What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-10 · 311 added, 418 removed, 471 unchanged (61% of the section changed)

4 unchanged sentences

(Dollars in thousands except per share data)

September 30,

2023 December 31,

4 unchanged sentences

Investment securities available for sale, at fair value 8,977 9,366

Investment securities held to maturity (fair value of $ 7,720 at September 30,

Investment securities held to maturity (fair value of $ 7,966 at March 31,

2023 and $ 7,805 at December 31, 2022)

1 unchanged sentence

Loans, net of unearned income 1,762,696 1,751,459

Allowance for loan losses

( 30,989 ) ( 29,845 )

Allowance for credit losses ( 31,507 ) ( 31,845 )

1,731,189 1,719,614

4 unchanged sentences

Deferred tax asset 9,878 9,184

Other real estate owned (OREO) 1,673 1,550

Other 5,006 5,363

Total assets $ 1,964,245 $ 1,984,915

Liabilities and Equity

Liabilities and Shareholders' Equity

Noninterest-bearing deposits

12 unchanged sentences

1,691,139 1,718,881

Shareholders' Equity

Preferred stock, 1,000,000 shares authorized, $ 1,000 liquidation value Series B non-cumulative convertible;

445 shares and 445 shares outstanding at September 30, 2022 and December 31, 2021, respectively

445 shares outstanding at March 31, 2023 and December 31, 2022

Common stock, $ 0.10 par value;

authorized 15,000,000 shares;

12,207,097 shares and 12,182,081 shares at September 30, 2022 and December 31, 2021, respectively

12,231,193 shares and 12,225,097 shares at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 136,341 136,201

Retained earnings 138,577 131,706

Accumulated other comprehensive (loss) income ( 617 ) 245

Treasury stock, 284,522 shares at Sept.

30, 2022 and Dec.

Accumulated other comprehensive loss ( 465 ) ( 526 )

Treasury stock, 284,522 shares at March 31, 2023 and Dec.

31, 2022, at cost

1 unchanged sentence

Total shareholders’ equity 273,106 266,034

Total liabilities and equity $ 1,923,232 $ 2,136,445

Total liabilities and shareholders' equity $ 1,964,245 $ 1,984,915

See accompanying notes to consolidated financial statements

4 unchanged sentences

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Interest income:

8 unchanged sentences

Net interest income 17,149 17,100

Provision for loan losses 600 — 950 500

Net interest income after provision for loan losses 18,696 17,481 53,461 51,871

Provision for (recovery of) credit losses ( 2,400 ) —

Net interest income after provision for (recovery of) credit losses 19,549 17,100

Non-interest income

Service fees on deposit accounts 1,215 1,316

Gain on sale of SBA loans 76 56 98 180

Other loan fees 178 276

14 unchanged sentences

Income tax expense 3,440 3,406

Net income attributable to Company and noncontrolling interest 10,540 10,543 31,369 30,894

Net income attributable to noncontrolling interest — ( 42 ) — ( 207 )

Net income attributable to Company 11,130 10,091

13 unchanged sentences

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 11,130 $ 10,091

Unrealized losses on investment securities, net of reclassification into income:

Unrealized losses on non-OTTI securities ( 478 ) ( 30 ) ( 1,161 ) ( 156 )

Tax impact on unrealized loss 123 8 299 40

Total unrealized losses on investment securities ( 355 ) ( 22 ) ( 862 ) ( 116 )

Comprehensive income 10,185 10,521 30,507 30,778

Comprehensive income attributable to noncontrolling interests — ( 42 ) — ( 207 )

Unrealized gain (loss) on investment securities:

Unrealized gain (loss) on investment securities 82 ( 584 )

Tax impact on unrealized (gain) loss ( 21 ) 151

Total unrealized gain (loss) on investment securities 61 ( 433 )

Comprehensive income attributable to the Company $ 11,191 $ 9,658

8 unchanged sentences

Other Comprehensive (Loss) Income Treasury

Stock Total Shareholders' Equity Non-Controlling Interest Total Equity

3 Months Ended

Balance, June 30, 2022 $ 445 12,199,483 $ 1,220 $ 135,709 $ 115,020 $ ( 262 ) $ ( 3,015 ) $ 249,117 $ — $ 249,117

Net income — — — — 10,540 — — 10,540 — 10,540

Common stock options exercised — 7,614 1 59 — — — 60 — 60

Other comprehensive loss — — — — — ( 355 ) — ( 355 ) — ( 355 )

Stock compensation expense — — — 117 — — — 117 — 117

Dividend on preferred stock (1)

— — — — ( 7 ) — — ( 7 ) — ( 7 )

Dividend on common stock (2)

— — — — ( 2,144 ) — — ( 2,144 ) — ( 2,144 )

Balance, September 30, 2022 $ 445 12,207,097 $ 1,221 $ 135,885 $ 123,409 $ ( 617 ) $ ( 3,015 ) $ 257,328 $ — $ 257,328

9 Months Ended

Stock Total Shareholders' Equity

Three Months Ended

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

7 unchanged sentences

— — — — ( 1,907 ) — — ( 1,907 )

Balance, September 30, 2022 $ 445 12,207,097 $ 1,221 $ 135,885 $ 123,409 $ ( 617 ) $ ( 3,015 ) $ 257,328 $ — $ 257,328

(1) Dividends per share of $ 15.0 and $ 45.0 , respectively, were declared on series B preferred stock for the three and nine months ended September 30, 2022.

(2) Dividends per share of $ 0.18 and $ 0.50 , respectively, were declared on common stock outstanding for the three and nine months ended September 30, 2022.

See accompanying notes to consolidated financial statements

Parke Bancorp, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in thousands except share data)

Stock Shares of Common Stock issued Common

Stock Additional

Earnings Accumulated

Other Comprehensive (Loss) Income Treasury

Stock Total Shareholders' Equity Non-Controlling Interest Total Equity

3 Months Ended

Balance, June 30, 2021 $ 470 12,177,765 $ 1,218 $ 135,318 $ 81,262 $ 369 $ ( 3,015 ) $ 215,622 $ 1,389 $ 217,011

Net income — — — — 10,501 — — 10,501 42 10,543

Common stock options exercised — 732 — 6 — — — 6 — 6

Other comprehensive loss — — — — — ( 22 ) — ( 22 ) — ( 22 )

Stock compensation expense — — — 59 — — — 59 — 59

Dividend on preferred stock ( 1)

— — — — ( 7 ) — — ( 7 ) — ( 7 )

Dividend on common stock (2)

— — — — ( 1,903 ) — — ( 1,903 ) — ( 1,903 )

Balance, September 30, 2021 $ 470 12,178,497 $ 1,218 $ 135,383 $ 89,853 $ 347 $ ( 3,015 ) $ 224,256 $ 1,431 $ 225,687

9 Months Ended

Balance, March 31, 2022 $ 445 12,198,019 $ 1,220 $ 135,623 $ 106,194 $ ( 188 ) $ ( 3,015 ) $ 240,279

Three Months Ended

Balance, December 31, 2022 $ 445 12,225,097 $ 1,223 $ 136,201 $ 131,706 $ ( 526 ) $ ( 3,015 ) $ 266,034

Cumulative effect of adoption of ASU 2016-13 — — — — ( 2,102 ) — — ( 2,102 )

Net income — — — — 11,130 — — 11,130

Earnings distribution to non-controlling interest — — — — — — — — ( 448 ) ( 448 )

Common stock options exercised — 6,096 — 33 — — — 33

Preferred stock shares conversion ( 10 ) 1,375 — 10 — — — — — —

Other comprehensive loss — — — — — ( 116 ) — ( 116 ) — ( 116 )

Other comprehensive income — — — — — 61 — 61

Stock compensation expense — — — 107 — — — 107

3 unchanged sentences

— — — — ( 2,150 ) — — ( 2,150 )

Balance, September 30, 2021 $ 470 12,178,497 $ 1,218 $ 135,383 $ 89,853 $ 347 $ ( 3,015 ) $ 224,256 $ 1,431 $ 225,687

(1) Dividends per share of $ 15.0 and $ 45.0 , respectively, were declared on series B preferred stock for the three and nine months ended September 30, 2021.

(2) Dividends per share of $ 0.16 and $ 0.48 , respectively, were declared on common stock outstanding for the three and nine months ended September 30, 2021.

Balance, March 31, 2023 $ 445 12,231,193 $ 1,223 $ 136,341 $ 138,577 $ ( 465 ) $ ( 3,015 ) $ 273,106

(1) Dividends per share of $ 15.0 were declared on series B preferred stock for the three months ended March 31, 2023 and 2022, respectively.

(2) Dividends per share of $ 0.18 and $ 0.16 , respectively, were declared on common stock outstanding for the three months ended March 31, 2023 and 2022.

See accompanying notes to consolidated financial statements

3 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended

September 30,

For the Three Months Ended

Cash Flows from Operating Activities:

2 unchanged sentences

Depreciation and amortization 31 165

Provision for loan losses 950 500

(Recovery of) provision for credit losses ( 2,400 ) —

Increase in value of bank owned life insurance ( 143 ) ( 138 )

Gain on sale of SBA loans ( 98 ) ( 177 )

SBA loans originated for sale ( 1,723 ) ( 1,331 )

Proceeds from sale of SBA loans originated for sale 1,821 1,508

Net gain on sale of OREO and valuation adjustments — ( 47 )

3 unchanged sentences

Decrease (increase) in accrued interest receivable and other assets 195 ( 2,443 )

Increase (decrease) in accrued interest payable and other accrued liabilities 1,769 ( 1,177 )

Increase in accrued interest payable and other accrued liabilities 1,638 981

Net cash provided by operating activities 10,549 8,669

2 unchanged sentences

Repayments and maturities of investment securities held to maturity 34 35

Purchases of investment securities — ( 8,693 )

Net (increase) decrease in loans ( 196,324 ) 90,020

Purchases of bank premises and equipment ( 88 ) ( 47 )

Net increase in loans ( 11,356 ) ( 10,927 )

Sales (purchases) of bank premises and equipment 133 ( 38 )

Proceeds from sale of OREO, net — 1,606

Redemptions of restricted stock 155 1,813

Net cash (used in) provided by investing activities ( 191,623 ) 88,310

Purchases of restricted stock ( 3,690 ) ( 13 )

Net cash used in investing activities ( 14,414 ) ( 8,393 )

Cash Flows from Financing Activities:

Cash dividends ( 2,157 ) ( 1,914 )

Earnings distribution to non-controlling interest — ( 447 )

Proceeds from exercise of stock options 33 114

Net decrease in FHLBNY and short-term borrowings ( 5,000 ) ( 43,500 )

Net decrease in other borrowings — ( 90,026 )

Net (decrease) increase in noninterest-bearing deposits ( 159,957 ) 113,736

Net (decrease) increase in interest-bearing deposits ( 73,224 ) 75,061

Net cash (used in) provided by financing activities ( 245,883 ) 47,416

Net (decrease) increase in cash and cash equivalents ( 403,209 ) 165,224

Decrease in FHLBNY and short-term borrowings ( 30,000 ) —

Increase in FHLBNY and short-term borrowings 112,000 —

Net decrease in noninterest-bearing deposits ( 75,418 ) ( 81,870 )

Net decrease in interest-bearing deposits ( 36,769 ) ( 9,330 )

Net cash used in financing activities ( 32,311 ) ( 93,000 )

Net decrease in cash and cash equivalents ( 36,176 ) ( 92,724 )

Cash and Cash Equivalents, January 1, 182,150 596,553

Cash and Cash Equivalents, June 30, $ 193,344 $ 623,825

Cash and Cash Equivalents, March 31, $ 145,974 $ 503,829

Supplemental Disclosure of Cash Flow Information:

3 unchanged sentences

Loans transferred to OREO $ 123 $ 71

Accrued dividends payable $ 2,157 $ 2,157

See accompanying notes to consolidated financial statements

8 unchanged sentences

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.

The Bank also has a loan office located at 1817 East Venango Street, Philadelphia, Pennsylvania.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 unchanged sentences

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.

2 unchanged sentences

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, 2022.

The accompanying interim financial statements for the three and nine months ended September 30, 2022 and 2021 are unaudited.

The accompanying interim financial statements for the three months ended March 31, 2023 and 2022 are unaudited.

The balance sheet as of December 31, 2022, 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 and nine months ended September 30, 2022 are not necessarily indicative of the results for the full year or any other period.

Results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results for the full year or any other period.

Use of Estimates:

2 unchanged sentences

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").

Allowance for Credit Losses on Loans and Leases

The allowance for credit losses on loans and leases is a valuation account that is deducted from the loan or lease’s amortized cost basis to present the net amount expected to be collected on the loans and leases.

Loans and leases deemed to be uncollectible are charged against the allowance for credit losses on loans and leases, and subsequent recoveries, if any, are credited to the allowance for credit losses on loans and leases.

Changes to the allowance for credit losses on loans and leases are recorded through the provision for credit losses.

The allowance for credit losses on loans and leases is maintained at a level considered appropriate to absorb expected credit losses over the expected life of the portfolio as of the reporting date.

The allowance for credit losses on loans and leases is measured on a collective (pool) basis when similar risk characteristics exist.

Parke's loan portfolio segments include commercial and industrial, construction, commercial - owner occupied, commercial - non-owner occupied, residential - 1 to 4 family, residential - 1 to 4 family investment, residential - multifamily, and consumer.

Loans that do not share similar risk characteristics are evaluated on an individual basis.

Loans evaluated individually are not also included in the collective evaluation.

For individually assessed loans, see related details in the Individually Assessed Loans section below.

The allowance for credit losses on collectively assessed loans and leases is measured over the expected life of the loan or lease using a vintage loss rate approach, which will then be supplemented with qualitative factors.

The vintage loss rate approach creates pools of loans (made up of individual loans) based on the loan segmentation.

The loan pools are aggregated by origination year.

Charge-offs, net of recoveries, are allocated by the year of charge-off to each loan pool.

An average life is prescribed to a pool of loans that were originated in a particular year.

The actual charge-offs as a percent of total loans are calculated for each historical year, and projected for future years for each year within the average life time horizon.

The sum of the actual charge-offs and projected charge-offs are divided by the average amortized origination amount for each respective year.

Those charge-off percentages are added together to obtain an aggregated vintage loss percentage which is then multiplied by the outstanding loan balances to obtain a reserve requirement.

Parke runs the Current Expected Credit Loss ("CECL") impairment models on a quarterly basis and qualitatively adjusts model results for risk factors that are not considered within the model but which are relevant in assessing the expected credit losses within the loan and lease pools.

Management generally considers the following qualitative factors:

•Volume and severity of past-due loans, non-accrual loans and classified loans;

•Lending policies and procedures, including underwriting standards and historically based loss/collection, charge-off and recovery practices;

• National and economic conditions that may have an impact on credit quality;

•Nature and volume of the portfolio;

•Existence and effect of any credit concentrations and changes in the level of such concentrations;

•The value of the underlying collateral for loans that are not collateral dependent;

•Changes in the quality of the loan review system;

•Experience, ability and depth of lending management and staff

Parke has elected to not estimate an allowance for credit losses on accrued interest receivable, as it already has a policy in place to reverse or write-off accrued interest, through interest income, in a timely manner.

Allowance for Credit Losses on Lending-Related Commitments

Parke estimates expected credit losses over the contractual period in which it is exposed to credit risk on contractual obligations to extend credit, unless the obligation is unconditionally cancellable by the Company.

The allowance for credit losses on lending-related commitments is recorded in other liabilities in the consolidated balance sheet and is recorded as a provision for credit losses in the consolidated income statement.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives.

The lifetime loss rates for off-balance sheet credit exposures are calculated in the same manner as on-balance sheet credit exposures, using the same model and economic forecasts, adjusted for the estimated likelihood that funding will occur.

Individually Assessed Loans and Leases

ASC 326 provides that a loan or lease is measured individually if it does not share similar risk characteristics with other financial assets.

For Parke, loans and leases which are identified to be individually assessed under CECL typically would have been evaluated individually as impaired loans using accounting guidance in effect in periods prior to the adoption of CECL and include collateral dependent loans.

Collateral Dependent Loans

Parke considers a loan to be collateral dependent when foreclosure of the underlying collateral is probable.

Parke has also elected to apply the practical expedient to measure expected credit losses of a collateral dependent asset using the fair value of the collateral, less any estimated costs to sell, when foreclosure is not probable but repayment of the loan is expected to be provided substantially through the operation or sale of the collateral, and the borrower is experiencing financial difficulty.

Allowance for Credit Losses on Held to Maturity Securities

We follow Accounting Standards Codification (ASC) 326-20, Financial Instruments - Credit Loss - Measured at Amortized Cost, to measure expected credit losses on held-to-maturity debt securities on a collective basis by security investment grade.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The Company classifies the held-to-maturity debt securities into the following major security types:

residential mortgage backed, and state and political subdivisions.

These securities are highly rated with a history of no credit losses, and are assigned ratings based on the most recent data from ratings agencies depending on the availability of data for the security.

Credit ratings of held-

to-maturity debt securities, which are a significant input in calculating the expected credit loss, are reviewed on a quarterly basis.

Based on the credit ratings of our held-to-maturity securities and our historical experience including no losses, we have determined that an allowance for credit loss on the held-to-maturity portfolio is not required

Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses and is included in Accrued interest receivable on the Consolidated Statements of Financial Condition.

Allowance for Credit Losses on Available for Sale Securities

We follow ASC 326-30, Financial Instruments - Credit Loss - Available-for-Sale Debt Securities, which provides guidance related to the recognition of and expanded disclosure requirements for expected credit losses on available-for-sale debt securities.

For available-for-sale debt securities in an unrealized loss position, the Company first evaluates whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.

If either criteria is met, the security's amortized cost basis is reduced to fair value and recognized as a reduction to non-interest income in the Consolidated Statements of Income.

For debt securities available-for-sale which the Company does not intend to sell, or it is not likely the security would be required to be sold before recovery, we evaluate whether a decline in fair value has resulted from credit losses or other adverse factors, such as a change in the security's credit rating.

In assessing whether a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance is recorded, limited to the fair value of the security.

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 the 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.

In March 2020, the FASB issued ASU No.

2020.-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The amendments provide optional guidance to entities for a limited period of time to ease the transition in accounting for and recognizing the effects of reference rate reform on financial reporting.

Under the guidance, modifications of contracts due to reference rate reform will not require contract remeasurement or reassessment of a previous accounting determination.

For hedge accounting, modification of critical terms of the hedge due to changes in reference rate reform will not affect hedge accounting or dedesignate the hedging relationship.

The guidance also provides specific expedients for fair value hedges, cash flow hedges, and excluded components.

Further, the guidance provides a none-time election to sell or transfer held to maturity debt 46 securities that are affected by the reference rate change.

The guidance is effective upon issuance through December 31, 2022.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, which extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024.

This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform.

ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis.

The Company does not expect the application of this guidance to have a material impact on the Consolidated Financial Statements.

Accounting Pronouncements Adopted in 2023

In 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 a 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 has selected a third-party software vendor for the CECL calculation and to assist in the implementation of the model.

The Company will utilize a lifetime loss rate calculation for all its loan portfolio's, as well as supplement the loss estimate by including reasonable and supportable forecasts of macroeconomic conditions.

The Company began to perform parallel runs of the new model to its current ALLL model during the first quarter of 2022 and continues to evaluate the results and assumptions.

Implementation efforts are continuing to focus on model validation, model calibration, qualitative factors, finalizing procedures and other governance and control documentation.

The Company will adopt this new guidance on January 1, 2023, and 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 intends to adopt this guidance on its effective date and does not expect the adoption of this guidance to materially impact its financial condition, results of operations and consolidated financial statements.

This guidance became effective on January 1, 2023 for the Company.

Results and disclosures for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and held-to-maturity debt securities, and unfunded commitments.

On January 1, 2023, the Company recorded a cumulative effect decrease to retained earnings of $ 2.1 million, net of tax, of which $ 1.9 million related to loans, and $ 960.0 thousand related to unfunded commitments.

There were no such charges for securities held by the Company at the date of adoption.

The following table illustrates the impact of adopting ASC 326:

(Amounts in thousands) January 1, 2023

Assets Pre-adoption Adoption Impact As Reported

Commercial and Industrial $ 390 $ 168 $ 558

Construction 2,581 1,899 4,480

Commercial - Owner Occupied 2,298 ( 171 ) 2,127

Commercial - Non-owner Occupied 9,709 ( 951 ) 8,758

Residential - 1 to 4 Family 6,076 1,782 7,858

Residential - 1 to 4 Family Investment 9,381 ( 795 ) 8,586

Residential - Multifamily 1,347 ( 128 ) 1,219

Consumer 63 53 116

Total ACL on loans 31,845 1,857 33,702

Deferred Tax Assets 9,184 716 9,900

ACL for unfunded commitments — 960 960

Retained Earnings $ 131,706 $ ( 2,101 ) $ 129,605

INVESTMENT SECURITIES

The following is a summary of the Company's investments in available for sale and held to maturity securities as of September 30, 2022 and December 31, 2021:

As of September 30, 2022 Amortized

The following is a summary of the Company's investments in available for sale and held to maturity securities as of March 31, 2023 and December 31, 2022:

As of March 31, 2023 Amortized

losses Fair value

3 unchanged sentences

Residential mortgage-backed securities 9,104 4 631 8,477

Collateralized mortgage obligations 1 — — 1

Total available for sale $ 9,604 $ 4 $ 631 $ 8,977

9 unchanged sentences

Residential mortgage-backed securities 9,575 3 712 8,866

Collateralized mortgage obligations 8 — — 8

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

3 unchanged sentences

Total held to maturity $ 9,378 $ 56 $ 1,629 $ 7,805

The amortized cost and fair value of debt securities classified as available for sale and held to maturity, by contractual maturity as of September 30, 2022 are as follows:

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, 2023 are as follows:

(Dollars in thousands)

12 unchanged sentences

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 and nine months ended September 30, 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 September 30, 2022 and December 31, 2021:

As of September 30, 2022 Less Than 12 Months 12 Months or Greater Total

The Company did not sell any securities during the three months ended March 31, 2023.

The following tables show the gross unrealized losses and fair value of the Company's investments for which an allowance for credit losses has not been recorded, which are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2023 and December 31, 2022:

As of March 31, 2023 Less Than 12 Months 12 Months or Greater Total

Description of Securities Fair

23 unchanged sentences

Total held to maturity $ — $ — $ 6,403 $ 1,629 $ 6,403 $ 1,629

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

(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 20 securities in the less than 12 months loss position and 7 securities in the 12 months or greater loss position at September 30, 2022.

The Company’s unrealized loss for the debt securities is comprised of 8 securities in the less than 12 months loss position and 16 securities in the 12 months or greater loss position at March 31, 2023.

The mortgage-backed securities that had unrealized losses were issued or guaranteed by the US government or US government sponsored entities.

1 unchanged sentence

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 September 30, 2022.

LOANS AND ALLOWANCE FOR LOAN LOSSES

At September 30, 2022 and December 31, 2021, the Company had $ 1.68 billion and $ 1.48 billion, respectively, in loans receivable outstanding.

Outstanding balances include a total net increase of $ 1.8 million and $ 1.7 million at September 30, 2022 and December 31, 2021, respectively, for net deferred loan costs, and unamortized discounts.

We had no loans held for sale at September 30, 2022 and December 31, 2021, respectively.

Also, at September 30, 2022 and December 31, 2021, our commercial and industrial loan portfolio includes $ 2.9 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 portfolio segments of loans receivable at September 30, 2022 and December 31, 2021, consist of the following:

September 30, 2022 December 31, 2021

LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS

At March 31, 2023 and December 31, 2022, the Company had $ 1.76 billion and $ 1.75 billion, respectively, in loans receivable outstanding.

Outstanding balances include a total net increase of $ 2.2 million and $ 1.9 million at March 31, 2023 and December 31, 2022, respectively, for net deferred loan costs, and unamortized discounts.

The portfolio segments of loans receivable at March 31, 2023 and December 31, 2022, consist of the following:

March 31, 2023 December 31, 2022

Amount Amount

6 unchanged sentences

Residential – 1 to 4 Family 442,110 444,820

Residential – 1 to 4 Family Investment 490,779 476,210

Residential – Multifamily 99,586 95,556

Consumer 6,485 6,731

Total Loans $ 1,679,357 $ 1,484,847

An age analysis of past due loans by class at September 30, 2022 and December 31, 2021 is as follows:

September 30, 2022 30-59

Accruing Total Past

Total Loan receivable 1,762,696 1,751,459

Allowance for credit losses on loans ( 31,507 ) ( 31,845 )

Total loan receivable, net of allowance for credit losses on loans $ 1,731,189 $ 1,719,614

An age analysis of past due loans by class at March 31, 2023 and December 31, 2022 is as follows:

March 31, 2023 30-59

Days Total Past

Due Current Total

Loans Loans > 90 Days and Accruing

(Dollars in Thousands)

5 unchanged sentences

Residential – 1 to 4 Family 447 — — 447 441,663 442,110

Residential – 1 to 4 Family Investment — — — — 490,779 490,779

Residential – Multifamily — — — — 99,586 99,586

2 unchanged sentences

December 31, 2022 30-59

Accruing Total Past

Days Total Past

Due Current Total

Loans Loans > 90 Days and Accruing

(Dollars in thousands)

8 unchanged sentences

58 — 162 220 444,600 444,820

Residential – 1 to 4 Family Investment — — — — 476,210 476,210

Residential – Multifamily

2 unchanged sentences

Total Loans $ 136 $ 89 $ 16,276 $ 16,501 $ 1,734,958 $ 1,751,459

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.

The following table provides the amortized cost of loans on nonaccrual status:

March 31, 2023

(amounts in thousands) Nonaccrual with no ACL Nonaccrual with ACL Total Nonaccrual Loans Past Due Over 90 Days Still Accruing Total Nonperforming

Commercial and Industrial $ 198 $ — $ 198 $ — $ 198

Construction 1,091 — 1,091 — 1,091

Commercial - Owner Occupied — 400 400 — 400

Commercial - Non-owner Occupied 10,943 3,437 14,380 — 14,380

Residential - 1 to 4 Family — — — — —

Residential - 1 to 4 Family Investment — — — — —

Residential - Multifamily — — — — —

Consumer 70 — 70 — 70

Total $ 12,302 $ 3,837 $ 16,139 $ — $ 16,139

December 31, 2022

(amounts in thousands) Total Nonaccrual Loans Past Due Over 90 Days Still Accruing

Commercial and Industrial $ — $ —

Construction 1,091 —

Commercial - Owner Occupied 587 —

Commercial - Non-owner Occupied 19,568 —

Residential - 1 to 4 Family 417 —

Residential - 1 to 4 Family Investment — —

Residential - Multifamily — —

Consumer 70 —

Total $ 21,733 $ —

Allowance For Credit Losses (ACL)

We maintain the ACL at a level that we believe to be appropriate to absorb estimated credit losses in the loan portfolios as of the balance sheet date.

We established our allowance in accordance with guidance provided in Accounting Standard Codification ("ASC") - Financial Instruments - Credit Losses ("ASC 326").

The allowance for credit losses represents management’s estimate of expected losses inherent in the Company’s lending activities excluding loans accounted for under fair value.

The allowance for credit losses is maintained through charges to the provision for credit losses in the Consolidated Statements of Income as expected losses are estimated.

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 Company's allowance for credit losses includes a general component and an asset-specific component for collateral-dependent loans.

To determine the asset-specific component of the allowance, the loans are evaluated individually based on the fair value of the underlying collateral.

The Company generally measures the asset-specific allowance as the difference between the net realizable value of loan collateral 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 incorporates a historical valuation allowance and qualitative allowance.

The historical valuation utilizes a vintage loss rate approach utilizing a third party software model.

The vintage loss rate approach creates pools of loans based on the segments defined by management, and consists of commercial and industrial, construction, commercial - owner occupied, commercial - non-owner occupied, residential - 1 to 4 family, residential - 1 to 4 family investment, residential - multifamily, and consumer.

The loan pools are aggregated by origination year.

Charge-offs, net of recoveries, are allocated by the year of charge-off to each loan pool.

An average life is prescribed to a pool of loans that were originated in a particular year.

The actual charge-offs as a percent of total loans are calculated for each historical year, and projected for future years for each year within the average life time horizon.

The sum of the actual charge-offs and projected charge-offs are divided by the average amortized origination amount for each respective year.

Those charge-off percentages are added together to obtain an aggregated vintage loss percentage which is then multiplied by the outstanding loan balances to obtain a reserve requirement.

The qualitative allowance component 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:

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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.

The Company has elected to exclude accrued interest receivable from the measurement of the ACL.

When a loan is placed on non-accrual status, any outstanding accrued interest is generally reversed against interest income.

The process of determining the level of the allowance for credit 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 by portfolio segment:

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The allowance for credit losses on off-balance sheet credit exposures is adjusted through the provision for credit loss expense.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

At March 31, 2023, the allowance for credit losses on off-balance sheet credit exposures was $ 760.0 thousand.

The following tables present the information regarding the allowance for credit losses and associated loan data by portfolio segment under the CECL model in accordance with ASC 326:

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 September 30, 2022

June 30, 2022 $ 551 $ 2,202 $ 2,742 $ 7,549 $ 16,211 $ 1,098 $ 95 $ 30,448

Charge-offs — — — — ( 66 ) — — ( 66 )

Recoveries 3 — 4 — — — — 7

Provisions (benefits) ( 137 ) 653 ( 140 ) 368 ( 221 ) 92 ( 15 ) 600

Ending Balance at September 30, 2022

$ 417 $ 2,855 $ 2,606 $ 7,917 $ 15,924 $ 1,190 $ 80 $ 30,989

Allowance for loan losses

Nine months ended September 30, 2022

Commercial and Industrial Construction Commercial Owner Occupied Commercial Non-owner Occupied Residential 1 to 4 Family Residential 1 to 4 Family Investment Residential Multifamily Consumer Total

Allowance for credit losses (Dollars in thousands)

Three months ended March 31, 2023

December 31, 2022 $ 390 $ 2,581 $ 2,298 $ 9,709 $ 6,076 $ 9,381 $ 1,347 $ 63 $ 31,845

Impact of adoption ASC 326 168 1,899 ( 171 ) ( 951 ) 1,782 ( 795 ) ( 128 ) 53 1,857

Charge-offs — — — — — — — — —

1 unchanged sentence

Provisions (benefits) 177 ( 881 ) ( 253 ) ( 682 ) ( 52 ) ( 516 ) 19 ( 12 ) ( 2,200 )

Ending Balance at September 30, 2022

$ 417 $ 2,855 $ 2,606 $ 7,917 $ 15,924 $ 1,190 $ 80 $ 30,989

Allowance for loan losses

Individually evaluated for impairment $ — $ — $ 4 $ 125 $ 20 $ — $ — $ 149

Collectively evaluated for impairment 417 2,855 2,602 7,792 15,904 1,190 80 30,840

Ending Balance at September 30, 2022

$ 417 $ 2,855 $ 2,606 $ 7,917 $ 15,924 $ 1,190 $ 80 $ 30,989

Individually evaluated for impairment $ — $ 1,139 $ 1,177 $ 19,655 $ 420 $ — $ 70 $ 22,461

Collectively evaluated for impairment 29,407 192,972 128,929 327,888 892,568 78,162 6,970 1,656,896

Ending Balance at September 30, 2022

Ending Balance at March 31, 2023

$ 738 $ 3,599 $ 1,876 $ 8,076 $ 7,806 $ 8,070 $ 1,238 $ 104 $ 31,507

The increase in the allowance for loan loss balance for the nine months ended September 30, 2022 in the residential 1 to 4 family and commercial non-owner occupied portfolio segments was primarily attributable to loan growth.

The decrease in the allowance for loan loss balance in the commercial owner occupied portfolio segment for the nine months ended September 30, 2022 was due to decreases in non-performing balances.

During the quarter, the credit provisions to the Construction, Commercial Non-owner Occupied, and Residential 1-4 Family Investment segments were largely driven by declines or slowdowns to growth within the portfolio that lowered the loan exposure and also caused changes to the qualitative factors related to loan volume within the portfolio segments.

The credit provision to the Commercial Owner Occupied segment was largely driven by a reduction in other assets especially mentioned ("OAEM") loans during the quarter, partially offset by increase in loan volume.

The following tables present the information regarding the allowance for loan losses and associated loan data by portfolio segment under the incurred loss model:

Real Estate Mortgage

Commercial and Industrial Construction Commercial Owner Occupied Commercial Non-owner Occupied Residential 1 to 4 Family Residential Multifamily Consumer Total

Commercial and Industrial Construction Commercial Owner Occupied Commercial Non-owner Occupied Residential 1 to 4 Family Residential 1 to 4 Family Investment Residential Multifamily Consumer Total

Allowance for loan losses (Dollars in thousands)

Three months ended September 30, 2021

June 30, 2021 $ 312 $ 3,483 $ 3,502 $ 8,514 $ 12,883 $ 1,250 $ 125 $ 30,069

Charge-offs — ( 226 ) — — ( 49 ) — — ( 275 )

Recoveries 2 — 38 4 — — — 44

Provisions (benefits) 95 ( 350 ) ( 105 ) ( 350 ) 878 ( 166 ) ( 2 ) —

Ending Balance at September 30, 2021 $ 409 $ 2,907 $ 3,435 $ 8,168 $ 13,712 $ 1,084 $ 123 $ 29,838

Allowance for loan losses

Nine months ended September 30, 2021

Three months ended March 31, 2022

December 31, 2021 $ 417 $ 2,662 $ 2,997 $ 7,476 $ 7,045 $ 7,925 $ 1,215 $ 108 $ 29,845

2 unchanged sentences

Provisions (benefits) 86 ( 465 ) 13 ( 223 ) 311 80 193 5 —

Ending Balance at September 30, 2021 $ 409 $ 2,907 $ 3,435 $ 8,168 $ 13,712 $ 1,084 $ 123 $ 29,838

Ending Balance at March 31, 2022 $ 509 $ 2,197 $ 3,012 $ 7,253 $ 7,477 $ 8,005 $ 1,415 $ 113 $ 29,981

Allowance for loan losses

1 unchanged sentence

Collectively evaluated for impairment 509 2,197 3,008 7,105 7,448 8,005 1,415 113 29,800

Ending Balance at September 30, 2021 $ 409 $ 2,907 $ 3,435 $ 8,168 $ 13,712 $ 1,084 $ 123 $ 29,838

Ending Balance at March 31, 2022 $ 509 $ 2,197 $ 3,012 $ 7,253 $ 7,477 $ 8,005 $ 1,415 $ 113 $ 29,981

Individually evaluated for impairment $ 196 $ 1,139 $ 2,433 $ 5,369 $ 687 $ — $ — $ — $ 9,824

Collectively evaluated for impairment 38,629 134,871 129,842 310,884 395,587 383,608 84,970 7,624 1,486,015

Ending Balance at September 30, 2021 $ 66,277 $ 171,151 $ 127,352 $ 311,897 $ 711,908 $ 76,522 $ 8,709 $ 1,473,816

The increase in the allowance for loan loss balance for the residential 1 to 4 family portfolio segment for the nine months ended September 30, 2021 is mainly due to loan growth.

The increase in the allowance for loan loss balance for the commercial owner occupied portfolio segment is mainly due to increase in the non-performing loan balance.

The decrease in the allowance for loan loss balance for the residential multifamily portfolio segment for the nine months ended September 30, 2021 is due to the decrease in loan balance.

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 September 30, 2022 and December 31, 2021:

September 30, 2022 Recorded

Investment Unpaid

Balance Related

(Dollars in thousands)

With no related allowance recorded:

Commercial and Industrial

1,139 5,856 —

Real Estate Mortgage:

Commercial – Owner Occupied

Commercial – Non-owner Occupied

14,553 14,553 —

Residential – 1 to 4 Family

Residential – Multifamily

16,913 21,630 —

With an allowance recorded:

Commercial and Industrial

Real Estate Mortgage:

Commercial – Owner Occupied

Commercial – Non-owner Occupied

5,102 5,102 125

Residential – 1 to 4 Family

Residential – Multifamily

5,548 5,548 149

Commercial and Industrial

1,139 5,856 —

Real Estate Mortgage:

Commercial – Owner Occupied

1,177 1,177 4

Commercial – Non-owner Occupied

19,655 19,655 125

Residential – 1 to 4 Family

Residential – Multifamily

$ 22,461 $ 27,178 $ 149

December 31, 2021 Recorded

Investment Unpaid

Balance Related

(Dollars in thousands)

With no related allowance recorded:

Commercial and Industrial

$ 216 $ 216 $ —

Real Estate Mortgage:

Commercial – Owner Occupied

2,170 2,170 —

Commercial – Non-owner Occupied

Residential – 1 to 4 Family

Residential – Multifamily

3,093 3,227 —

With an allowance recorded:

Commercial and Industrial

1,139 5,856 300

Real Estate Mortgage:

Commercial – Owner Occupied

Commercial – Non-owner Occupied

5,335 5,335 218

Residential – 1 to 4 Family

Residential – Multifamily

7,209 11,934 591

Commercial and Industrial

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

Residential – Multifamily

$ 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 and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Investment Interest

Recognized Average

Investment Interest

(Dollars in thousands)

Commercial and Industrial $ 79 $ — $ 48 $ —

Construction 1,139 — 1,290 —

Real Estate Mortgage:

Commercial – Owner Occupied

1,770 4 2,446 3

Commercial – Non-owner Occupied

12,510 67 5,651 123

Residential – 1 to 4 Family

455 6 1,332 8

Residential – Multifamily

Consumer 70 — 178 2

Total $ 16,023 $ 77 $ 10,945 $ 136

Nine Months Ended September 30,

Investment Interest

Recognized Average

Investment Interest

(Dollars in thousands)

Ending Balance at March 31, 2022 $ 38,825 $ 136,010 $ 132,275 $ 316,253 $ 396,274 $ 383,608 $ 84,970 $ 7,624 $ 1,495,839

The increase in the allowance for loan loss balance for the residential 1 to 4 family portfolio segment for the three months ended March 31, 2022 is mainly due to loan growth.

The increase in the allowance for loan loss balance for the residential multifamily portfolio segment is mainly due to increases in qualitative factors, namely economic conditions.

The decrease in the allowance for loan loss balance for the construction portfolio segment for the three months ended March 31, 2022 is due to the decrease in loan balance.

Collateral-Dependent Loans

The following table presents the collateral-dependent loans by portfolio segment and collateral type at March 31, 2023:

(amounts in thousands) Real Estate Business Assets Other

Commercial and Industrial $ 198 $ — $ —

Construction 1,091 — —

Real Estate Mortgage:

Commercial - Owner Occupied 400 — —

2,069 29 2,449 6

Commercial - Non-owner Occupied 14,380 — —

8,991 580 5,673 135

Residential - 1 to 4 Family — — —

573 14 1,496 26

Residential - 1 to 4 Family Investment — — —

Residential - Multifamily — — —

1 unchanged sentence

Total $ 16,139 $ — $ —

Troubled debt restructuring (TDRs)

We reported performing TDR loans (not reported as non-accrual loans) of $ 5.5 million and $ 6.0 million, respectively, at September 30, 2022 and December 31, 2021.

Nonperforming TDR loans were zero at September 30, 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 and nine months ended September 30, 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;

• 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 $ 149,000 and $ 254,000 in the allowance at September 30, 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 :

25 unchanged sentences

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 September 30, 2022 and December 31, 2021 is as follows:

At September 30, 2022 Pass OAEM Substandard Doubtful Total

(Dollars in thousands)

The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses, as of March 31, 2023 under the current expected credit loss model.

(Dollars in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans at Amortized Cost Basis

As of March 31, 2023 2023 2022 2021 2020 Prior Total

Commercial and Industrial

Construction 192,972 — 1,139 — 194,111

Real Estate Mortgage:

Pass $ 723 $ 2,147 $ 190 $ 3,538 $ 9,027 $ 18,323 $ 33,948

OAEM — — — — — — —

Substandard — — — — 190 — 190

Doubtful — — — — — — —

$ 723 $ 2,147 $ 190 $ 3,538 $ 9,217 $ 18,323 $ 34,138

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ —

Pass $ — $ 5,693 $ 4,500 $ 194 $ — $ 157,897 $ 168,284

OAEM — — — — — — —

Substandard — — — — — 1,091 1,091

Doubtful — — — — — — —

$ — $ 5,693 $ 4,500 $ 194 $ — $ 158,988 $ 169,375

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ —

Commercial – Owner Occupied

Pass $ 14,822 $ 32,507 $ 13,407 $ 7,504 $ 61,420 $ 11,023 $ 140,683

OAEM — — — — — — —

Substandard — — — — 400 — 400

Doubtful — — — — — — —

$ 14,822 $ 32,507 $ 13,407 $ 7,504 $ 61,820 $ 11,023 $ 141,083

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ —

Commercial – Non-owner Occupied

Pass $ 2,540 $ 101,039 $ 39,364 $ 34,950 $ 186,456 $ 452 $ 364,801

OAEM — — — — — — —

Substandard — — — — 14,339 — 14,339

Doubtful — — — — — — —

$ 2,540 $ 101,039 $ 39,364 $ 34,950 $ 200,795 $ 452 $ 379,140

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ —

Residential – 1 to 4 Family

Performing $ 14,340 $ 122,576 $ 65,675 $ 34,717 $ 200,096 $ 4,706 $ 442,110

Nonperforming — — — — — — —

$ 14,340 $ 122,576 $ 65,675 $ 34,717 $ 200,096 $ 4,706 $ 442,110

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ —

Residential – 1 to 4 Family Investment

Performing $ 19,217 $ 146,553 $ 124,391 $ 54,042 $ 146,576 $ — $ 490,779

Nonperforming — — — — — — —

$ 19,217 $ 146,553 $ 124,391 $ 54,042 $ 146,576 $ — $ 490,779

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ —

Residential – Multifamily

Consumer 6,970 — 70 — 7,040

Total $ 1,659,415 $ 3,029 $ 16,913 $ — $ 1,679,357

Pass $ 500 $ 5,312 $ 26,956 $ 14,451 $ 52,367 $ — $ 99,586

OAEM — — — — — — $ —

Substandard — — — — — — $ —

Doubtful — — — — — — —

$ 500 $ 5,312 $ 26,956 $ 14,451 $ 52,367 $ — $ 99,586

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ —

Performing $ 11 $ — $ — $ — $ 6,385 $ 18 $ 6,414

Nonperforming — — — — 71 — 71

$ 11 $ — $ — $ — $ 6,456 $ 18 $ 6,485

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ —

An analysis of the credit risk profile by internally assigned grades under the incurred loss model as of December 31, 2022 is as follows:

At December 31, 2022 Pass OAEM Substandard Doubtful Total

6 unchanged sentences

Residential – 1 to 4 Family 444,658 — 162 — 444,820

Residential – 1 to 4 Family Investment 476,210 — — — 476,210

Residential – Multifamily 95,556 — — — 95,556

1 unchanged sentence

Total $ 1,732,156 $ 3,027 $ 16,276 $ — $ 1,751,459

There were no loans modified to borrowers with financial difficulty during the quarter ended March 31, 2023.

EARNINGS PER SHARE (“EPS”)

The following tables set forth the calculation of basic and diluted EPS for the three and nine-month periods ended September 30, 2022 and 2021.

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

The following tables set forth the calculation of basic and diluted EPS for the three-month periods ended March 31, 2023 and 2022.

Three months ended March 31,

(Dollars in thousands except share and per share data)

15 unchanged sentences

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.

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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 loans held for sale, the fair value represents the value of the guaranteed portion of the SBA loans pending settlement.

There were no loans held for sale at September 30, 2022 and December 31, 2021.

Securities in Level 2 include mortgage-backed securities, corporate debt obligations, and collateralized mortgage-backed securities.

3 unchanged sentences

Available for Sale Securities

As of September 30, 2022

As of March 31, 2023

Corporate debt obligations $ — $ 500 $ — $ 500

Residential mortgage-backed securities — 8,477 — 8,477

Collateralized mortgage-backed securities — 1 — 1

Total $ — $ 8,977 $ — $ 8,977

2 unchanged sentences

Residential mortgage-backed securities — 8,866 — 8,866

Collateralized mortgage-backed securities — 8 — 8

Total $ — $ 9,366 $ — $ 9,366

For the nine months ended September 30, 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 and nine months ended September 30, 2022 and 2021.

For the three months ended March 31, 2023, 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, 2023 and 2022.

Fair Value on a Non-recurring Basis:

2 unchanged sentences

(Dollars in thousands)

As of September 30, 2022

Collateral-dependent impaired loans $ — $ — $ 1,139 $ 1,139

As of March 31, 2023

Collateral-dependent loans $ — $ — $ 1,091 $ 1,091

OREO — — 1,673 1,673

As of December 31, 2022

Collateral-dependent impaired loans $ — $ — $ 1,139 $ 1,139

Collateral-dependent loans $ — $ — $ 1,091 $ 1,091

OREO — — 1,550 1,550

9 unchanged sentences

These instruments include cash and cash equivalents, accrued interest receivable, bank owned life insurance, restricted stock, demand and other non-maturity deposits and accrued interest payable, and they are considered to be level 1 measurements.

The following table summarizes the carrying amounts and fair values for financial instruments that are not carried at fair value at September 30, 2022 and December 31, 2021:

September 30, 2022 Carrying Amount Fair Value

The following table summarizes the carrying amounts and fair values for financial instruments that are not carried at fair value at March 31, 2023 and December 31, 2022:

March 31, 2023 Carrying Amount Fair Value

Total Level 1 Level 2 Level 3

29 unchanged sentences

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 September 30, 2022.

Commitments to fund fixed-rate loans were immaterial at March 31, 2023.

Variable-rate commitments are generally issued for less than one year and carry market rates of interest.

1 unchanged sentence

Management believes that off-balance sheet risk is not material to the results of operations or financial condition.

As of September 30, 2022 and December 31, 2021, unused commitments to extend credit amounted to approximately $ 176.5 million and $ 117.7 million, respectively.

As of March 31, 2023 and December 31, 2022, unused commitments to extend credit amounted to approximately $ 133.9 million and $ 159.0 million, respectively.

At March 31, 2023, the allowance for credit losses on off-balance sheet credit exposures was $ 760.0 thousand.

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 September 30, 2022 and December 31, 2021, standby letters of credit with customers were $ 1.5 million and $ 1.5 million, respectively.

On September 30, 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 December 30, 2022.

There were no outstanding borrowings on the letter of credit as of September 30, 2022.

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, 2023 and December 31, 2022, standby letters of credit with customers were $ 1.5 million and $ 1.5 million, respectively.

On December 30, 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 April 4, 2023.

There were no outstanding borrowings on the letter of credit as of March 31, 2023.

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 under the laws of these States and now in New Jersey, although it is not legal under federal law.

Department of the Treasury’s

Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state legal cannabis businesses.

We provide banking services to customers that are licensed by various States to do business in the cannabis industry as growers, processors and dispensaries.

Cannabis businesses are legal in these States, although it is not legal at the federal level.

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.

5 unchanged sentences

Any change in the Federal government’s enforcement position, could cause us to immediately cease providing banking services to the cannabis industry.

At September 30, 2022 and December 31, 2021, deposit balances from cannabis customers were approximately $ 208.1 million and $ 375.2 million, or 13.6 % and 21.2 % of total deposits, respectively, with two customers accounting for 42.7 % and 19.3 % of the total at September 30, 2022 and December 31, 2021.

At September 30, 2022 and December 31, 2021, there were cannabis-related loans in the amounts of $ 3.9 million and $ 5.4 million, respectively.

We recorded approximately $ 108 thousand and $ 336 thousand of interest income in the nine months ended September 30, 2022 and year ended December 31, 2021, respectively, related to these loans.

Management identified information during the quarter, which indicated that a loss contingency event may be reasonably possible, however, an analysis of the situation through the subsequent events date of these financial statements indicated that the loss is neither probable or reasonably estimable.

While the potential future liabilities could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known, we did not believe an accrual was appropriate at this time.

We accrue loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

If a range of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within that range, then that amount is accrued.

If no amount within the range can be identified as a better estimate than any other amount, we accrue the minimum amount in the range.

REGULATORY MATTERS

The leverage ratios of the Company and the Bank at September 30, 2022 are as follows:

Regulatory Capital Compliance

As of September 30, 2022 Actual For Capital Adequacy

(Dollars in thousands except ratios) Amount Ratio Amount Ratio

Tier 1 leverage $ 271,347 14.03 % $ 174,108 9.00 %

Community Bank Leverage Ratio $ 300,171 15.52 % $ 174,072 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

(Dollars in thousands except ratios) Amount Ratio Amount Ratio

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 %

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.

At March 31, 2023 and December 31, 2022, deposit balances from cannabis customers were approximately $ 123.5 million and $ 177.3 million, or 8.4 % and 11.3 % of total deposits, respectively, with three customers accounting for 48.3 % and 36.9 % of the total at March 31, 2023 and December 31, 2022.

At March 31, 2023 and December 31, 2022, there were cannabis-related loans in the amounts of $ 18.8 million and $ 3.8 million, respectively.

Armored Car Matter

An armored car company used by the Bank to transport and store cash for the Bank’s cannabis-related customers, has informed the Company that some of the cash stored for the Bank is missing from its vault and is presumed to have been stolen.

The amount that the Bank had recorded as being held at the armored car company's facility on the last day that records were provided was $ 9.5 million.

There is not enough information to determine the exact amount of the potential loss, if any, as well as the amount that could be recovered.

The Bank is working with relevant state and federal law enforcement authorities to investigate this matter as well as pursuing judicial avenues of recovery.

The Bank is pursuing various avenues of recovery that it may have, including, among others, possible insurance claims.

If it is ultimately determined that a loss is probable and estimable, we will record the loss in the appropriate fiscal period.

If we are successful in making recoveries, we will record the recoveries in the period received, or when the receipt of such recoveries becomes certain.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements