What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-10 · 127 added, 221 removed, 233 unchanged (60% of the section changed)

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Forward-Looking Statements

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".

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.

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and the success of the Company at managing the risks involved in the foregoing.

The COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company and the communities it serves.

Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business.

The extent of such impact will depend on future developments, which are highly uncertain, including whether the coronavirus can continue to be controlled and abated.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

the demand for our products and services may decline, making it difficult to grow assets and income;

if the economy worsens, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

our allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect our net income;

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

due to a decline in our stock price or other factors, goodwill may become impaired and be required to be written down;

and our cyber security risks are increased as the result of an increase in the number of employees working remotely.

The majority of the assets and liabilities of a financial institution are monetary in nature, and therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories.

However, inflation does have an impact on the Company, particularly with respect to the growth of total assets and noninterest expenses, which tend to rise during periods of general inflation.

Risks also exist due to supply and demand imbalances, employment shortages, the interest rate environment, and geopolitical tensions.

It is reasonably foreseeable that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loans and the fair value of financial instruments that are carried at fair value.

Financial institutions can be affected by changing conditions in the real estate and financial markets.

The lingering effects of the COVID-19 pandemic, geopolitical instability, including the conflict between Russia and Ukraine, foreign currency exchange volatility, volatility in global capital markets, inflationary pressures, and higher interest rates may meaningfully impact loan production, income levels, and the measurement of certain significant estimates such as the allowance for credit losses.

Moreover, in a period of economic contraction, we may experience elevated levels of credit losses, reduced interest income, impairment of financial assets, diminished access to capital markets and other funding sources, and reduced demand for our products and services.

Volatility in the housing markets, real estate values and unemployment levels results in significant write-downs of asset values by financial institutions.

Our lending relationships are primarily with small to mid-sized businesses and individual consumers residing in and around s outhern New Jersey and Philadelphia, Pennsylvania.

We focus our lending efforts primarily in three lending areas:

residential mortgage loans, commercial mortgage loans, and construction loans.

As a result of this geographic concentration, a significant broad-based deterioration in economic conditions in these areas could have a material adverse impact on the quality of our loan portfolio, results of operations and future growth potential.

An unexpected COVID-19 pandemic resurgence due to new variants could cause us to experience higher credit losses in our lending portfolio, additional increases in our allowance for credit losses, impairment of financial assets, diminished access to capital markets and other funding sources, further reduced demand for our products and services, and other negative impacts on our financial position, results of operations.

During 2022, the Federal Reserve took unprecedented action during the year to restrain inflation and improve the stability of the economy by raising the target federal funds rate several times from 25 basis points in the beginning of the year to 75 basis points toward the end of the year and brought the benchmark interest rates up by a collective 4.50 percent.

During the first quarter 2023, the Federal Reserve increased the target federal funds rate another 0.25 percent and may further increase the target federal funds rate in 2023 in an attempt to reduce inflation.

Any substantial or unexpected change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations.

As inflation increases and market interest rates rise, the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments.

In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses.

Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.

Any of these effects, if sustained, may impair our capital and liquidity positions, require us to take capital actions, prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements, or result in downgrades in our credit ratings and the reduction or elimination of our common stock dividend in future periods.

The extent to which current economic environment has a further impact on our business, results of operations, and financial condition, as well as the regulatory capital

and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the current economic environment and actions taken by governmental authorities and other third parties in response to the geopolitical conflict, and inflationary pressure.

The Company cautions that the foregoing list of important factors is not exclusive.

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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.

The following discussion provides information about our results of operations, financial condition, liquidity and asset quality.

We intend that this information facilitates 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, 2022.

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The Company's non-interest expense primarily consists of employee compensation, administration, and other operating expenses.

At September 30, 2022, we had total assets of $1.92 billion, and total equity of $257.3 million.

Net income available to common shareholders for the three and nine months ended September 30, 2022 was $10.5 million and $31.3 million, respectively.

At March 31, 2023, we had total assets of $1.96 billion, and total equity of $273.1 million.

Net income available to common shareholders for the three months ended March 31, 2023 was $11.1 million.

Results of Operations

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Our net income available to common shareholders for the third quarter of 2022 increased $39.0 thousand, or 0.4%, to $10.53 million, compared to $10.49 million for the same period last year.

Earnings per share were $0.88 per basic common share and $0.87 per diluted common share for the third quarter of 2022 compared to $0.88 per basic common share and $0.87 per diluted common share for the same period last year.

The increase in net income available to common shareholders primarily resulted from a $1.8 million increase in net interest income, partially offset by a $600.0 thousand increase in provision for loan loss, a $167.0 thousand decrease in non-interest income, and a $864.0 thousand increase in non-interest expense.

Net Interest Income :

Our net interest income increased $1.8 million, or 10.4%, to $19.3 million for the third quarter of 2022 compared to $17.5 million for the third quarter of 2021.

The increase in net interest income was primarily due to an increase of $1.8 million in interest income, driven by an increase of $643.0 thousand on interest and fees on loans, and a $1.1 million increase on interest on deposits with banks.

The increase in interest and fees on loans was driven by the increase in outstanding loan balance during the quarter ended September 30, 2022.

The increase in interest on deposits with banks is due to an increase on interest earned on cash held at the Federal Reserve Bank ("FRB") due to an increase in market interest rates.

For the three months ended September 30, 2022, total interest expense decreased $57.0 thousand as compared to the second quarter of 2021, primarily due to a reduction in outstanding deposit balances, which reduced interest expense by $71.0 thousand.

Provision for loan losses :

For the three months ended September 30, 2022, the provision for loan losses increased $600.0 thousand, compared to zero for the three months ended September 30, 2021.

The increase in the provision was primarily due to an increase in loan balances.

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 $2.0 million for the three months ended September 30, 2022, a decrease of $167.0 thousand, compared to $2.2 million for the three months ended September 30, 2021.

The decrease is primarily attributable to a decrease in service fees on deposit account of $217.0 thousand, primarily attributed to our cannabis banking deposit accounts.

Non-interest Expense :

Our non-interest expense increased $864.0 thousand to $6.3 million for the three months ended September 30, 2022, from $5.4 million for the three months ended September 30, 2021.

The increase is primarily driven by a $538.0 thousand increase in compensation and benefits, a $456.0 thousand increase in other operating expense, and a $242.0 thousand increase in OREO expense, partially offset by a $419.0 thousand decrease in professional services.

The increase in compensation and benefits was mainly driven by an increase in pension costs as well as an increase in salaries.

The increase in other operating expense was primarily driven by an increase in the Pennsylvania shares tax, other loan expenses, and director fees.

The decrease in professional services was attributed to the prior year remediation efforts related to our Bank Secrecy Act (BSA) compliance.

Income tax expense was $3.9 million on income before taxes of $14.4 million for the three months ended September 30, 2022, resulting in an effective tax rate of 27.0%, compared to income tax expense of $3.7 million on income before taxes of $14.2 million for the same period of 2021, resulting in an effective tax rate of 26.0%.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Our net income available to common shareholders for the nine months ended September 30, 2022 increased $683.0 thousand, or 2.2%, to $31.3 million compared to $30.7 million for the nine months ended September 30, 2021.

Earnings per share were $2.63 per basic common share and $2.58 per diluted common share for the nine months ended September 30, 2022 compared to $2.58 per basic common share and $2.53 per diluted common share for the same period last year.

The increase in net income available to common shareholders primarily resulted from a decrease in total interest expense of $2.1 million, partially offset by an increase in the provision for loan losses of $450.0 thousand, and an increase in non-interest expense of $765.0 thousand.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Our net income available to common shareholders for the first quarter of 2023 increased $1.0 million, or 10.3%, to $11.1 million, compared to $10.1 million for the same period last year.

Earnings per share were $0.93 per basic common share and $0.92 per diluted common share for the first quarter of 2023 compared to $0.85 per basic common share and $0.83 per diluted common share for the same period last year.

The increase in net income available to common shareholders primarily resulted from a $2.4 million reversal of allowance for credit loss, partially offset by a $293.0 thousand decrease in non-interest income and a $1.1 million increase in non-interest expense.

Net Interest Income :

Our net interest income increased $2.0 million, or 3.9%, to $54.4 million for the nine months ended September 30, 2022, compared to $52.4 million for the same period last year.

Interest income for the nine months ended September 30, 2022, decreased $27.0 thousand to $62.48 million, or 0.04%, from $62.51 million for the same period of 2021.

The decrease in interest income was primarily due to a decrease in interest and fees on loans of $2.0 million, partially offset by an increase in interest earned on FRB deposits of $1.9 million, attributed to an increase in market interest rates.

Interest expense decreased $2.1 million for the year to date September 30, 2022, compared to the same period in 2021, primarily due to the decrease in outstanding deposit balances, resulting from a decrease in time deposits of $150.9 million, which resulted in a decrease of $2.1 million, as well as a decrease of $307.0 thousand on interest on borrowings, due primarily to a decrease in the amount of borrowings outstanding.

Provision for loan losses :

The provision for loan losses was $950.0 thousand for the nine months ended September 30, 2022 compared to the provision for loan losses of $500.0 thousand for the nine months ended September 30, 2021.

The $450.0 thousand increase in the provision was primarily due to an increase in outstanding loan balances.

Our net interest income was flat at $17.1 million for the first quarter of 2023 compared to $17.1 million for the first quarter of 2022.

Interest income increased $6.4 million during the three months ended March 31, 2023 as compared to the same period in the prior year.

The increase in interest income was primarily due to an increase of $5.3 million in interest and fees on loans, due to higher loan balances and interest rates, as well as a $1.0 million increase on interest on deposits with banks.

The increase in interest income was partially offset by an increase in interest expense of $6.3 million, due to an increase in interest on deposits of $5.7 million and an increase in interest on borrowings of $600.0 thousand.

During the three months ended March 31, 2023, interest on deposits increased due to an increase in market interest rates, while the increase in interest on borrowings was due to an increase in the amount of borrowings and an increase in interest rates.

Provision for credit losses :

For the three months ended March 31, 2023, the provision for credit losses decreased $2.4 million, compared to zero for the three months ended March 31, 2022.

On January 1, 2023 we implemented ASU 2016-13 Financial Instruments - Credit Losses.

This resulted in an increase to the allowance for credit losses of $1.9 million.

For the three months ended March 31, 2023, we recorded a recovery to the allowance for credit losses of $2.4 million, mainly due to the decrease in the construction loan portfolio balance.

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 Credit Losses on Loans to the unaudited consolidated financial statements.

Non-interest Income :

Our non-interest income was $6.6 million for the nine months ended September 30, 2022, an increase of $53.0 thousand, or 0.8%, compared to $6.5 million for the same period last year.

The increase is primarily attributable to an increase in gain on the sale of OREO assets of $277.0 thousand, an increase in other loan fees of $140.0 thousand, and an increase in other income of $134.0 thousand, partially offset by a decrease in service fees on deposit accounts of $411.0 thousand.

Fee income for the nine months ended September 30, 2022 from commercial deposit accounts of depositors who do business in the cannabis-related industry totaled $3.4 million, compared to $3.8 million for the same period last year.

Fee income is included in service fees on deposit accounts in the accompanying consolidated statements of income.

Our non-interest income was $1.8 million for the three months ended March 31, 2023, a decrease of $293.0 thousand, compared to $2.1 million for the three months ended March 31, 2022.

The decrease is primarily attributable to a decrease in service fees on deposit account of $101.0 thousand, primarily attributable to a decrease in our cannabis banking deposit accounts, as well as a decrease in loan fees of $97.0 thousand.

Non-interest Expense :

Our non-interest expense increased $765.0 thousand to $17.7 million for the nine months ended September 30, 2022, from $16.9 million for the nine months ended September 30, 2021.

The increase was primarily due to an increase in other operating expense of $931.0 thousand, an increase in compensation and benefits of $604.0 thousand, and an increase in OREO expense of $205.0 thousand, partially offset by a decrease in professional services of $1.1 million.

The increase in other operating expense was primarily driven by a $573.0 thousand increase in Pennsylvania shares tax, and a $233.0 thousand increase in other loan expense.

The increase in compensation and benefits was primarily due to a $573.0 thousand increase in salaries, and a $309.0 thousand increase in pension cost, partially offset by a $374.0 thousand increase in deferred loan origination expenses.

The decrease in professional services was mainly due to the prior year remediation efforts related to our Bank Secrecy Act (BSA) compliance.

Income tax expense was $11.0 million on income before taxes of $42.4 million for the nine months ended September 30, 2022, resulting in an effective tax rate of 25.9%, compared to income tax expense of $10.6 million on income before taxes of $41.5 million for the same period of 2021, resulting in an effective tax rate of 25.5%.

Our non-interest expense increased $1.1 million to $6.8 million for the three months ended March 31, 2023, from $5.7 million for the three months ended March 31, 2022.

The increase is primarily driven by a $953.0 thousand increase in compensation and a $139.0 thousand increase in OREO expense.

The increase in compensation and benefits was mainly driven by an increase in salaries, an increase in pension cost, and a decrease in deferred origination costs.

The increase in OREO costs is due to higher costs to maintain the properties, as well as legal expenses related to the OREO properties.

Income tax expense was $3.4 million on income before taxes of $14.6 million for the three months ended March 31, 2023, resulting in an effective tax rate of 23.6%, compared to income tax expense of $3.4 million on income before taxes of $13.5 million for the same period of 2022, resulting in an effective tax rate of 25.2%.

Net Interest Income

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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 September 30,

For the Three Months Ended March 31,

Balance Interest

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Other assets 80,113 77,969

Allowance for loan losses (30,658) (30,077)

Allowance for credit losses (31,843) (29,956)

Total assets $ 1,954,051 $ 2,079,411

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** Includes balances of FHLB and ACBB stock.

For the Nine Months Ended September 30,

Average Balance Interest Income/ Expense Yield/ Cost Average Balance Interest Income/ Expense Yield/ Cost

(Dollars in thousands)

Loans* $ 1,535,264 $ 59,511 5.18 % $ 1,528,020 $ 61,502 5.38 %

Investment securities** 26,758 565 2.82 % 24,917 552 2.96 %

Interest bearing deposits 400,085 2,404 0.80 % 502,218 453 0.12 %

Total interest-earning assets 1,962,107 62,480 4.26 % 2,055,155 62,507 4.07 %

Other assets 78,769 76,767

Allowance for loan losses (30,232) (30,067)

Total assets $ 2,010,644 $ 2,101,855

Liabilities and Shareholders’ Equity

Interest bearing deposits:

Checking $ 94,904 $ 296 0.42 % $ 71,055 $ 238 0.45 %

Money markets 354,522 1,962 0.74 % 315,762 1,630 0.69 %

Savings 195,494 527 0.36 % 138,853 511 0.49 %

Time deposits 520,103 2,994 0.77 % 641,191 5,078 1.06 %

Brokered certificates of deposit 10,230 114 1.49 % 40,484 197 0.65 %

Total interest-bearing deposits 1,175,253 5,893 0.67 % 1,207,345 7,654 0.85 %

Borrowings 120,763 2,176 2.41 % 168,114 2,482 1.97 %

Total interest-bearing liabilities 1,296,016 8,069 0.83 % 1,375,459 10,136 0.99 %

Non-interest bearing deposits 454,749 496,367

Other liabilities 13,706 15,223

Total non-interest bearing liabilities 468,455 511,590

Equity 246,173 214,806

Total liabilities and shareholders’ equity $ 2,010,644 $ 2,101,855

Net interest income $ 54,411 $ 52,371

Interest rate spread 3.43 % 3.08 %

Net interest margin 3.71 % 3.41 %

* The average balance of loans inlcudes loans on nonaccrual..

** Includes balances of FHLB and ACBB stock.

Financial Condition

At September 30, 2022, the Company’s total assets were $1.92 billion, a decrease of $213.2 million, or 10.0%, from December 31, 2021.

At March 31, 2023, the Company’s total assets were $1.96 billion, a decrease of $20.7 million, or 1.0%, from December 31, 2022.

The decrease in total assets was primarily attributable to a decrease in cash and cash equivalents of $36.2 million, partially offset by an increase in loans receivable.

The decrease in cash and cash equivalents was primarily due to cash withdrawn from deposits, as well as an increase in loans receivable.

Loans increased $194.5 million at September 30, 2022, primarily due to increases in loan balances classified as residential 1-4 family, commercial non-owner occupied real estate mortgage loans, and 1-4 family construction, compared to the balances at December 31, 2021.

Total liabilities were $1.67 billion at September 30, 2022.

The decrease in cash and cash equivalents was primarily due to cash withdrawn from deposits, as well as an increase in loans receivable, partially offset by an increase in borrowings.

Loans increased $11.2 million at March 31, 2023, primarily due to increases in loan balances classified as CRE owner occupied and residential 1-4 family, partially offset by a decrease in the construction loan portfolio, compared to the balances at December 31, 2022.

Total liabilities were $1.69 billion at March 31, 2023.

This represented a $27.7 million, or 1.6%, decrease, from $1.72 billion at December 31, 2022.

The decrease in total liabilities was primarily due to a decrease in total deposits, which decreased $233.2 million, or 13.2%, to $1.54 billion at September 30, 2022, from $1.77 billion at December 31, 2021.

The decrease in deposits was attributed to a decrease in non-interest demand deposits of $160.0 million, and time deposits of $77.0 million, partially offset by an increase in savings deposits of $9.8 million.

Total equity was $257.3 million and $232.4 million at September 30, 2022 and December 31, 2021, respectively, an increase of $25.0 million from December 31, 2021.

The increase was primarily due to the retention of earnings, partially offset by the payment of $6.0 million of cash dividends.

The following table presents certain key condensed balance sheet data as of September 30, 2022 and December 31, 2021 :

September 30,

The decrease in total liabilities was primarily due to a decrease in total deposits, which decreased $112.2 million, or 7.1%, to $1.46 billion at March 31, 2023, from $1.58 billion at December 31, 2022.

The decrease in deposits was attributable to a decrease in non-interest demand deposits of $75.4 million and savings of $35.9 million, partially offset by an increase in time deposits of $13.3 million.

Total equity was $273.1 million and $266.0 million at March 31, 2023 and December 31, 2022, respectively, an increase of $7.1 million from December 31, 2022.

The increase was primarily due to the retention of earnings, partially offset by the payment of $2.2 million of cash dividends, and $2.1 million adoption of ASC 326.

The following table presents certain key condensed balance sheet data as of March 31, 2023 and December 31, 2022 :

2023 December 31,

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Loans, net of unearned income 1,762,696 1,751,459 11,237 0.6 %

Allowance for loan losses (30,989) (29,845) (1,144) 3.8 %

Allowance for credit losses (31,507) (31,845) 338 (1.1) %

Total assets 1,964,245 1,984,915 (20,670) (1.0) %

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Cash and cash equivalents

Cash and cash equivalents decreased $403.2 million to $193.3 million at September 30, 2022 from $596.6 million at December 31, 2021, a decrease of 67.6%.

Cash and cash equivalents decreased $36.2 million to $146.0 million at March 31, 2023 from $182.2 million at December 31, 2022, a decrease of 19.9%.

The decrease was primarily due to cash withdrawn from deposits and the funding of loans.

Investment securities

Total investment securities decreased to $19.4 million at September 30, 2022, from $23.3 million at December 31, 2021, a decrease of $3.9 million or 16.8%.

The decrease was attributed to normal pay downs of $2.7 million and a decrease in the fair market valuation of $1.2 million.

Total investment securities decreased to $18.3 million at March 31, 2023, from $18.7 million at December 31, 2022, a decrease of $408.0 thousand or 2.2%.

The decrease was attributed to normal pay downs of $490.0 thousand, partially offset by an increase in the fair market valuation of $82.0 thousand.

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.

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In addition, we have a small consumer loan portfolio which provides loans to individual borrowers.

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 September 30, 2022 or at December 31, 2021.

Loans receivable :

Loans receivable increased to $1.68 billion at September 30, 2022 from $1.48 billion at December 31, 2021.

T he increase was primarily due to increases in the residential - 1 to 4 family, commercial - non-owner occupied, and construction portfolio's, partially offset by a decrease in commercial and industrial due to the payoff of SBA PPP loans of $24.9 million.

Loans receivable, excluding loans held for sale, as of September 30, 2022 and December 31, 2021, consisted of the following:

September 30, 2022 December 31, 2021

Loans receivable increased to $1.76 billion at March 31, 2023 from $1.75 billion at December 31, 2022.

T he increase was primarily due to increases in the CRE owner occupied and the residential - 1 to 4 family portfolios, partially offset by a decrease in the construction loan portfolio.

Loans receivable, excluding loans held for sale, as of March 31, 2023 and December 31, 2022, consisted of the following:

March 31, 2023 December 31, 2022

Amount Percentage of Loans to total

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Residential – 1 to 4 Family 442,110 25.2 % 444,820 25.3 %

Residential – 1 to 4 Family Investment 490,779 27.8 % 476,210 27.2 %

Residential – Multifamily 99,586 5.6 % 95,556 5.5 %

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Total Loans $ 1,762,696 100.0 % $ 1,751,459 100.0 %

At September 30, 2022, total deposits decreased to $1.54 billion from $1.77 billion at December 31, 2021, a decrease of $233.2 million, or 13.2%.

The decrease in deposits was primarily due to a decrease in non-interest bearing demand deposits and a decrease in time deposit accounts.

The decrease in non-interest bearing demand deposits was mainly driven by withdrawals from our cannabis related deposits.

The decrease in time deposits was mainly driven by maturities of certificates of deposit.

September 30, December 31,

At March 31, 2023, total deposits decreased to $1.46 billion from $1.58 billion at December 31, 2022, a decrease of $112.2 million, or 7.1%.

The decrease in deposits was primarily due to a decrease in non-interest bearing demand deposits, and a decrease in savings deposits, partially offset by an increase in time deposit accounts.

The decrease in non-interest bearing demand deposits was mainly driven by withdrawals from our cannabis related deposits, which decreased $53.9 million, from $176.6 million at December 31, 2022 to $122.8 million at March 31, 2023, as well as a decrease in business checking of $11.7 million during the same time period.

March 31, December 31,

(Dollars in thousands)

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Total deposits $ 1,463,794 $ 1,575,982

Total borrowings were $116.0 million at September 30, 2022 and $120.9 million at December 31, 2021.

The decrease in borrowings is due to the paydown of a $5.0 million Federal Home Loan Bank ("FHLB") advance.

Total equity increased to $257.3 million at September 30, 2022 from $232.4 million at December 31, 2021, an increase of $25.0 million, or 10.7%, primarily due to the retention of earnings from the period, partially offset by the payment of $6.0 million of cash dividends.

Estimated uninsured deposits $ 560,630 $ 622,966

Total borrowings were $208.1 million at March 31, 2023 and $126.1 million at December 31, 2022.

The increase in borrowings is due to the increase in Federal Home Loan Bank of New York ("FHLBNY") advances.

Total equity increased to $273.1 million at March 31, 2023 from $266.0 million at December 31, 2022, an increase of $7.1 million, or 2.7%, primarily due to the retention of earnings from the period, partially offset by $2.2 million of cash dividends, and $2.1 million adoption of ASC 326.

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 September 30, 2022, our cash position was $193.3 million.

At March 31, 2023, our cash position was $146.0 million.

We invest cash that is in excess of our immediate operating needs primarily in our interest-bearing account at the Federal Reserve.

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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 Bank also joined IntraFi Financial Network to secure an additional alternative funding source.

IntraFi provides the Bank an additional source of external funds through their weekly CDARS® settlement process.

The rates are comparable to brokered deposits and can be obtained within a shorter period 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 September 30, 2022, the Company had lines of credit with the FHLBNY of $641.7 million, of which $73.2 million was outstanding, and an additional $50.0 million from a letter of credit for securing public funds.

The remaining borrowing capacity was $518.6 million at September 30, 2022.

As of March 31, 2023, the Company had lines of credit with the FHLBNY of $732.3 million, of which $165.2 million was outstanding, and an additional $50.0 million from a letter of credit for securing public funds.

The remaining borrowing capacity was $517.1 million at March 31, 2023.

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 September 30, 2022, the Company's investment securities portfolio classified as available for sale was $9.8 million.

We had outstanding loan commitments of $176.5 million at September 30, 2022.

At March 31, 2023, the Company's investment securities portfolio classified as available for sale was $9.0 million.

We had outstanding loan commitments of $133.9 million at March 31, 2023.

Our loan commitments are normally originated with the full amount of collateral.

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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 nine months ended September 30, 2022 and 2021.

Cash provided by operating activities was $34.3 million in the nine months ended September 30, 2022, compared to $29.5 million for the same period in the prior year.

The increase in operating cash flow was primarily due to the decrease in accrued interest receivable and other assets, and increase in net income.

Cash used in investing activities was $191.6 million in the nine months ended September 30, 2022, compared to cash provided by investing activities of $88.3 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 $245.9 million in the nine months ended September 30, 2022, compared to cash provided by financing activities of $47.4 million in the same period of last year.

The current year included $233.2 million of cash outflows from the decrease in deposits.

The following is a discussion of our cash flows for the three months ended March 31, 2023 and 2022.

Cash provided by operating activities was $10.5 million in the three months ended March 31, 2023, compared to $8.7 million for the same period in the prior year.

The increase in operating cash flow was primarily due to the increase in accrued interest payable and other accrued liabilities and the increase in net income, net of the decrease in the provision for credit losses.

Cash used in investing activities was $14.4 million in the three months ended March 31, 2023, compared to cash used in investing activities of $8.4 million in the same period last year.

The increase in cash used in the investing activities was primarily due to the cash outflow from the increase in loans during the period, as well as the purchase of FHLBNY restricted stock.

Cash used in financing activities was $32.3 million in the three months ended March 31, 2023, compared to cash used in financing activities of $93.0 million in the same period of last year.

The decrease in cash used in financing activities was driven by a net increase in FHLBNY borrowings of $82.0 million, partially offset by $112.2 million of cash outflows from the decrease in deposits.

Capital Adequacy

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We also use other means to manage our capital.

Total equity increased $25.0 million at September 30, 2022, from December 31, 2021, primarily from the Company’s net income of $31.4 million for the period, net of common and preferred stock dividends of $6.0 million.

Total equity increased $7.1 million at March 31, 2023, from December 31, 2022, primarily from the Company’s net income of

$11.1 million for the period, net of common and preferred stock dividends of $2.2 million and the adoption of ASC 326 of $2.1 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.

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.

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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 September 30, 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 September 30, 2022:

At March 31, 2023, the Bank and the Company were both considered “well capitalized”.

The following table presents the tier 1 regulatory capital leverage ratios of the Company and the Bank at March 31, 2023:

Amount Ratio Amount Ratio

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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.

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 system supplements the credit review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit risk, loan delinquencies, loan modifications made to borrowers experiencing financial difficulty, 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.

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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 September 30, 2022, the allowance for loan losses was $31.0 million, as compared to $29.8 million at December 31, 2021.

The ratio of the allowance for loan losses to total loans was 1.85% and 2.01% at September 30, 2022 and December 31, 2021, respectively.

The ratio of the allowance for loan losses to non-performing assets decreased to 164.5% at September 30, 2022, compared to 500.6% at December 31, 2021.

During the nine month periods ended September 30, 2022 and 2021, the Company charged off $66,150 and $427,400, respectively, and recovered $260,000 and $68,000, respectively.

Specific allowances for loan losses have been established in the amount of $149.0 thousand at September 30, 2022, as compared to $591.0 thousand on impaired loans at December 31, 2021.

We have established reserves for all losses that we believe are both probable and reasonably estimable at September 30, 2022 and December 31, 2021.

Allowance for Credit Losses:

We maintain the allowance for credit 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 Credit Losses on Loans in the notes to the unaudited consolidated financial statements for further discussion on management's methodology for estimating the allowance for credit losses.

At March 31, 2023, the allowance for credit losses was $31.5 million, as compared to $31.8 million at December 31, 2022.

The ratio of the allowance for credit losses to total loans was 1.79% and 1.82% at March 31, 2023 and December 31, 2022, respectively.

The ratio of the allowance for credit losses to non-performing assets decreased to 176.9% at March 31, 2023, compared to 178.6% at December 31, 2022.

During the three month periods ended March 31, 2023 and 2022, the Company did not charge off any loans, and recovered $5,000 and $136,000, respectively.

Specific allowances for loan losses have been established in the amount of $398.0 thousand at March 31, 2023, as compared to $549.0 thousand at December 31, 2022.

We have established reserves for all expected credit losses at March 31, 2023 and December 31, 2022.

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 $600.0 thousand during the three months ended September 30, 2022, compared to zero during the three months ended September 30, 2021.

The increase was primarily due to the increase in outstanding loan balances at September 30, 2022.

On January 1, 2023, we implemented ASU 2016-13 Financial Instruments - Credit Losses.

This resulted in an increase to the allowance for credit losses on loans of $1.9 million.

The Company estimates the loan credit allowance using an expected life of loss credit methodology in accordance with ASU 2016-13 Financial Instruments - Credit Losses.

We recorded a credit loss recovery of $2.4 million during the three months ended March 31, 2023, of which $2.2 million related to the allowance for credit loss on loans, and $200.0 thousand related to the allowance for credit loss on unfunded commitments, compared to zero during the three months ended March 31, 2022.

Loan Delinquencies and Nonperforming Assets:

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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 $17.0 million, or 1.0% of total loans at September 30, 2022, an increase of $12.3 million from December 31, 2021.

At September 30, 2022, loans 30 to 89 days delinquent totaled $85.0 thousand, a decrease of $345.0 thousand from December 31, 2021.

The decrease in loans 30 to 89 days delinquent is driven by two, commercial real estate non-occupied loans that migrated to non-accrual during the quarter ended September 30, 2022.

Loans delinquent 90 days or more and not accruing interest totaled $16.9 million or 1.0% of total loans at September 30, 2022, an increase of $12.6 million from $4.3 million, or 0.3% of total loans, at December 31, 2021.

The two largest nonperforming loan relationships as of September 30, 2022 were a $10.9 million and a $3.4 million owner occupied commercial real estate loan.

Impaired Loans

Impaired loans include nonperforming loans and TDRs, regardless of nonperforming status.

At September 30, 2022 and December 31, 2021, we had $22.5 million and $10.3 million, respectively, of loans deemed impaired.

Impaired loans at September 30, 2022 and December 31, 2021 included $5.5 million and $6.0 million, respectively, of TDR loans.

Troubled Debt Restructurings

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

We had nonperforming TDR loans of 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 as a TDR for the nine months ended September 30, 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 September 30, 2022 was $1.9 million, compared to $1.8 million at September 30, 2021.

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 September 30, 2022 and December 31, 2021, unused commitments to extend credit amounted to approximately $176.5 million and $117.7 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 September 30, 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 September 30, 2022, such contractual obligations were primarily comprised of deposits, secured and unsecured borrowings, interest payments, operating leases and commitments to originating loans.

Delinquent loans totaled $16.7 million, or 0.9% of total loans at March 31, 2023, an increase of $0.2 million from December 31, 2022.

At March 31, 2023, loans 30 to 89 days delinquent totaled $579.0 thousand, an increase of $354.0 thousand from December 31, 2022.

The increase in loans 30 to 89 days delinquent is mainly driven by an increase in residential 1 to 4 family loans that became delinquent during the quarter ended March 31, 2023.

Loans delinquent 90 days or more and not accruing interest totaled $16.1 million or 0.9% of total loans at March 31, 2023, a decrease of $0.1 million from $16.3 million, or 0.9% of total loans, at December 31, 2022.

The two largest nonperforming loan relationships as of March 31, 2023 were a $10.9 million and a $3.4 million owner occupied commercial real estate loan.

Critical Accounting Policies

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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.

Allowance for Credit Losses :

Our allowances for credit losses represents management's best estimate of probable losses inherent in our investment and loan portfolios, excluding those loans accounted for under fair value.

Our process for determining the allowance for credit losses is discussed in Note 1 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K .

Our determination of the allowance for credit losses is based on periodic evaluations of the loan and lease portfolios and other relevant factors, broken down into vintage based on year of origination.

These critical estimates include significant use of our own historical data and other qualitative, and 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.

Our allowance for credit losses is comprised of two components, a specific allowance and a general calculation.

A specific allowance is calculated for loans and leases that do not share similar risk characteristics with other financial assets, and include collateral dependent loans.

A loan is considered to be collateral dependent when foreclosure of the underlying collateral is probable.

Parke has 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.

The general based component covers loans and leases on which there are expected credit 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.

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 credit 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.

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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 2. Management’s Discussion and Analysis