Parke Bancorp PKBK Form 10-Q filing Q1 FY2025

Part I FINANCIAL INFORMATION

Item 1. Financial Statements 1

Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024 (unaudited) 1

Consolidated Statements of Income for the three months ended March 31, 2025 and 2024 (unaudited) 2

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2025 and 2024 (unaudited) 3

Consolidated Statements of Equity for the three months ended March 31, 2025 and 2024 (unaudited) 4

Consolidated Statements of Cash Flow for the three months ended March 31, 2025 and 2024 (unaudited) 5

Notes to Consolidated Financial Statements (unaudited) 6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23

Item 3. Quantitative and Qualitative Disclosures About Market Risk 31

Item 4. Controls and Procedures 31

Part II OTHER INFORMATION

Item 1. Legal Proceedings 31

Item 1A. Risk Factors 32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32

Item 3. Defaults Upon Senior Securities 32

Item 4. Mine Safety Disclosures 32

Item 5. Other Information 32

Item 6. Exhibits 33

SIGNATURES 34

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

See accompanying notes to the unaudited consolidated financial statements

See accompanying notes to the unaudited consolidated financial statements

See accompanying notes to the unaudited consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(Dollars in thousands except share data)

Three-months ended March 31, 2025 and 2024

See accompanying notes to the unaudited consolidated financial statements

See accompanying notes to the unaudited consolidated financial statements

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

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

The Bank is a commercial bank, which was incorporated on August 25, 1998, and commenced operations on January 28, 1999. The Bank is chartered by the New Jersey Department of Banking and Insurance and its deposits are insured by the Federal Deposit Insurance Corporation. The Bank maintains its principal office at 601 Delsea Drive, Sewell, New Jersey, and has six additional branch office locations; 501 Tilton Road, Northfield, New Jersey, 567 Egg Harbor Road, Washington Township, New Jersey, 67 East Jimmie Leeds Road, Galloway Township, New Jersey, 1150 Haddon Avenue, Collingswood, New Jersey, 1610 Spruce Street, Philadelphia, Pennsylvania, and 1032 Arch Street, Philadelphia, Pennsylvania. The Bank also has a loan office located at 1817 East Venango Street, Philadelphia, Pennsylvania.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The accompanying interim financial statements should be read in conjunction with the annual financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The accompanying interim financial statements for the three months ended March 31, 2025 and 2024 are unaudited. The balance sheet as of December 31, 2024, was derived from the audited financial statements. In the opinion of management, these financial statements include all normal and recurring adjustments necessary for a fair statement of the results for such interim periods. Results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results for the full year or any other period.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the allowance for credit losses, the valuation of deferred income taxes, and the carrying value of other real estate owned ("OREO").

Segment Reporting: The Company operates one reportable segment of business, "community banking". Through its community banking segment, the Company provides a broad range of retail and community banking services. The accounting policies of the community banking segment are the same as those described in the summary of significant accounting policies.

The Company's chief operating decision maker ("CODM") is the President, Chief Executive Officer and Director, who decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income.

The measure of segment assets is reported on the balance sheet as total consolidated assets.

The following table presents segment profit and significant expenses.

NOTE 3. INVESTMENT SECURITIES

The following is a summary of the Company's investments in available for sale and held to maturity securities as of March 31, 2025 and December 31, 2024. None of the securities shown below required an allowance for credit losses.

The amortized cost and fair value of debt securities classified as available for sale and held to maturity, by contractual maturity as of March 31, 2025 are as follows:

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

The Company did not sell any securities during the three months ended March 31, 2025 or 2024. The following tables show the gross unrealized losses and fair value of the Company's available for sale investments for which an allowance for credit losses has not been recorded, which are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2025 and December 31, 2024:

On at least a quarterly basis, we review all debt securities that are in an unrealized loss position for a credit loss. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. Amortized cost includes adjustments (if any) made to the cost basis of an investment for accretion, amortization, and previous other-than-temporary impairments. For individual debt securities classified as available for sale, we determine whether a decline in fair value below the amortized cost has resulted from a credit loss or other factors. If the decline in fair value is due to credit, we will record the portion of the impairment loss relating to credit through an allowance for credit losses. Impairment that has not been recorded through an allowance for credit losses is recorded through other comprehensive income, net of applicable taxes.

The Company’s unrealized loss for the debt securities classified as available for sale is comprised of 5 securities in the less than 12 months loss position and 14 securities in the 12 months or greater loss position at March 31, 2025. These securities are mortgage-backed securities that had unrealized losses issued or guaranteed by the US government or US government sponsored entities. The unrealized losses associated with those mortgage-backed securities are generally driven by changes in interest rates and are not due to credit losses given the explicit or implicit guarantees provided by the U.S. government. Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, the Company does not consider the unrealized loss in these securities to be credit losses at March 31, 2025.

The Company classifies the held-to-maturity debt securities into the following major security types: residential mortgage backed, and state and political subdivisions. These securities are highly rated with a history of no credit losses, and are assigned ratings based on the most recent data from ratings agencies depending on the availability of data for the security. Credit ratings of held-to-maturity debt securities, which are a significant input in calculating the expected credit loss, are reviewed on a quarterly basis. Based on the credit ratings of our held-to-maturity securities and our historical experience including no losses, we have determined that an allowance for credit loss on the held-to-maturity portfolio is not required. Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, the Company does not consider the unrealized loss in these securities to be credit losses at March 31, 2025.

NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS

At March 31, 2025 and December 31, 2024, the Company had $1.88 billion and $1.87 billion, respectively, in loans receivable outstanding. Outstanding balances include $1.3 million and $1.8 million at March 31, 2025 and December 31, 2024, respectively, for net deferred loan costs, and unamortized discounts.

The portfolio segments of loans receivable at March 31, 2025 and December 31, 2024, consist of the following:

An age analysis of past due loans by class at March 31, 2025 and December 31, 2024 is as follows:

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

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through the provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. At March 31, 2025 and December 31, 2024, the allowance for credit losses on off-balance sheet credit exposures was $940.0 thousand and $867.0 thousand, respectively, on exposures totaling $186.7 million and $172.2 million, respectively. The provision for credit losses on off balance sheet exposures during the three month period ending March 31, 2025 and 2024 were $73.0 thousand and $439.0 thousand, respectively.

Allowance for Credit Losses (ACL)

The following tables present the information regarding the allowance for credit losses for the three months ended March 31, 2025 and 2024:

During the quarter, the increase to the Commercial Owner Occupied, and the Commercial Non-owner Occupied portfolio's was due to an increase in the portfolio balances that increased the loan exposure and also caused changes to the qualitative factors related to concentration levels within the portfolio segments. The provision benefit during the quarter to the Construction segment is due to a decrease in the portfolio balance that decreased the loan exposure and also caused changes to the qualitative factors related to concentration levels within the portfolio segments.

During the quarter, the increase to the Residential Multifamily portfolio was due to an increase in the portfolio balance that increased the loan exposure and also caused changes to the qualitative factors related to concentration levels within the portfolio segments. The increase to the Residential 1 to 4 Family Investment portfolio is driven by changes to the qualitative factors related to concentration levels within the portfolio segments. The provision benefit during the quarter to the Commercial Non-owner Occupied segment was mainly due to a decrease in the problem loan balance as well as a decrease in the portfolio balance.

Collateral-Dependent Loans

The following table presents the collateral-dependent loans by portfolio segment and collateral type at March 31, 2025:

The following table presents the collateral-dependent loans by portfolio segment and collateral type at December 31, 2024:

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

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

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

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

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

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

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

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

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

The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses, as of March 31, 2025.

As of March 31, 2025, the Company was in the process of foreclosing on 22 residential 1 to 4 family loans with a principal balance of $4.7 million.

The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses, as of December 31, 2024.

Modifications to Borrowers Experiencing Financial Difficulty

During the periods ended March 31, 2025 and 2024, the Company did not make any modifications to borrowers experiencing financial difficulty.

NOTE 5. EARNINGS PER SHARE (“EPS”)

The following tables set forth the calculation of basic and diluted EPS for the three-month periods ended March 31, 2025 and 2024.

As of March 31, 2025 and December 31, 2024, there were 323,005 and 191,375 weighted average option shares outstanding, respectively, that were not included in the computation of diluted EPS because these shares were anti-dilutive.

NOTE 6. FAIR VALUE

Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:

Level 1 Input:

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

Level 2 Inputs:

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

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

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

Level 3 Inputs:

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

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

Fair Value on a Recurring Basis:

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

Investments in Available for Sale Securities:

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

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

For the three months ended March 31, 2025, there were no transfers between the levels within the fair value hierarchy. There were no level 3 assets or liabilities held during the three months ended March 31, 2025 and 2024.

Fair Value on a Non-recurring Basis:

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

Collateral-dependent loans are those loans that are accounted for under ASC 326, Financial Instruments - Credit Losses ("ASC 326"), in which the Bank has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties that collateralize the loans. If the loan balance exceeds the fair value of the collateral, a specific reserve is applied and these assets are generally classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

OREO consists of real estate properties that are recorded at fair value based upon current appraised value, or agreements of sale, less estimated disposition costs using level 3 inputs. Properties are reappraised annually.

Fair Value of Financial Instruments

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

For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include cash and cash equivalents, accrued interest receivable, bank owned life insurance, Federal Home Loan Bank of New York ("FHLBNY") restricted stock, demand and other non-maturity deposits and accrued interest payable, and they are considered to be level 1 measurements.

The following table summarizes the carrying amounts and fair values for financial instruments that are not carried at fair value at March 31, 2025 and December 31, 2024:

NOTE 7. COMMITMENTS AND CONTINGENCIES

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The Company evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment and income-producing commercial properties. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to fund fixed-rate loans were immaterial at March 31, 2025. Variable-rate commitments are generally issued for less than one year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. As of March 31, 2025 and December 31, 2024, unused commitments to extend credit amounted to approximately $137.5 million and $122.5 million, respectively. At March 31, 2025 and December 31, 2024, the allowance for credit losses on off-balance sheet credit exposures was $940.0 thousand and $867.0 thousand, respectively, an increase of $73.0 thousand, mainly due to the increase in the unused commitment balance.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of March 31, 2025 and December 31, 2024, standby letters of credit with customers were $0.6 million and $0.6 million, respectively.

On March 31, 2025, the Bank entered into an agreement with the FHLBNY for a Municipal Letter of Credit ("MLOC") of $40.0 million. The MLOC is used to pledge against public deposits and the MLOC expires on June 30, 2025. There were no outstanding borrowings on the letters of credit as of March 31, 2025.

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

We provide banking services to customers that are licensed by various States to do business in the cannabis industry as growers, processors and dispensaries. Cannabis businesses are legal in these States, although they are not legal at the federal level. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state legal cannabis businesses. A financial institution that provides services to cannabis-related businesses can comply with Bank Secrecy Act (“BSA”) disclosure standards by following the FinCEN guidelines. We maintain stringent written policies and procedures related to the acceptance of such businesses and to the monitoring and maintenance of such

business accounts. We conduct a significant due diligence review of the cannabis business before the business is accepted, including confirmation that the business is properly licensed by the applicable state. Throughout the relationship, we continue monitoring the business, including site visits, to ensure that the business continues to meet our stringent requirements, including maintenance of required licenses and periodic financial reviews of the business.

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

At March 31, 2025 and December 31, 2024, deposit balances from cannabis customers were approximately $196.0 million and $151.9 million, or 11.8% and 9.3% of total deposits, respectively, with two customers accounting for 66.4% and 59.3% of the total at March 31, 2025 and December 31, 2024. At March 31, 2025 and December 31, 2024, there were cannabis-related loans in the amounts of $44.9 million and $43.4 million, respectively.

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

Results of Operations

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Net Income: Our net income available to common shareholders for the first quarter of 2025 increased $1.6 million, or 26.5%, to $7.8 million, compared to $6.1 million for the same period last year. Earnings per share were $0.66 per basic common share and $0.65 per diluted common share for the first quarter of 2025, compared to $0.51 per basic common share and $0.51 per diluted common share for the same period last year. The increase was primarily due to an increase in net interest income, partially offset by an increase in provision for credit losses, and a decrease in non-interest income.

Net Interest Income: Our net interest income was $16.6 million for the first quarter of 2025 compared to $14.1 million for the first quarter of 2024, an increase of $2.5 million, or 18.2%. Net interest income increased during the three months ended March 31, 2025, primarily due to an increase in interest and fees on loans and an increase in interest on deposits with banks, partially offset by an increase in interest expense on deposits and borrowings. Interest income increased $4.4 million, or 14.8%, during the three months ended March 31, 2025 as compared to the same period in the prior year. The increase in interest income was primarily due to an increase of $3.4 million in interest and fees on loans, due to higher loan balances and market interest rates. Interest from deposits with banks increased $0.9 million during the three months ended March 31, 2025 as compared to the same period in the prior year, primarily due to higher cash balances held at the Federal Reserve Bank ("FRB"). The increase in interest income was partially offset by an increase in interest expense during the three months ended March 31, 2025 of $1.8 million, or 11.8%, primarily due to an increase in market interest rates on deposits and the overall mix of deposits of $1.7 million.

Provision for credit losses: For the three months ended March 31, 2025, the provision for credit losses was $0.6 million, compared to $0.2 million for the three months ended March 31, 2024, an increase of $0.4 million. The increase in the provision for credit losses for the three months ended March 31, 2025, was primarily due to an increase in the commercial non-owner occupied and commercial owner occupied loan portfolio's balances from December 31, 2024.

Non-interest Income: Our non-interest income was $0.8 million for the three months ended March 31, 2025, a decrease of $0.2 million, compared to $1.1 million for the three months ended March 31, 2024. The decrease is primarily attributable to a decrease in service fees on deposit accounts of $0.1 million due to a decrease in cannabis deposit fee income, and a decrease in other non-interest income of $0.1 million.

Non-interest Expense: Our non-interest expense was unchanged at $6.5 million for the three months ended March 31, 2025, from the three months ended March 31, 2024.

Income Tax: Income tax expense was $2.5 million on income before taxes of $10.3 million for the three months ended March 31, 2025, resulting in an effective tax rate of 24.5%, compared to income tax expense of $2.2 million on income before taxes of $8.4 million for the same period of 2024, resulting in an effective tax rate of 26.6%.

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.

*The average balance of loans includes loans on nonaccrual.

** Includes balances of FHLBNY and ACBB stock.

Financial Condition

General

At March 31, 2025, the Company’s total assets were $2.14 billion, a decrease of $0.4 million, or 0.02%, from December 31, 2024. The decrease in total assets was primarily attributable to a decrease in cash and cash equivalents of $12.5 million, a decrease in FHLBNY restricted stock of $1.8 million, and a decrease in other assets of $1.0 million, partially offset by an increase in loans receivable of $15.0 million. Cash and cash equivalents decreased $12.5 million, or 5.6%, primarily due to the increase in loans and a decrease in FHLBNY borrowings of $40.0 million, partially offset by an increase in deposits of $35.6 million. FHLBNY restricted stock decreased $1.8 million, or 21.0%, due to the repayment of $40.0 million of FHLBNY advances. Other assets decreased $1.0 million due to a decrease in prepaid expenses. Loans increased $15.0 million, primarily due to increases in the commercial owner occupied and commercial non-owner occupied portfolio's balances, partially offset by a decrease in the construction portfolio balance.

Total liabilities were $1.84 billion at March 31, 2025. This represented a $6.3 million, or 0.3%, decrease, from $1.84 billion at December 31, 2024. The decrease in total liabilities was primarily due to a decrease in FHLBNY borrowings of $40.0 million, or 27.6%, to $105.0 million, partially offset by an increase in deposits of $35.6 million, or 2.2%, to $1.67 billion at March 31, 2025. The decrease in borrowings was attributed to the repayment of $40.0 million in FHLBNY advances, while the increase in deposits was primarily due to an increase in money market deposits of $128.4 million, partially offset by a decrease in brokered time deposits of $88.9 million.

Total equity was $305.9 million and $300.1 million at March 31, 2025 and December 31, 2024, respectively, an increase of $5.9 million from December 31, 2024. The increase was primarily due to the retention of earnings, partially offset by the payment of $2.1 million of cash dividends.

The following table presents certain key condensed balance sheet data as of March 31, 2025 and December 31, 2024:

Cash and cash equivalents

Cash and cash equivalents decreased $12.5 million to $209.0 million at March 31, 2025 from $221.5 million at December 31, 2024, a decrease of 5.6%. The decrease was primarily due to an increase in loans, and a decrease in FHLBNY borrowings, partially offset by an increase in deposits.

Investment securities

Total investment securities decreased to $14.3 million at March 31, 2025, from $14.8 million at December 31, 2024, a decrease of $0.4 million or 2.8%. The decrease was attributed to normal pay downs of securities. 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 most recently 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.

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 $1.88 billion at March 31, 2025, from $1.87 billion at December 31, 2024, an increase of $15.0 million, or 0.8%. The increase was primarily due to increases in the commercial-owner occupied, and commercial non-owner occupied, loan portfolios, partially offset by a decrease in the construction loan portfolio. Loans receivable as of March 31, 2025 and December 31, 2024, consisted of the following:

Deposits

At March 31, 2025, total deposits increased to $1.67 billion from $1.63 billion at December 31, 2024, an increase of $35.6 million, or 2.2%. The increase in deposits was primarily due to an increase in money market deposits of $128.4 million, partially offset by a decrease in brokered time deposits of $88.9 million The increase in our money market deposits was primarily due to the increase of $106.7 million in our premier money market account balance, and an increase of $28.3 million in our municipal money market account balance. The decrease in the brokered time deposit balance is primarily attributed to $75.0 million in Wells Fargo brokered CD maturities, and $13.2 million in CDARs brokered CD maturities, respectively. The increase in the estimated uninsured deposits balance is mainly due to an increase in our cannabis and municipal deposit balances.

Borrowings

Total borrowings were $148.3 million at March 31, 2025 and $188.3 million at December 31, 2024. The decrease in borrowings is due to a decrease of $40.0 million in FHLBNY advances. At March 31, 2025, $85.0 million of the outstanding FHLBNY advances have short-term maturities.

Equity

Total equity increased to $305.9 million at March 31, 2025 from $300.1 million at December 31, 2024, an increase of $5.9 million, or 2.0%, primarily due to the retention of earnings from the period, partially offset by the payment of $2.1 million of cash dividends.

Liquidity and Capital Resources

Liquidity is a measure of our ability to generate cash to support asset growth, meet deposit withdrawals, satisfy other contractual obligations, and otherwise operate on an ongoing basis. At March 31, 2025, our cash position was $209.0 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 primarily utilizes brokered relationships with Wells Fargo, Piper Sandler, and Stonecastle. As of March 31, 2025, the Company had $121.6 million sourced from these relationships. For an additional source of brokered liquidity, the Bank joined the IntraFi Financial Network. 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 March 31, 2025, the Company did not have any deposits sourced from IntraFi. While deposit accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLBNY and the Federal Reserve Bank ("FRB"). As of March 31, 2025, the Company had lines of credit with the FHLBNY of $685.0 million, of which $105.0 million was outstanding, and an additional $40.0 million from a letter of credit for securing public funds. The remaining borrowing capacity was $540.0 million at March 31, 2025. As of March 31, 2025, the Company had a borrowing capacity through the FRB discount window of $283.0 million. There were no balances outstanding with the FRB as of March 31, 2025.

We had outstanding loan commitments of $137.5 million at March 31, 2025. Our loan commitments are normally originated with the full amount of collateral. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth.

The following is a discussion of our cash flows for the three months ended March 31, 2025 and 2024.

Cash provided by operating activities was $7.0 million in the three months ended March 31, 2025, compared to $8.4 million for the same period in the prior year. The decrease in operating cash flow was primarily due to the decrease in accrued interest payable and other accrued liabilities, partially offset by a decrease in accrued interest receivable and other assets.

Cash used in investing activities was $13.1 million in the three months ended March 31, 2025, compared to cash provided from investing activities of $3.6 million in the same period last year. The increase in cash used in the investing activities during the three months ended March 31, 2025, was primarily due to the increase in cash outflow from the origination of loans.

Cash used in financing activities was $6.4 million in the three months ended March 31, 2025, compared to cash used in financing activities of $21.2 million in the same period last year. The decrease in cash provided by financing activities during the three months ended March 31, 2025, was primarily due to an increase in noninterest-bearing deposits, partially offset by lower increase in interest-bearing deposits, and the net decrease in FHLBNY 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 $5.9 million at March 31, 2025, from December 31, 2024, primarily from the Company’s net income of $7.8 million for the period, net of common and preferred stock dividends 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. 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 March 31, 2025, 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, 2025:

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, 2024. 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 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

ITEM 4. CONTROLS AND PROCEDURES

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

There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Absecon Gardens Condominium Association v. Parke Bank Matter

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

Mori Restaurant LLC v. Parke Bank Matter

On May 20, 2014, Parke Bank (the "Bank") loaned Voorhees Diner Corporation ("VDC") the original principal sum of $1.0 million for purposes of tenant fit out, and operation, of the Voorhees Diner situated at 320 Route 73, Voorhees, New Jersey 08043. VDC leased the Diner property under that certain Lease with Mori Restaurant LLC ("Mori") dated May 20, 2014. In connection with the loan from the Bank and as security therefor, VDC pledged its leasehold interest to the Bank. On March 6, 2015, the loan was modified, and the principal amount of the loan was increased to $1.4 million. On January 8, 2020, the Bank declared VDC in default of its loan obligations. Judgment was entered against VDC and in favor of the Bank, and the court appointed Alan I. Gould, Esquire, as the Receiver for the Voorhees Diner Corporation. Mr. Gould subsequently caused VDC's leasehold interest in the Diner property to be sold at sheriffs sale. The Bank's REO subsidiary, 320 Route 73 LLC, was the successful bidder and took title thereto. Mori Restaurant has filed counterclaims against 320 Route 73 LLC and the Bank for rent allegedly accruing due during the period that the Receiver was in possession of the premises. As to all of Mori Restaurant’s claims, the Bank defendants’ primary, but not exclusive, defense in this matter is that, pursuant to that certain Fee Owner Consent executed by and between Mori Restaurant and the Bank, in November 2014, the lease between VDC and Mori Restaurant was terminated as a matter of law and neither the Bank nor 320 Route 73 LLC have liability to Mori Restaurant under the lease or otherwise. The Bank believes this suit is without merit, denies any and all liability and intends to vigorously defend against this matter.

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

Other than the foregoing, there were no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

ITEM 1A. RISK FACTORS

Not applicable.

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

(a) Unregistered Sales of Equity Securities. Not Applicable.

(b) Use of Proceeds. Not Applicable.

(c) Issuer Purchases of Equity Securities. The Company did not repurchase any shares of common stock during the quarter ended March 31, 2025.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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3.1 Certificate of Incorporation of Parke Bancorp, Inc. (1) 3.2 Bylaws of Parke Bancorp, Inc. (2) 3.3 Certificate of Amendment setting forth the terms of the Registrant's 6.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series B (3) 4.1 Specimen stock certificate of Parke Bancorp, Inc. (4) 31.1 Certification of CEO required by Rule 13a-14(a). 31.2 Certification of CFO required by Rule 13a-14(a). (32) Certification required by 18 U.S.C. §1350. (101) The following materials from the Company’s Form 10-Q for the quarter ended March 31, 2025, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements. 101.INS Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document) 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (104) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1) Incorporated by Reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 filed with the SEC on January 31, 2005 (File No. 333-122406).

(2) Incorporated by Reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2021.

(3) Incorporated by Reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 24, 2013.

(4) Incorporated by Reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 filed with the SEC on January 31, 2005 (File No. 333-122406).