PARKE BANCORP, INC. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. These forward-looking statements, such as statements of the Company's plans, objectives, expectations, estimates and intentions, involve risks and uncertainties and are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve"), inflation, interest rate, market and monetary fluctuations; the potential adverse effects of the Consent Orders and any additional regulatory restrictions that may be imposed by banking regulators; the timely development of, and acceptance of, new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); the effect of any change in federal government enforcement of federal laws affecting the cannabis industry; technological changes; acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing. Financial institutions can be affected by changing conditions in the real estate and financial markets. The effects of geopolitical instability, including the conflict between Russia and Ukraine and the war in Israel, 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. Our operations are subject to risks and uncertainties surrounding our exposure to changes in the interest rate environment. Earnings and liquidity depend to a great extent on our interest rates. Interest rates are highly sensitive to many factors beyond our control, including competition, general economic conditions, geopolitical tensions and monetary and fiscal policies of various governmental and regulatory authorities, including the Federal Reserve. Conditions such as inflation, deflation, recession, unemployment and other factors beyond our control may also affect interest rates. The nature and timing of any changes in interest rates or general economic conditions and their effect on us cannot be controlled and are difficult to predict. If the rate of interest we pay on our interest-bearing liabilities increases more than the rate of interest we receive on our interest-earning assets, our net interest income, and therefore our earnings, could contract and be materially adversely affected. Our earnings could also be materially adversely affected if the rates on interest-earning assets fall more quickly than those on our interest-bearing liabilities. Changes in interest rates could also create competitive pressures, which could impact our liquidity position. Changes in interest rates also can affect our ability to originate loans, our ability to obtain and retain deposits, and the value of interest-earning assets, and the ability to realize gains from the sale of such assets, which could all negatively impact shareholder's equity and regulatory capital. The Company cautions that the foregoing list of important factors is not exclusive. The Company also cautions readers not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date on which they are given. The Company is not obligated to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after any such date. 24 Overview 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, 2023. We are a bank holding company and are headquartered in Washington Township, New Jersey. Through the Bank, we provide personal and business financial services to individuals and small to mid-sized businesses primarily in New Jersey and Pennsylvania. The Bank has branches in Galloway Township, Northfield, Washington Township, Collingswood, New Jersey and Philadelphia, Pennsylvania, and a loan office in Philadelphia, Pennsylvania. The vast majority of our revenue and income is currently generated through the Bank. We manage our Company for the long term. We are focused on the fundamentals of growing customers, loans, deposits and revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our commitments to our customers, shareholders, employees and the communities where we do business. Our approach is concentrated on organically growing and deepening client relationships across our businesses that meet our risk/return measures. We focus on small to mid-sized business and retail customers and offer a range of loan products, deposits services, and other financial products through our retail branches and other channels. The Company's results of operations are dependent primarily on its net interest income, which is the difference between the interest income earned on its interest earning-assets and the interest expense paid on its interest-bearing liabilities. In our operations, we have three major lines of lending: residential real estate mortgage, commercial real estate mortgage, and construction lending. Our interest income is primarily generated from our lending and investment activities. Our deposit products include checking, savings, money market accounts, and certificates of deposit. T he majority of our deposit accounts are obtained through our retail banking business, which provides us with low cost funding to grow our lending efforts. The Company also generates income from loan and deposit fees and other non-interest related activities. The Company's non-interest expense primarily consists of employee compensation, administration, and other operating expenses. At June 30, 2024, we had total assets of $2.03 billion, and total equity of $292.8 million. Net income available to common shareholders for the three and six months ended June 30, 2024 was $6.5 million and $12.6 million, respectively. Results of Operations Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 Net Income : Our net income available to common shareholders for the second quarter of 2024 decreased $1.7 million, or 20.6%, to $6.5 million, compared to $8.1 million for the same period last year. Earnings per share were $0.54 per basic common share and $0.53 per diluted common share for the second quarter of 2024, compared to $0.68 per basic common share and $0.67 per diluted common share for the same period last year. The decrease was primarily due to higher interest expense, and a decrease in non-interest income. Net Interest Income : Our net interest income was $14.3 million for the second quarter of 2024 compared to $15.9 million for the second quarter of 2023, a decrease of $1.6 million, or 9.8%. Net interest income decreased during the three months ended June 30, 2024, primarily due to an increase in interest expense on deposits and borrowings, partially offset by an increase in interest and fees on loans. Interest income increased $2.9 million, or 10.7%, during the three months ended June 30, 2024 as compared to the same period in the prior year. The increase in interest income was primarily due to an increase of $3.0 million in interest and fees on loans, due to higher loan balances and market interest rates, partially offset by a $0.1 million decrease in interest on deposits with banks. The increase in interest income was offset by an increase in interest expense during the three months ended June 30, 2024 of $4.5 million, or 39.3%, primarily due to an increase in market interest rates on deposits and the overall mix of deposits of $4.6 million, and increase in market interest rates. 25 Provision for credit losses : For the three months ended June 30, 2024, the provision for credit losses was $0.5 million, compared to a provision of $0.5 million for the three months ended June 30, 2023. The provision expense for the three months ended June 30, 2024, was primarily driven by an increase in the construction loan portfolio balance from the quarter ended March 31, 2024, which carries a higher loss factor than other loan portfolios. Non-interest Income : Our non-interest income was $1.2 million for the three months ended June 30, 2024, a decrease of $0.4 million, compared to $1.6 million for the three months ended June 30, 2023. The decrease is primarily attributable to a decrease in service fees on deposit accounts of $0.6 million due to a decrease in cannabis deposit fee income, partially offset by an increase in other non-interest income of $0.2 million. Non-interest Expense : Our non-interest expense decreased $0.1 million, or 2.1%, to $6.2 million for the three months ended June 30, 2024, from $6.4 million for the three months ended June 30, 2023. The decrease in non-interest expense was primarily due to a decrease in other operating expense of $0.3 million, and data processing expense of $0.1 million, partially offset by an increase in compensation and benefits of $0.1 million. Income Tax : Income tax expense was $2.3 million on income before taxes of $8.8 million for the three months ended June 30, 2024, resulting in an effective tax rate of 26.6%, compared to income tax expense of $2.5 million on income before taxes of $10.6 million for the same period of 2023, resulting in an effective tax rate of 23.2%. Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 Net income : Our net income available to common shareholders for the six months ended June 30, 2024 decreased $6.7 million, or 34.6%, to $12.6 million compared to $19.2 million for the six months ended June 30, 2023. Earnings per share were $1.05 per basic common share and $1.04 per diluted common share for the six months ended June 30, 2024 compared to $1.61 per basic common share and $1.59 per diluted common share for the same period last year. The decrease in net income available to common shareholders primarily resulted from an increase in interest expense of $11.0 million, an increase in provision for credit losses of $2.6 million, and a decrease in non-interest income of $1.1 million, partially offset by an increase in interest income of $6.4 million. Net interest income : Our net interest income decreased $4.6 million, or 14.1%, to $28.4 million for the six months ended June 30, 2024, compared to $33.0 million for the same period last year. Interest income for the six months ended June 30, 2024, increased $6.4 million to $59.7 million, or 12.0%, from $53.3 million for the same period of 2023. The increase in interest income was primarily due to an increase in interest and fees on loans of $6.5 million, primarily due to an increase in market interest rates and balances outstanding, partially offset by a decrease in interest earned on Federal Reserve Bank ("FRB") deposits of $0.2 million. Interest expense increased $11.0 million, or 54.4%, for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to an increase in interest paid on deposits of $10.5 million, or 62.9%, primarily due to an increase in market interest rates and a shift in deposit mix. Further contributing to the increase in interest expense was an increase in interest on borrowings of $0.5 million, or 15.1%, due to an increase in borrowing levels and higher market interest rates. Provision for credit losses : The provision for credit losses was $0.7 million for the six months ended June 30, 2024, compared to a recovery of provision for credit losses of $1.9 million for the six months ended June 30, 2023. The provision for credit losses for the six months ended June 30, 2024 was primarily driven by an increase in the outstanding loan balance of $17.8 million from the balance at December 31, 2023, specifically in the construction 1 - 4 family, and multi-family portfolios. The provision recovery of $1.9 million during the same period in 2023 was primarily related to decreases in loss factors related to the construction, commercial owner occupied, and residential 1 to 4 family investment portfolios . For more information about our provision for credit losses and our allowance for loan and lease losses and 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 $2.3 million for the six months ended June 30, 2024, a decrease of $1.1 million, or 33.0%, compared to $3.4 million for the same period last year. The decrease is primarily attributable to a decrease in service fees on deposit accounts of $1.4 million, partially offset by an increase in other income of $0.3 million. Fee income for the six months ended June 30, 2024 from commercial deposit accounts of depositors who do business in the cannabis-related industry totaled $0.5 million, compared to $2.0 million for the same period last year. Fee income is included in service fees on deposit accounts in the accompanying Consolidated Statements of Income. Non-interest expense: Our non-interest expense decreased $0.4 million to $12.8 million for the six months ended June 30, 2024, from $13.1 million for the six months ended June 30, 2023. The decrease in non-interest expense was primarily due to a decrease 26 in compensation and benefits of $0.3 million, and a decrease in other operating expense of $0.3 million, partially offset by an increase in OREO expense of $0.2 million. Income Tax : Income tax expense was $4.6 million on income before taxes of $17.2 million for the six months ended June 30, 2024, resulting in an effective tax rate of 26.6%, compared to income tax expense of $5.9 million on income before taxes of $25.2 million for the same period of 2023, resulting in an effective tax rate of 23.5%. Net Interest Income Net interest income is the interest earned on investment securities, loans and other interest-earning assets minus the interest paid on deposits, short-term borrowings and long-term debt. The net interest margin is the average yield of net interest income on average earning assets. Net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets. The following tables presents the average daily balances of assets, liabilities and equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the periods indicated. For the Three Months Ended June 30, 2024 2023 Average Balance Interest Income/ Expense Yield/ Cost Average Balance Interest Income/ Expense Yield/ Cost (Dollars in thousands) Assets Loans* $ 1,781,492 $ 28,732 6.49 % $ 1,770,151 $ 25,763 5.84 % Investment securities** 23,529 248 4.24 % 28,317 227 3.22 % Interest bearing deposits 92,967 1,209 5.23 % 106,170 1,277 4.82 % Total interest-earning assets 1,897,988 30,189 6.40 % 1,904,638 27,267 5.74 % Other assets 65,383 79,378 Allowance for credit losses (31,974) (31,514) Total assets $ 1,931,397 $ 1,952,502 Liabilities and Shareholders’ Equity Interest bearing deposits: Checking $ 65,640 $ 124 0.76 % $ 75,527 $ 117 0.62 % Money markets 603,216 7,322 4.88 % 339,266 3,310 3.91 % Savings 69,228 199 1.16 % 139,664 445 1.28 % Time deposits 415,179 4,316 4.18 % 509,816 3,861 3.04 % Brokered certificates of deposit 125,983 1,723 5.50 % 111,682 1,346 4.83 % Total interest-bearing deposits 1,279,246 13,684 4.30 % 1,175,955 9,079 3.10 % Borrowings 157,132 2,193 5.61 % 215,520 2,321 4.32 % Total interest-bearing liabilities 1,436,378 15,877 4.45 % 1,391,475 11,400 3.29 % Non-interest bearing deposits 184,964 266,531 Other liabilities 17,635 16,516 Total non-interest bearing liabilities 202,599 283,047 Equity 292,420 277,980 Total liabilities and shareholders’ equity $ 1,931,397 $ 1,952,502 Net interest income $ 14,312 $ 15,867 Interest rate spread 1.95 % 2.45 % Net interest margin 3.03 % 3.34 % * The average balance of loans includes loans on nonaccrual. ** Includes balances of FHLBNY and ACBB stock. 27 For the Six Months Ended June 30, 2024 2023 Average Balance Interest Income/ Expense Yield/ Cost Average Balance Interest Income/ Expense Yield/ Cost (Dollars in thousands) Assets Loans* $ 1,787,114 $ 56,815 6.39 % $ 1,766,704 $ 50,307 5.74 % Investment securities** 23,322 497 4.29 % 26,883 437 3.28 % Interest bearing deposits 90,434 2,354 5.23 % 111,619 2,547 4.60 % Total interest-earning assets 1,900,870 59,666 6.31 % 1,905,206 53,291 5.64 % Other assets 67,900 79,744 Allowance for credit losses (32,137) (31,677) Total assets $ 1,936,633 $ 1,953,273 Liabilities and Shareholders’ Equity Interest bearing deposits: Checking $ 68,956 $ 390 1.14 % $ 79,381 $ 247 0.63 % Money markets 582,697 14,128 4.88 % 337,504 6,068 3.63 % Savings 73,714 419 1.14 % 157,035 907 1.16 % Time deposits 423,530 8,447 4.01 % 504,891 6,792 2.71 % Brokered certificates of deposit 137,729 3,757 5.49 % 112,522 2,647 4.74 % Total interest-bearing deposits 1,286,626 27,141 4.24 % 1,191,333 16,661 2.82 % Borrowings 148,619 4,159 5.63 % 179,471 3,615 4.06 % Total interest-bearing liabilities 1,435,245 31,300 4.39 % 1,370,804 20,276 2.98 % Non-interest bearing deposits 194,021 291,310 Other liabilities 17,247 16,425 Total non-interest bearing liabilities 211,268 307,735 Equity 290,120 274,734 Total liabilities and shareholders’ equity $ 1,936,633 $ 1,953,273 Net interest income $ 28,366 $ 33,015 Interest rate spread 1.92 % 2.66 % Net interest margin 3.00 % 3.49 % * The average balance of loans includes loans on nonaccrual. ** Includes balances of FHLBNY and ACBB stock. Financial Condition General At June 30, 2024, the Company’s total assets were $2.03 billion, an increase of $3.6 million, or 0.2%, from December 31, 2023. The increase in total assets was primarily attributable to an increase in loans receivable and an increase in restricted stock, partially offset by a decrease in cash and cash equivalents and a decrease in other assets. Loans increased $17.8 million, primarily due to increases in the construction and multi-family portfolios, partially offset by a decrease in the CRE non-owner occupied portfolio. Restricted stock increased $2.3 million due to an increase in FHLBNY advances. Cash and cash equivalents decreased $12.7 million, or 7.0%, primarily due to the increase in loans, and the decrease in deposits, partially offset by an increase in FHLBNY borrowings. Other assets decreased $3.3 million during the three months ended June 30, 2024, to $7.2 million at June 30, 2024, from $10.5 million at December 31, 2023, primarily driven by a decrease in prepaid taxes. Total liabilities were $1.73 billion at June 30, 2024. This represented a $4.8 million, or 0.3%, decrease, from $1.74 billion at December 31, 2023. The decrease in total liabilities was primarily due to a decrease in deposits of $56.4 million, or 3.6%, to $1.50 billion at June 30, 2024, from $1.55 billion at December 31, 2023, partially offset by an increase in borrowings of $50.0 million, or 40.0%, to $218.2 million at June 30, 2024. The decrease in deposits was primarily due to a decrease in non-interest demand deposits of $33.4 million, a decrease in savings deposits of $16.4 million, and a decrease in time deposits of $44.7 million, partially offset by an increase in money market deposits of $42.8 million. The increase in borrowings was due to additional FHLBNY advances. 28 Total equity was $292.8 million and $284.3 million at June 30, 2024 and December 31, 2023, respectively, an increase of $8.5 million from December 31, 2023. The increase was primarily due to the retention of earnings, partially offset by the payment of $4.3 million of cash dividends. The following table presents certain key condensed balance sheet data as of June 30, 2024 and December 31, 2023 : June 30, 2024 December 31, 2023 Change % Change (Dollars in thousands) Cash and cash equivalents $ 167,678 $ 180,376 $ (12,698) (7.0) % Investment securities 15,509 16,387 (878) (5.4) % Loans, net of unearned income 1,805,141 1,787,340 17,801 1.0 % Allowance for credit losses (32,425) (32,131) (294) 0.9 % Total assets 2,027,138 2,023,500 3,638 0.2 % Total deposits 1,496,441 1,552,827 (56,386) (3.6) % FHLBNY borrowings 175,000 125,000 50,000 40.0 % Subordinated debt 43,206 43,111 95 0.2 % Total liabilities 1,734,338 1,739,183 (4,845) (0.3) % Total equity 292,800 284,317 8,483 3.0 % Total liabilities and equity 2,027,138 2,023,500 3,638 0.2 % Cash and cash equivalents Cash and cash equivalents decreased $12.7 million to $167.7 million at June 30, 2024 from $180.4 million at December 31, 2023, a decrease of 7.0%. The decrease was primarily due to an increase in loans, and a decrease in deposits, partially offset by an increase in borrowings. Investment securities Total investment securities decreased to $15.5 million at June 30, 2024, from $16.4 million at December 31, 2023, a decrease of $0.9 million or 5.4%. The decrease was attributed to normal pay downs. For detailed information on the composition and maturity distribution of our investment portfolio, see NOTE 3 - Investment Securities in the notes to the unaudited consolidated financial statements. Loans Our lending relationships are primarily with small to mid-sized businesses and individual consumers residing in and around Southern New Jersey and Philadelphia, Pennsylvania. We have also expanded our lending footprint in other areas, including New York and South Carolina. We focus our lending efforts primarily in three lending areas: residential mortgage loans, commercial mortgage loans, and construction loans. We originate residential mortgage loans with adjustable and fixed-rates that are secured by 1- 4 family and multifamily residential properties. These loans are generally underwritten under terms, conditions and documentation acceptable to the secondary mortgage market. A substantial majority of such loans can be pledged for potential borrowings. We originate commercial real estate loans that are secured by commercial real estate properties that are owner and non-owner occupied real estate properties. These loans are typically larger in dollar size and are primarily secured by office buildings, retail buildings, warehouses and general purpose business space. The commercial mortgage loans generally have maturities of twenty years, but re-price within five years. The construction loans we originate provide real estate acquisition, development and construction funds to individuals and real estate developers. The loans are secured by the properties under development. The construction loan funds are disbursed periodically at pre-specified stages of completion. 29 We also originate commercial and industrial loans, which provide liquidity to businesses in the form of lines of credit and may be secured by accounts receivable, inventory, equipment or other assets. In addition, we have a consumer loan portfolio which provides loans to individual borrowers. Loans receivable : Loans receivable increased to $1.81 billion at June 30, 2024, from $1.79 billion at December 31, 2023, an increase of $17.8 million, or 1.0%. T he increase was primarily due to increases in the construction, and Residential - Multifamily loan portfolios, partially offset by a decrease in the Commercial - Non-Owner Occupied loan portfolio. Loans receivable as of June 30, 2024 and December 31, 2023, consisted of the following: June 30, 2024 December 31, 2023 Amount Percentage of Loans to total Loans Amount Percentage of Loans to total Loans $ Change % Change (Dollars in thousands) Commercial and Industrial $ 35,954 2.0 % $ 35,451 2.0 % $ 503 1.4 % Construction 179,662 10.0 % 157,556 8.8 % 22,106 14.0 % Real Estate Mortgage: Commercial – Owner Occupied 138,002 7.6 % 141,742 7.9 % (3,740) (2.6) % Commercial – Non-owner Occupied 351,325 19.5 % 369,909 20.7 % (18,584) (5.0) % Residential – 1 to 4 Family 443,968 24.6 % 449,682 25.2 % (5,714) (1.3) % Residential – 1 to 4 Family Investment 523,809 29.0 % 524,167 29.3 % (358) (0.1) % Residential – Multifamily 127,298 7.1 % 103,324 5.8 % 23,974 23.2 % Consumer 5,123 0.3 % 5,509 0.3 % (386) (7.0) % Total Loans $ 1,805,141 100.0 % $ 1,787,340 100.0 % $ 17,801 1.0 % Deposits At June 30, 2024, total deposits decreased to $1.50 billion from $1.55 billion at December 31, 2023, a decrease of $56.4 million, or 3.6%. The decrease in deposits was primarily due to a decrease in noninterest-bearing deposits, savings deposits, and time deposit balances, partially offset by an increase in money market deposits balances. The decrease in the noninterest-bearing deposit balance was primarily driven by a $25.0 million decrease in our cannabis checking account, as well as a $9.6 million decrease in our business checking accounts. The decrease in the savings deposits was primarily due to a $12.3 million decrease in our preferred savings accounts. The decrease in our time deposits was primarily due to $34.8 million decrease in our 13 and 21 months CD promotional accounts, and an $8.0 million decrease in brokered time deposits. The increase in our money market deposits was primarily due to a $138.4 million increase in our premier money market accounts, $60.0 million of which was cannabis deposits, partially offset by a $75.1 million decrease in brokered money market accounts. June 30, December 31, 2024 2023 $ Change % Change (Dollars in thousands) Noninterest-bearing $ 198,761 $ 232,189 $ (33,428) (14.4) % Interest-bearing Checking 61,534 63,017 (1,483) (2.4) % Savings 67,089 83,470 (16,381) (19.6) % Money market 609,841 567,080 42,761 7.5 % Time deposits 559,216 607,071 (47,855) (7.9) % Total deposits $ 1,496,441 $ 1,552,827 $ (56,386) (3.6) % Estimated uninsured deposits $ 500,988 $ 622,966 $ (121,978) (19.6) % 30 Borrowings Total borrowings were $218.2 million at June 30, 2024 and $168.1 million at December 31, 2023. The increase in borrowings is due to an increase of $50.0 million in FHLBNY advances. At June 30, 2024, $155.0 million of the outstanding FHLBNY advances have short-term maturities. Equity Total equity increased to $292.8 million at June 30, 2024 from $284.3 million at December 31, 2023, an increase of $8.5 million, or 3.0%, primarily due to the retention of earnings from the period, partially offset by the payment of $4.3 million in cash dividends. Liquidity and Capital Resources Liquidity is a measure of our ability to generate cash to support asset growth, meet deposit withdrawals, satisfy other contractual obligations, and otherwise operate on an ongoing basis. At June 30, 2024, our cash position was $167.7 million. We invest cash that is in excess of our immediate operating needs primarily in our interest-bearing account at the Federal Reserve. Our primary source of funding has been deposits. Funds from other operations, financing arrangements, investment securities available-for-sale also provide significant sources of funding. The Company seeks to rely primarily on core deposits from customers to provide stable and cost-effective sources of funding to support loan growth. We focus on customer service which we believe has resulted in a history of customer loyalty. Stability, low cost and customer loyalty comprise key characteristics of core deposits. We also use brokered deposits as a funding source. The Bank joined the 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, as well as their ICS® money market product. As of June 30, 2024, the Company had $72.2 million of brokered deposits sourced from IntraFi. Additionally, we have access to other brokered deposit funding sources that we utilize as a source of additional liquidity. During the 2nd quarter of 2024, we entered into relationships with Wells Fargo and Piper Sandler to obtain brokered deposits, and as of June 30, 2024, the Company had $90.3 million sourced from these broker relationships. While deposit accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLBNY. As of June 30, 2024, the Company had lines of credit with the FHLBNY of $1.04 billion, of which $175.0 million was outstanding, and an additional $60.0 million from a letter of credit for securing public funds. The remaining borrowing capacity was $804.5 million at June 30, 2024. We had outstanding loan commitments of $114.8 million at June 30, 2024. Our loan commitments are normally originated with the full amount of collateral. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth. The following is a discussion of our cash flows for the six months ended June 30, 2024 and 2023. Cash provided by operating activities was $17.2 million in the six months ended June 30, 2024, compared to $14.7 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 the increase in provision for credit losses, partially offset by the decrease in net income. Cash used in investing activities was $19.3 million in the six months ended June 30, 2024, compared to cash used in investing activities of $38.5 million in the same period last year. The decrease in cash used in the investing activities during the six months ended June 30, 2024, was primarily due to the decrease in cash outflow from the origination of loans, and the redemption of restricted stock, during the period. Cash used in financing activities was $10.6 million in the six months ended June 30, 2024, compared to cash used in financing activities of $20.9 million in the same period last year. The decrease in cash used in financing activities during the six months ended June 30, 2024, was primarily due to lower decrease in noninterest-bearing deposits and interest-bearing deposits, and the 31 increase in FHLBNY short-term borrowings, partially offset by the decrease in FHLBNY long-term borrowings, and the decrease in Federal Reserve short-term borrowings. Capital Adequacy We utilize a comprehensive process for assessing the Company’s overall capital adequacy. We actively review our capital strategies in light of current and anticipated business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, earnings stability, competitive forces, economic conditions, and strength of management. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily manage our capital through the retention of earnings. We also use other means to manage our capital. Total equity increased $8.5 million at June 30, 2024, from December 31, 2023, primarily from the Company’s net income of $12.6 million for the period, net of common and preferred stock dividends of $4.3 million. Banks and bank holding companies are subject to various regulatory capital requirements administered by federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Company must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Failure to meet minimum capital requirements can result in regulatory actions. Under the capital rules issued by the Federal banking agencies, the Company and the Bank elected to exclude the effects of certain Accumulated Other Comprehensive Income (“AOCI”) items from its regulatory capital calculation. At June 30, 2024, 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 June 30, 2024: Amount Ratio Amount Ratio (Dollars in thousands except ratios) Company Parke Bank Tier 1 leverage $ 306,283 15.86 % $ 334,969 17.35 % Critical Accounting Policies The Company’s accounting policies are more fully described in Note 1 of the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. As disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments. Allowance for 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 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 32 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 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable