-owner Occupied		Residential 1 to 4 Family		Residential Multifamily		Consumer		Total
Allowance for loan losses	(Dollars in thousands)
Three months ended March 31, 2022
December 31, 2021	$	417	$	2,662	$	2,997	$	7,476	$	14,970	$	1,215	$	108	$	29,845
Charge-offs	—		—		—		—		—		—		—		—
Recoveries	6		—		2		—		121		7		—		136
Provisions (benefits)	86		(465)		13		(223)		391		193		5		—
Ending Balance at March 31, 2022	$	509	$	2,197	$	3,012	$	7,253	$	15,482	$	1,415	$	113	$	29,981









Allowance for loan losses
Individually evaluated for impairment	$	—	$	—	$	4	$	148	$	29	$	—	$	—	$	181
Collectively evaluated for impairment	509		2,197		3,008		7,105		15,453		1,415		113		29,800
Ending Balance at March 31, 2022	$	509	$	2,197	$	3,012	$	7,253	$	15,482	$	1,415	$	113	$	29,981

Loans
Individually evaluated for impairment	$	196	$	1,139	$	2,433	$	5,369	$	687	$	—	$	—	$	9,824
Collectively evaluated for impairment	38,629		134,871		129,842		310,884		779,195		84,970		7,624		1,486,015
Ending Balance at March 31, 2022	$	38,825	$	136,010	$	132,275	$	316,253	$	779,882	$	84,970	$	7,624	$	1,495,839


					Real Estate Mortgage
	Commercial and Industrial		Construction		Commercial Owner Occupied		Commercial Non-owner Occupied		Residential 1 to 4 Family		Residential Multifamily		Consumer		Total
Allowance for loan losses	(Dollars in thousands)
Three months ended March 31, 2021
December 31, 2020	$	492	$	3,359	$	3,078	$	8,398	$	12,595	$	1,639	$	137	$	29,698
Charge-offs	—		—		—		—		—		—		—		—
Recoveries	4		—		8		—		—		—		—		12
Provisions (benefits)	(22)		385		249		762		(770)		(101)		(3)		500
Ending Balance at March 31, 2021	$	474	$	3,744	$	3,335	$	9,160	$	11,825	$	1,538	$	134	$	30,210









Allowance for loan losses
Individually evaluated for impairment	$	11	$	295	$	40	$	226	$	137	$	—	$	—	$	709
Collectively evaluated for impairment	463		3,449		3,295		8,934		11,688		1,538		134		29,501
Ending Balance at March 31, 2021	$	474	$	3,744	$	3,335	$	9,160	$	11,825	$	1,538	$	134	$	30,210

Loans
Individually evaluated for impairment	$	49	$	4,690	$	4,370	$	5,741	$	1,495	$	—	$	—	$	16,345
Collectively evaluated for impairment	120,013		203,060		127,920		320,972		665,876		83,864		9,689		1,531,394
Ending Balance at March 31, 2021	$	120,062	$	207,750	$	132,290	$	326,713	$	667,371	$	83,864	$	9,689	$	1,547,739

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 March 31, 2022 and December 31, 2021:


March 31, 2022	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded:
Commercial and Industrial	$	196	$	196	$	—
Construction	1,139		5,856		—
Real Estate Mortgage:
Commercial – Owner Occupied	2,237		2,237		—
Commercial – Non-owner Occupied	106		106		—
Residential – 1 to 4 Family	232		232		—
Residential – Multifamily	—		—		—
Consumer	—		—		—
	3,910		8,627		—
With an allowance recorded:
Commercial and Industrial	—		—		—
Construction	—		—		—
Real Estate Mortgage:
Commercial – Owner Occupied	196		196		4
Commercial – Non-owner Occupied	5,263		5,263		148
Residential – 1 to 4 Family	455		455		29
Residential – Multifamily	—		—		—
Consumer	—		—		—
	5,914		5,914		181
Total:
Commercial and Industrial	196		196		—
Construction	1,139		5,856		—
Real Estate Mortgage:
Commercial – Owner Occupied	2,433		2,433		4
Commercial – Non-owner Occupied	5,369		5,369		148
Residential – 1 to 4 Family	687		687		29
Residential – Multifamily	—		—		—
Consumer	—		—		—
	$	9,824	$	14,541	$	181


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 three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022				2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Commercial and Industrial	$	206	$	—	$	49	$	—
Construction	1,139		—		4,765		36
Real Estate Mortgage:
Commercial – Owner Occupied	2,367		3		4,534		21
Commercial – Non-owner Occupied	5,472		67		10,244		120
Residential – 1 to 4 Family	690		7		1,505		15
Residential – Multifamily	—		—		—		—
Consumer	—		—		—		—
Total	$	9,874	$	77	$	21,097	$	192

Troubled debt restructuring (TDRs)

We reported performing TDR loans (not reported as non-accrual loans) of $5.9 million and $6.0 million, respectively, at March 31, 2022 and December 31, 2021. Nonperforming TDR loans were zero at March 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 three months ended March 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 TDR loans, we had specific reserves of $181,000 and $254,000 in the allowance at March 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 that 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 March 31, 2022 and December 31, 2021 is as follows:


At March 31, 2022	Pass		OAEM		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial and Industrial	$	38,629	$	—	$	196	$	—	$	38,825
Construction	134,871		—		1,139		—		136,010
Real Estate Mortgage:
Commercial – Owner Occupied	128,230		3,029		1,016		—		132,275
Commercial – Non-owner Occupied	300,545		14,380		1,328		—		316,253
Residential – 1 to 4 Family	779,566		—		316		—		779,882
Residential – Multifamily	84,970		—		—		—		84,970
Consumer	7,624		—		—		—		7,624
Total	$	1,474,435	$	17,409	$	3,995	$	—	$	1,495,839


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

NOTE 5. EQUITY AND CHANGES IN OTHER COMPREHENSIVE INCOME

The Company's total equity was $240.3 million and $232.4 million at March 31, 2022 and December 31, 2021, respectively.

Common stock dividend: On March 22, 2022, the Company declared a cash dividend of $0.16 per share to common shareholders of record as of April 6, 2022, and paid the dividend April 20, 2022.

Preferred stock dividend: The Company declared cash dividends of $6,675 and $7,050 to preferred stockholders during the three months ended March 31, 2022 and March 31, 2021, respectively.

Conversion of preferred stock: During the three months ended March 31, 2022, there were no conversions from preferred stock to common shares. During the three months ended March 31, 2021, preferred stockholders converted 10 shares of preferred shares into 1,375 shares of common stock.

Non-controlling interests: The Company had a joint venture with Bridgestone Capital LLC in PDL LLC, a joint venture formed in 2018 to originate short-term alternative real estate loan products. In 2021, the joint venture was liquidated and all earnings in the joint venture were distributed. Prior to the liquidation, the Company had a 51% ownership interest in the joint venture. The Company distributed PDL earnings of $447,000 to Bridgestone during the first three months of 2021.

Other comprehensive income

The changes in accumulated other comprehensive loss consisted of the following for the three months ended March 31, 2022 and 2021:


	For the Three Months Ended March 31,
	2022		2021
	(Dollars in thousands)
Investment securities:
Net unrealized losses arising during the period	$	(584)	$	(112)

Tax effect related to the unrealized loss during the periods	151		29

Loss in other comprehensive income	$	(433)	$	(83)

NOTE 6. EARNINGS PER SHARE (“EPS”)

The following tables set forth the calculation of basic and diluted EPS for the three-month periods ended March 31, 2022 and 2021.


	Three months ended March 31,
	2022		2021
	(Dollars in thousands except share and per share data)
Basic earnings per common share
Net income available to the Company	$	10,091	$	9,429
Less: Dividend on series B preferred stock	(7)		(7)
Net income available to common shareholders	10,084		9,422
Basic weighted-average common shares outstanding	11,905,330		11,872,246
Basic earnings per common share	$	0.85	$	0.79
Diluted earnings per common share
Net income available to common shares	$	10,084	$	9,422
Add: Dividend on series B preferred stock	7		7
Net income available to diluted common shares	10,091		9,429
Basic weighted-average common shares outstanding	11,905,330		11,872,246
Dilutive potential common shares	274,990		236,600
Diluted weighted-average common shares outstanding	12,180,320		12,108,846
Diluted earnings per common share	$	0.83	$	0.78

NOTE 7. 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 and Loans Held for Sale:

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 or available for sale loans, 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. For the loans held for sale, the fair value represents the face value of the guaranteed portion of the SBA loans pending settlement. Securities and loans in Level 2 include mortgage-backed securities, corporate debt obligations, collateralized mortgage-backed securities, and SBA loans available for sale.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis.


Financial Assets	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Available for Sale Securities and Loans Held for Sale
As of March 31, 2022
Corporate debt obligations	$	—	$	500	$	—	$	500
Residential mortgage-backed securities	—		11,304		—		11,304
Collateralized mortgage-backed securities	—		6		—		6

Total	$	—	$	11,810	$	—	$	11,810
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 three months ended March 31, 2022, there were no transfers between the levels within the fair value hierarchy. There were no level 3 assets or liabilities held during the three months ended March 31, 2022 and 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 March 31, 2022
Collateral-dependent impaired loans	$	—	$	—	$	4,014	$	4,014
OREO	—		—		—		—
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, or the present value of discounted cash flows in the case of certain impaired loans that are not collateral dependent. 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 that are recorded at fair value based upon current appraised value, or agreements of sale, less estimated disposition costs using level 3 inputs. Properties are reappraised annually.

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 Federal Home Loan Bank of New York ("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 and Federal Reserve Bank advance, 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 instruments measured at fair value, see the descriptions in the Company's 2021 Annual Report on Form 10-K.

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 March 31, 2022 and December 31, 2021:


March 31, 2022	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	503,829	$	503,829	$	503,829	$	—	$	—
Investment securities AFS	11,810		11,810		—		11,810		—
Investment securities HTM	9,897		9,058		—		9,058		—
Restricted stock	5,157		5,157		—		—		5,157

Loans, net	1,465,858		1,431,268		—		1,426,302		4,966
Accrued interest receivable	7,344		7,344		—		7,344		—

Financial Liabilities:
Non-time deposits	$	1,136,827	$	1,136,827	$	—	$	1,136,827	$	—
Time deposits	540,383		543,987		—		543,987		—
Borrowings	120,929		116,455		—		116,455		—
Accrued interest payable	1,029		1,029		—		1,029		—


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 8. Leases

We lease three retail branches and a parcel of land for a retail branch location. These leases generally have remaining terms of 5 years or less except the land lease, which has a remaining lease term of eighty-four years. Some of the leases may include options to renew the leases. The exercise of lease renewals is at our sole discretion.

Our ROU 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 March 31, 2022, we had future minimum lease payments of $26.9 million and lease liability $2.0 million. The weighted average remaining lease term was 50.0 years and weighted average discount rate was 7.3% at March 31, 2022,

respectively. We also sublease some space for one of our leased facilities to a company. 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 March 31, 2022:


	March 31, 2022
	(Dollars in thousands)
Lease right of use ("ROU") assets	$	2,001
Lease liabilities	$	2,001

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


	March 31, 2022
	(Dollars in thousands)
Remainder of 2022	$	208
2023	250
2024	262
2025	262
2026	188
Thereafter	25,733
Total undiscounted lease payments	$	26,903

NOTE 9. 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 March 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 March 31, 2022 and December 31, 2021, unused commitments to extend credit amounted to approximately $125.5 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 March 31, 2022 and December 31, 2021, standby letters of credit with customers were $1.5 million and $1.5 million, respectively.

On March 8, 2022, the Bank entered into an agreement with the FHLBNY for a Municipal Letter of Credit ("MLOC") of $50.0 million. The MLOC is used to pledge against public deposits and expires on June 29, 2022. There were no outstanding borrowings on the letter of credit as of March 31, 2022.

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 in Change-in-Control Severance Agreements with certain officers which provide for the payment of severance in certain circumstances following a change in control.

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 in these States and now in New Jersey, 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.

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.

At March 31, 2022 and December 31, 2021, deposit balances from cannabis customers were approximately $289.1 million and $375.2 million, or 17.2% and 21.2% of total deposits, respectively, with two customers accounting for 26.1% and 19.3% of the total at March 31, 2022 and December 31, 2021. At March 31, 2022 and December 31, 2021, there were cannabis-related loans in the amounts of $4.0 million and $5.4 million, respectively. We recorded approximately $23 thousand and $336 thousand of interest income in the three months ended March 31, 2022 and year ended December 31, 2021, respectively, related to these loans. The fee income for the three months ended March 31, 2022 and year ended December 31, 2021, from the commercial deposit accounts of depositors who do business in the cannabis industry were $1.2 million and $5.1 million, respectively, and are included in service fees on deposit accounts, in the accompanying consolidated statements of income.

NOTE 10. 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. The final rules implementing Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. 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 was being phased in from 0.0% for 2015 to 2.50% by 2019. The Bank made a one-time election to opt-out of including the net unrealized gain or loss on available for sale securities in computing regulatory capital. At March 31, 2022 and December 31, 2021, the Company and Bank were both considered “well capitalized".

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically under-capitalized, 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. As of March 31, 2022 and December 31, 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.

Under final regulations adopted by the federal banking agencies under the Economic Growth, Regulatory Relief and Consumer Protection Acct ( "EGRRCPA"), a community banking organization may opt into the Community Bank Leverage Ratio ("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 March 31, 2022.

On April 6, 2020, federal banking regulatory agencies modified the original (CBLR) framework and provided that, as of the second quarter 2020, a banking organization with a leverage ratio of 8 percent or greater and that meets the other existing qualifying criteria may elect to use the CBLR framework. The modified rule also states that the CBLR requirement will be greater than 8 percent for the second through fourth quarters of calendar year 2020, greater than 8.5 percent for calendar year 2021, and greater than 9 percent thereafter. The transition rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 100 basis points below the applicable CBLR requirement.

The leverage ratios of the Company and the Bank at March 31, 2022 are as follows:


Regulatory Capital Compliance
As of March 31, 2022	Actual				For Capital Adequacy Purposes
(Dollars in thousands except ratios)	Amount		Ratio		Amount		Ratio
Company:
Tier 1 leverage	$	253,870	12.21	%	$	187,147	9.00	%
Parke Bank:
Community Bank Leverage Ratio	$	282,651	13.60	%	$	187,111	9.00	%

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


As of December 31, 2021	Actual				For Capital Adequacy Purposes*
(Dollars in thousands except ratios)	Amount		Ratio		Amount		Ratio
Company:
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:
Tier 1 leverage	273,884		12.82	%	181,640		8.50	%

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The Company may from time to time make written or oral "forward-looking statements" including statements contained in this Report and in other communications by the Company which are made in good faith pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, such as statements of the Company's plans, objectives, expectations, estimates and intentions, involve risks and uncertainties and are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of the COVID-19 pandemic on the United States economy in general and the local economies in which the Company operates; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; the potential adverse effects of the Consent Orders and any additional regulatory restrictions that may be imposed by banking regulators; the timely development of, and acceptance of, new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); the effect of any change in federal government enforcement of federal laws affecting the cannabis industry; technological changes; acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive. The Company also cautions readers not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date on which they are given. The Company is not obligated to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after any such date.

Throughout this report, “Parke Bancorp” and “the Company” refer to Parke Bancorp Inc. and its consolidated subsidiaries. The Company is collectively referred to as “we,” “us” or “our.” Parke Bank is referred to as the “Bank.”

In the following discussion we provide information about our results of operations, financial condition, liquidity and asset quality. We intend that this information facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. You should read this section in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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 and Pennsylvania. The Bank has branches in Galloway Township, Northfield, Washington Township, 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, deposits 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.

At March 31, 2022, we had total assets of $2.05 billion, and total equity of $240.3 million. Net income available to common shareholders for the three months ended March 31, 2022 was $10.1 million.

The Global Outbreak of the COVID-19 Coronavirus

The COVID-19 pandemic is continuing to have an adverse impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the business of the Company, its customers, employees and third-party service providers. The extent of such impact will depend on future developments, which are highly uncertain, including whether the pandemic can be controlled and abated. Additionally, the responses of various governmental and nongovernmental authorities to curtail business and consumer activities in an effort to mitigate the pandemic will have material long-term effects on the Company and its customers which are difficult to quantify in the near-term or long-term.

As a participating lender in the SBA Paycheck Protection Program (“PPP”), we are subject to additional risks of litigation from our customers or other parties regarding our processing of loans for the PPP which could have a significant adverse impact on our business, financial position, results of operations, and prospects. The COVID-19 pandemic and its impact on the economy have led to actions including the enactment of the Coronavirus Aid, Relief and Economic Security Act, including the establishment of the PPP administered by the Small Business Administration (“SBA”). Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. We are participating as a lender in the PPP. Since the initiation of the PPP, several banks have been subject to litigation or threatened litigation regarding the process and procedures that such banks used in processing applications for the PPP. We may be exposed to the risk of litigation, from both clients and non-clients that approached us regarding PPP loans. If any such litigation is filed or threatened against us and is not resolved in a manner favorable to us, it may result in significant cost or adversely affect our reputation. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial position, results of operations and prospects.

Results of Operations

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Net Income: Our net income available to common shareholders for the first quarter of 2022 increased $0.7 million, or 7.0%, to $10.1 million, compared to $9.4 million for the same period last year. Earnings per share were $0.85 per basic common share and $0.83 per diluted common share for the first quarter of 2022 compared to $0.79 per basic common share and $0.78 per diluted common share for the same period last year. The increase in net income available to common shareholders primarily resulted from a $1.2 million decrease in interest paid on deposits and borrowings and a $0.5 million decrease in the provision for loan losses, partially offset by a decrease in interest income of $0.9 million.

Net Interest Income: Our net interest income increased $0.3 million, or 1.7%, to $17.1 million for the first quarter of 2022 compared to $16.8 million for the first quarter of 2021. The increase in net interest income was primarily due to a decrease of $1.2 million in total interest expense, driven by a reduction in interest rates on deposits which reduced interest expense by $1.0 million, as well as a decrease of $0.2 million in interest on borrowings due to lower outstanding balances. This increase in net interest income was partially offset by a $0.9 million decrease in interest income, primarily due to a reduction in interest and fees on loans of $1.0 million.

Provision for loan losses: For the three months ended March 31, 2022, the provision for loan losses decreased to zero, compared to $0.5 million for the three months ended March 31, 2021. The decrease in the provision was primarily due to the prior year consideration of the potential impact of the COVID-19 pandemic. For more information about our provision and allowance for loan and lease losses and our loss experience, see “Financial Condition-Allowance for Loan and Lease Losses” below and Note 4 - Loans And Allowance For Loan Losses to the unaudited consolidated financial statements.

Non-interest Income: Our non-interest income was $2.1 million for the three months ended March 31, 2022, a decrease of $0.2 million, compared to $2.2 million for the same period last year. The decrease is primarily attributable to a decrease in service fees from deposit accounts attributable to our cannabis-related businesses of $0.3 million, net of an increase in other income of $0.1 million. Please refer to Note 9. Commitments And Contingencies in the notes to the unaudited consolidated financial statements for our banking services to customers who do business in the cannabis industry.

Non-interest Expense: Our non-interest expense decreased $0.1 million to $5.7 million for the three months ended March 31, 2022, from $5.8 million for the three months ended March 31, 2021. The decrease was primarily due to a decrease in professional fees related to our BSA remediation efforts of $0.3 million, partially offset by an increase in occupancy and equipment expense of $0.1 million.

Income Tax: Income tax expense was $3.4 million on income before taxes of $13.5 million for the three months ended March 31, 2022, resulting in an effective tax rate of 25.2%, compared to income tax expense of $3.2 million on income before taxes of $12.8 million for the same period of 2021, resulting in an effective tax rate of 25.4%.

Net Interest Income

Net interest income is the interest earned on investment securities, loans and other interest-earning assets minus the interest paid on deposits, short-term borrowings and long-term debt. The net interest margin is the average yield of net interest income on average earning assets. 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.

The following tables 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 periods indicated.


	For the Three Months Ended March 31,
	2022						2021
	Average Balance		Interest Income/ Expense		Yield/ Cost		Average Balance		Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands, except percentages)
Assets
Loans	$	1,468,889	$	19,199	5.30	%	$	1,561,075	$	20,238	5.26	%
Investment securities*	27,623		189		2.77	%	28,279		200		2.87	%
Interest bearing deposits	534,886		248		0.19	%	498,401		123		0.10	%
Total interest-earning assets	2,031,398		19,636		3.92	%	2,087,755		20,561		3.99	%
Other assets	77,969						71,278
Allowance for loan losses	(29,956)						(29,912)
Total assets	$	2,079,411					$	2,129,121
Liabilities and Shareholders’ Equity
Interest bearing deposits:
Checking	$	98,576	$	96	0.39	%	$	67,651	$	76	0.46	%
Money markets	351,625		450		0.52	%	317,120		574		0.73	%
Savings	187,943		163		0.35	%	122,769		157		0.52	%
Time deposits	562,777		1,104		0.80	%	628,373		1,911		1.23	%
Brokered certificates of deposit	9,120		27		1.20	%	55,825		109		0.79	%
Total interest-bearing deposits	1,210,041		1,840		0.62	%	1,191,738		2,827		0.96	%
Borrowings	120,899		696		2.33	%	224,275		928		1.68	%
Total interest-bearing liabilities	1,330,940		2,536		0.77	%	1,416,013		3,755		1.08	%
Non-interest bearing deposits	497,733						492,745
Other liabilities	12,966						14,093
Total non-interest bearing liabilities	510,699						506,838
Equity	237,772						206,270
Total liabilities and shareholders’ equity	$	2,079,411					$	2,129,121
Net interest income			$	17,100					$	16,806
Interest rate spread					3.15	%					2.91	%
Net interest margin					3.41	%					3.26	%

*Includes balances of FHLB and ACCBB stock.

Financial Condition

General

At March 31, 2022, the Company’s total assets were $2.05 billion, a decrease of $82.3 million, or 3.9%, from December 31, 2021. The decrease in total assets was primarily attributable to a decrease in cash and cash equivalents of $92.7 million as well as an increase in loans receivable. The decrease in cash and cash equivalents was primarily due to cash withdrawn from deposits. Loans increased $11.0 million at March 31, 2022, primarily due to increases in loan balances classified as commercial non-onwer occupied real estate mortgage loans, compared to the balances at December 31, 2021.

Total liabilities were $1.81 billion at March 31, 2022. This represented a $90.2 million, or 4.7%, decrease, from $1.90 billion at December 31, 2021. The decrease in total liabilities was primarily due to a decrease in total deposits, which decreased $91.2 million, or 5.2%, to $1.68 billion at March 31, 2022, from $1.77 billion at December 31, 2021.

Total equity was $240.3 million and $232.4 million at March 31, 2022 and December 31, 2021, respectively, an increase of $7.9 million from December 31, 2021.

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


	March 31, 2022		December 31, 2021
	(Dollars in thousands)
Cash and cash equivalents	$	503,829	$	596,553
Investment securities	21,707		23,269

Loans, net of unearned income	1,495,839		1,484,847
Allowance for loan losses	(29,981)		(29,845)
Total assets	2,054,191		2,136,445
Total deposits	1,677,210		1,768,410
FHLBNY borrowings	78,150		78,150
Subordinated debt	42,779		42,732

Total liabilities	1,813,912		1,904,084
Total equity	240,279		232,361
Total liabilities and equity	2,054,191		2,136,445

Cash and cash equivalents

Cash and cash equivalents decreased $92.7 million to $503.8 million at March 31, 2022 from $596.6 million at December 31, 2021, a decrease of 15.5%. The decrease was primarily due to cash withdrawn from deposits.

Investment securities

Total investment securities decreased to $21.7 million at March 31, 2022, from $23.3 million at December 31, 2021, a decrease of $1.6 million or 6.7%. The decrease was attributed to normal pay downs of $1.0 million and a decrease in the fair market valuation of $0.6 million. For detailed information on the composition and maturity distribution of our investment portfolio, see NOTE 3 - Investment Securities in the notes to the unaudited consolidated financial statements.

Loans

Our lending relationships are primarily with small to mid-sized businesses and individual consumers residing in and around Southern New Jersey and Philadelphia, Pennsylvania. We have also expanded our lending footprint in other areas. We focus our lending efforts primarily in three lending areas: residential mortgage loans, commercial mortgage loans, and construction loans.

We originate residential mortgage loans with adjustable and fixed-rates that are secured by 1- 4 family and multifamily residential properties. These loans are generally underwritten under terms, conditions and documentation acceptable to the secondary mortgage market. A substantial majority of such loans can be pledged for potential borrowings.

We originate commercial real estate loans that are secured by commercial real estate properties that are owner and non-owner occupied real estate properties. These loans are typically larger in dollar size and are primarily secured by office buildings, retail buildings, warehouses and general purpose business space. The commercial mortgage loans generally have maturities of twenty years, but re-price within five years.

The construction loans we originate provide real estate acquisition, development and construction funds to individuals and real estate developers. The loans are secured by the properties under development. The construction loan funds are disbursed periodically at pre-specified stages of completion.

We also originate commercial and industrial loans, which provide liquidity to businesses in the form of lines of credit and may be secured by accounts receivable, inventory, equipment or other assets. In addition, we have a small consumer loan portfolio which provides loans to individual borrowers.

Beginning in April 2020, the Company has been lending to small business through the SBA PPP loan program, which is a loan designed by the Federal government to provide a direct incentive for small businesses to keep their workers on the payroll during the COVID-19 pandemic. Since the beginning of the loan program through March 31, 2022, the Bank has originated approximately $117.8 million of SBA PPP loans, and had $10.0 million of such loans outstanding as of March 31, 2022.

Loans held for sale ("HFS"): Loans held for sale are comprised of SBA loans originated for sale. We had no loans held for sale at March 31, 2022 or at December 31, 2021.

Loans receivable: Loans receivable increased to $1.50 billion at March 31, 2022 from $1.48 billion at December 31, 2021. The increase was primarily due to increases in the commercial - owner occupied, commercial - non-owner occupied, and residential - 1 to 4 family portfolio's. Loans receivable, excluding loans held for sale, as of March 31, 2022 and December 31, 2021, consisted of the following:


	March 31, 2022				December 31, 2021
	Amount		Percentage of Loans to total Loans		Amount		Percentage of Loans to total Loans
	(Dollars in thousands)
Commercial and Industrial	$	38,825	2.6	%	$	57,151	3.8	%
Construction	136,010		9.1	%	154,077		10.4	%
Real Estate Mortgage:
Commercial – Owner Occupied	132,275		8.8	%	123,672		8.3	%
Commercial – Non-owner Occupied	316,253		21.1	%	306,486		20.6	%
Residential – 1 to 4 Family	779,882		52.2	%	750,525		50.7	%
Residential – Multifamily	84,970		5.7	%	84,964		5.7	%
Consumer	7,624		0.5	%	7,972		0.5	%
Total Loans	$	1,495,839	100.0	%	$	1,484,847	100.0	%

Deposits

At March 31, 2022, total deposits decreased to $1.68 billion from $1.77 billion at December 31, 2021, a decrease of $91.2 million, or 5.2%. The decrease in deposits was primarily due to a decrease in non-interest bearing demand deposits and a decrease in time deposit accounts.


	March 31,		December 31,
	2022		2021
	(Dollars in thousands)
Noninterest-bearing	$	471,940	$	553,810
Interest-bearing
Checking	101,202		93,189
Savings	198,282		179,238
Money market	365,403		348,427
Time deposits	540,383		593,746

Total deposits	$	1,677,210	$	1,768,410

Borrowings

Total borrowings were $120.9 million at March 31, 2022 and December 31, 2021, respectively.

Equity

Total equity increased to $240.3 million at March 31, 2022 from $232.4 million at December 31, 2021, an increase of $7.9 million, or 3.4%, primarily due to the retention of earnings from the period.

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 March 31, 2022, our cash position was $503.8 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 Promontory Inter Financial Network to secure an additional alternative funding source. Promontory 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. While deposit accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLBNY. As of March 31, 2022, the Company had lines of credit with the FHLBNY of $593.4 million, of which $78.2 million was outstanding, and an additional $50.0 million from a letter of credit for securing public funds. The remaining borrowing capacity was $465.2 million at March 31, 2022.

Our investment portfolio primarily consists of mortgage-backed available for sale securities issued by US government agencies and government sponsored entities. These available for sale securities are readily marketable and are available to meet our additional liquidity needs. At March 31, 2022, the Company's investment securities portfolio classified as available for sale was $11.8 million.

We had outstanding loan commitments of $125.5 million at March 31, 2022. Our loan commitments are normally originated with the full amount of collateral. 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.

The following is a discussion of our cash flows for the three months ended March 31, 2022 and 2021.

Cash provided by operating activities was $8.7 million in the three months ended March 31, 2022, compared to $11.1 million for the same period in the prior year. The decrease in operating cash flow was primarily due to the increase in accrued interest receivable and decrease in accrued interest payable, net of the increase in net income.

Cash used in investing activities was $8.4 million in the three months ended March 31, 2022, compared to cash provided by investing activities of $21.6 million in the same period last year. The decrease in cash provided in the investing activities was primarily due to the cash outflow from the increase in loans during the period.

Cash used in financing activities was $93.0 million in the three months ended March 31, 2022, compared to cash from financing of $13.2 million in the same period of last year. The current year included $91.2 million of cash outflows from the decrease in deposits.

Capital Adequacy

We utilize a comprehensive process for assessing the Company’s overall capital adequacy. We actively review our capital strategies in light of current and anticipated business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, earnings stability, competitive forces, economic conditions, and strength of management. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily manage our capital through the retention of earnings. We also use other means to manage our capital. Total equity increased $7.9 million at March 31, 2022, from December 31, 2021, primarily from the Company’s net income of $10.1 million for the period, net of common and preferred stock dividends of $1.9 million.

Banks and bank holding companies are subject to various regulatory capital requirements administered by federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Company must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Failure to meet minimum capital requirements can result in regulatory actions.

Under the capital rules issued by the Federal Banking agencies, which became effective in January 2015, the Company and the Bank elected to exclude the effects of certain Accumulated Other Comprehensive Income (“AOCI”) items from its regulatory capital calculation. At March 31, 2022, the Bank and the Company were both considered “well capitalized”.

In November 2019, Federal bank regulatory agencies finalized a rule that simplifies capital requirements for community banks by allowing them to optionally adopt a simple leverage ratio to measure capital adequacy, which removes requirements for calculating and reporting risk-based capital ratios for a qualifying community bank that have less than $10 billion in total consolidated assets, limited amounts of off-balance-sheet exposures and trading assets and liabilities, and a leverage ratio greater than 9 percent. The community bank leverage ratio framework was effective on January 1, 2020. The Company has elected to adopt the optional community bank leverage ratio framework in the first quarter of 2020.

In April 2020, the Federal banking regulatory agencies modified the original Community Bank Leverage Ratio (CBLR) framework and provided that, as of the second quarter 2020, a banking organization with a leverage ratio of 8 percent or greater and that meets the other existing qualifying criteria may elect to use the community bank leverage ratio framework. The modified rule also states that the community bank leverage ratio requirement will be greater than 8 percent for the second through fourth quarters of calendar year 2020, greater than 8.5 percent for calendar year 2021, and greater than 9 percent thereafter. The transition rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 100 basis points below the applicable community bank leverage ratio requirement.

The following table presents the tier 1 regulatory capital leverage ratios of the Company and the Bank at March 31, 2022:


	Amount		Ratio		Amount		Ratio
	(Dollars in thousands except ratios)
	Company				Parke Bank
Tier 1 leverage	$	253,870	12.21	%	$	282,651	13.60	%

Also, in July 2020, we issued $30 million in ten-year, fixed-to-floating rate subordinated notes due 2030 to certain qualified institutional buyers and accredited investors. The Notes have been structured to qualify initially as Tier 2 capital for regulatory capital purposes for our consolidated entity.

Risk Management and Asset Quality

In the normal course of business the Company is exposed to a variety of operational, reputational, legal, regulatory, market, liquidity, and credit risks that could adversely affect our financial performance and financial position. Sound risk management enables us to serve our customers and deliver for our shareholders.

Our asset risk is primarily tied to credit risk. We define credit risk as the risk of loss associated with a borrower or counterparty default. Credit risk exists with many of our assets and exposures including loans, deposit overdrafts, and assets held-for-sale. The discussion below focuses on our loan portfolios, which represent the largest component of assets on our balance sheet for which we have credit risk.

We manage our credit risk by establishing what we believe are sound credit policies for underwriting new loans, while monitoring and reviewing the performance of our existing loan portfolios. We employ various credit risk management and monitoring activities to mitigate risks associated with loans we hold or originate. In making credit decisions, we consider loan concentrations and related credit quality, economic and market conditions, regulatory mandates, and changes in interest rates.

A key to our credit risk management is adherence to a well-controlled underwriting process. When we originate a loan, we assess the borrower’s ability to meet the loan’s terms and conditions based on the risk profile of the borrower, repayment sources, the nature of underlying collateral, and other support given current events, conditions and expectations. We actively monitor and review our loan portfolio throughout a borrower’s credit cycle. A borrower’s ability to repay can be adversely affected by economic and personal financial changes as well as other factors. Likewise, changes in market conditions and other external factors can affect collateral valuations. We adjust our financial assessments to reflect changes in the financial condition, cash flow, risk profile or outlook of a borrower.

We have established a credit monitoring and tracking system and closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. The system supplements the credit review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit risk, loan delinquencies, TDR, nonperforming loans and potential problems loans.

The Company also maintains an outsourced independent loan review program that reviews and validates the credit risk assessment program on a periodic basis. Results of these external independent reviews are presented to management. The external independent loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit risk management personnel.

As we continue to navigate the COVID-19 pandemic, we have enhanced our credit review processes and procedures to identify and highlight high risk industries and individuals for probable credit risks. We have also increased our focus on delinquencies, looking for early warning signs for those customers that are not usually late and possibly adversely affected by the pandemic.

Although credit policies are designed to minimize risk, management recognizes that loan losses will occur and the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio as well as general and regional economic conditions.

Allowance for Loan and Lease Losses:

We maintain the allowance for loan and lease losses at levels that we believe to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. Refer to Note 4 - Loans and Allowance for Loan and Lease Losses in the notes to the unaudited consolidated financial statements for further discussion on management's methodology for estimating the allowance for loan losses.

At March 31, 2022, the allowance for loan losses was $30.0 million, as compared to $29.8 million at December 31, 2021. The ratio of the allowance for loan losses to total loans was 2.00% and 2.01% at March 31, 2022 and December 31, 2021, respectively. The ratio of the allowance for loan losses to non-performing assets increased to 766.8% at March 31, 2022, compared to 500.6% at December 31, 2021. During the three month periods ended March 31, 2022 and 2021, the Company did not charge off any loans, and recovered $136,000 and $12,000, respectively. Specific allowances for loan losses have been established in the amount of $0.2 million at March 31, 2022, as compared to $0.6 million on impaired loans at December 31, 2021. We have established reserves for all losses that we believe are both probable and reasonably estimable at March 31, 2022 and December 31, 2021. There can be no assurance, however, that further additions to the allowance will not be required in future periods.

The Company estimates the loan credit allowance based on a GAAP incurred loss model. Accordingly, the Company did not estimate its loan allowance according to the expected credit loss methodology. We recorded a loan loss provision of zero during the three months ended March 31, 2022, compared to $0.5 million during the three months ended March 31, 2021. The decrease was primarily due to the increase in qualitative factors made in 2021 as a result of economic uncertainty associated with the COVID-19 pandemic.

The table below presents changes in the Company’s allowance for loan losses for the periods indicated.


	Three Months Ended March 31,
	2022		2021
	(Dollars in thousands)
Balance at the beginning of the period	$	29,845	$	29,698
Charge-offs:
Commercial and Industrial	—		—
Construction	—		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—
Commercial – Non-owner Occupied	—		—
Residential – 1 to 4 Family	—		—
Residential – Multifamily	—		—
Consumer	—		—
Total charge - offs	—		—

Recoveries:
Commercial and Industrial	6		4
Construction	—		—
Real Estate Mortgage:
Commercial – Owner Occupied	2		8
Commercial – Non-owner Occupied	—		—
Residential – 1 to 4 Family	121		—
Residential – Multifamily	7		—
Consumer	—		—
Total recoveries	136		12

Net charge-offs (recoveries)	136		12
Provisions for loan losses	—		500
Balance at the end of the period	$	29,981	$	30,210

Loan Delinquencies and Nonperforming Assets:

We have established credit monitoring and tracking systems and closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency rates may be a key indicator, among other considerations, of credit risk within the loan portfolios.

The measurement of delinquency status is based on the contractual terms of each loan. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans that are 30 days or more past due in terms of principal and interest payments are considered delinquent. 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. 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. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Delinquent loans totaled $18.4 million, or 1.2% of total loans at March 31, 2022, an increase of $13.6 million from December 31, 2021. At March 31, 2022, loans 30 to 89 days delinquent totaled $14.5 million, an increase of $14.0 million from December 31, 2021. The increase in loans 30 to 89 days delinquent is driven by two, commercial real estate non-occupied loans. The Company is working closely with the borrowers to remediate the delinquency of these loans. Loans delinquent 90 days or more and not accruing interest totaled $3.9 million or 0.3% of total loans at March 31, 2022, a decrease of $0.4 million from $4.3 million, or

0.3% of total loans, at December 31, 2021. The two largest nonperforming loan relationships as of March 31, 2022 were a $1.2 million owner occupied commercial real estate loan and a $1.1 million construction loan.

The table below presents an age analysis of past due loans by loan class and the percentage of the nonperforming loans to total loans at March 31, 2022.


March 31, 2022	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Not Accruing (NPL)		Greater than 90 Days and Accruing		Current		Total Loans		NPL to Loan Type %
	(Dollars in thousands except ratios)
Commercial and Industrial	$	93	$	—	$	1,335	$	—	$	37,397	$	38,825	3.44	%
Construction	—		—		—		—		136,010		136,010		—	%
Real Estate Mortgage:
Commercial – Owner Occupied	—		—		1,016		—		131,259		132,275		0.77	%
Commercial – Non-owner Occupied	14,380		—		1,328		—		300,545		316,253		0.42	%
Residential – 1 to 4 Family	—		—		231		—		779,651		779,882		0.03	%
Residential – Multifamily	—		—		—		—		84,970		84,970		—	%
Consumer	—		—		—		—		7,624		7,624		—	%
Total Loans	$	14,473	$	—	$	3,910	$	—	$	1,477,456	$	1,495,839	0.26	%

Impaired Loans

Impaired loans include nonperforming loans and TDRs, regardless of nonperforming status. At March 31, 2022 and December 31, 2021, we had $9.8 million and $10.3 million, respectively, of loans deemed impaired. Impaired loans at March 31, 2022 and December 31, 2021 included $5.9 million and $6.0 million, respectively, of TDR loans.

Troubled Debt Restructurings

We reported performing TDR loans (not reported as non-accrual loans) of $5.9 million and $6.0 million, respectively, at March 31, 2022 and December 31, 2021. We had nonperforming TDR loans of zero at March 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 as a TDR for the three months ended March 31, 2022. Under the Interagency Statement issued by Federal banking agencies, financial institutions generally do not need to categorize COVID-19-related modifications as TDRs. As a result, loans that have been restructured for short term periods through our loan deferral program for COVID-19 related hardships and meet certain other criteria specified in the Interagency Statement are not categorized as TDRs.

Other Real Estate Owned (OREO)

OREO at March 31, 2022 was zero, compared to $124,000 at March 31, 2021.

An analysis of OREO activity is as follows:


	For the three months ended
	March 31,
	2022		2021
	(Dollars in thousands)
Balance at beginning of period	$	1,654	$	139
Real estate acquired in settlement of loans	71		55
Sales of OREO, net	(1,606)		(48)
Valuation adjustment	(119)		(22)
Balance at end of period	$	—	$	124

Off-Balance Sheet Arrangement 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 are 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 March 31, 2022 and December 31, 2021, unused commitments to extend credit amounted to approximately $125.5 million and $144.6 million, respectively. Management believes that off-balance sheet risk is not material to the results of operations or financial condition.

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 the March 31, 2022 and December 31, 2021, standby letters of credit with customers were $1.5 million and $1.5 million, respectively.

We have adequate resources to fund all unfunded commitments to the extent required and meet all contractual obligations as they come due. At March 31, 2022, such contractual obligations were primarily comprised of deposits, secured and unsecured borrowings, interest payments, operating leases and commitments to originating loans.

Critical Accounting Policies

The Company’s accounting policies are more fully described in Note 1 of the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. As disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles 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 included in the Company's Annual Report on Form 10-K.

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: The 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. We classify fair value measurements of financial instruments based on the three-level fair value hierarchy in the accounting standards. We are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. The fair values of assets may include using estimates, assumptions, and judgments. Valuations of assets or liabilities using techniques non quoted market price are sensitive to assumptions used for the significant inputs. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Changes in underlying factors, assumptions, or estimates used for estimating fair values could materially impact our future financial condition and results of operations.

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 may also have a small amount 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 7. Fair Value in the Notes to the unaudited 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, (the "Exchange Act")), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms.

During the Company's last fiscal quarter covered by this report, there were no changes in the Company's internal control over financial reporting that have materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no repurchases of our common stock during the three months ended March 31, 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS




3.1			Certificate of Incorporation of Parke Bancorp, Inc. (1)

3.2			Bylaws of Parke Bancorp, Inc. (2)

3.3			Certificate of Amendment setting forth the terms of the Registrant's 6.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series B (3)

4.1			Specimen stock certificate of Parke Bancorp, Inc. (1)

31.1			Certification of CEO required by Rule 13a-14(a).

31.2			Certification of CFO required by Rule 13a-14(a).

32			Certification required by 18 U.S.C. §1350.

101			The following materials from the Company’s Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Equity; (v) Consolidated Statements of Cash Flows; and (vi) 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 within 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 Annual Report on Form 10-K filed with the SEC on March 31, 2021 (File No. 000-51338).

(3) Incorporated by Reference to Company’s Current Report on Form 8-K filed with the SEC on December 24, 2013 (File No. 000-51338).

SIGNATURES

Pursuant to the requirements 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.

Date:	May 9, 2022	/s/ Vito S. Pantilione
		Vito S. Pantilione
		President and Chief Executive Officer (Principal Executive Officer)

Date:	May 9, 2022	/s/ John S. Kaufman
		John S. Kaufman
		Executive Vice President and Chief Financial Officer (Principal Accounting Officer)