Commission File No. 000-51338
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). YES o NOý
The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant’s common stock as quoted on the Nasdaq Capital Market on June 30, 2017,2023 was approximately $130.4$174.2 million.
Parke Bancorp, Inc. (the “Company”) may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the Securities and Exchange Commission (including this Annual Report on Form 10-K and the exhibits hereto), in its reports to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
Substantially all of the Bank’s business is with customers in its market areas of Southern New Jersey, and the Philadelphia area of Pennsylvania.Pennsylvania, and New York, New York. We have carefully expanded our lending footprint in other areas also. Most of
Additionally, most of the Bank’s loans are secured by real estate located in Southern New Jersey and the Philadelphia area. A decline in local economic conditions could adversely affect the values of such real estate. Consequently, a decline in local economic conditions may have a greater effect on the Bank’s earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse.
The Bank faces significant competition, both in making loans and attracting deposits. The Bank’s competition in both areas comes principally from other commercial banks, thrift and savings institutions, including savings and loan associations and credit unions, and other types of financial institutions, including brokerage firms and credit card companies. The Bank faces additional competition for deposits from short-term money market mutual funds and other corporate and government securities funds.
Most of the Bank’s competitors, whether traditional or nontraditional financial institutions, have a longer history and significantly greater financial and marketing resources than does the Bank. Among the advantages certain of these institutions have over the Bank are their ability to finance wide-ranging and effective advertising campaigns, to access international money markets and to allocate their investment resources to regions of highest yield and demand. Major banks operating in the primary market area offer certain services, such as international banking and trust services, which are not offered directly by the Bank.
In commercial transactions, the Bank’s legal lending limit to a single borrower enables the Bank to compete effectively for the business of individuals and smaller enterprises. However, the Bank’s legal lending limit is considerably lower than that of various competing institutions, which have substantially greater capitalization. The Bank has a relatively smaller capital base than most other competing institutions which, although above regulatory minimums, may constrain the Bank’s effectiveness in competing for loans.
Commercial business loans generally involve a greater degree of risk than residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the mobility of collateral, the effects of general economic conditions and the increased difficulty of evaluating and monitoring these types of loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income and which are secured by real property the value of which tends to be more easily ascertainable, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the general economic environment. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired.
The Bank provides interim real estate acquisition development and construction loans to builders and developers. Real estate development and constructionConstruction loans to provide interim financing on the property are based on acceptable percentages of the appraised value of the property securing the loan in each case. Real estate development and constructionConstruction loan funds are disbursed periodically at pre-specified stages of
completion. Interest rates on these loans are generally adjustable. The Bank carefully monitors these loans with on-site inspections and control of disbursements. These loans are generally made on properties located in the Bank’s market area.
Loans to residential builders are for the construction of residential homes for which a binding sales contract exists and the prospective buyers have been pre-qualified for permanent mortgage financing. Loans to residential developers are made only to developers with a proven sales record. Generally, these loans are extended only when the borrower provides evidence that the lots under development will be sold to potential buyers satisfactory to the Bank.
The Bank also originates loans to individuals for construction of single family dwellings. These loans are for the construction of the individual’s primary residence. They are typically secured by the property under construction, occasionally include additional collateral (such as a second mortgage on the borrower’s present home), and commonly have maturities of six to twelve months.
Construction financing is labor intensive for the Bank, requiring employees of the Bank to expend substantial time and resources in monitoring and servicing each construction loan to completion. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction and development, the accuracy of projections, such as the sales of homes or the future leasing of commercial space, and the accuracy of the estimated cost (including interest) of construction. Substantial deviations can occur in such projections. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. Also, a construction loan that is in default can cause problems for the Bank such as designatingselecting replacement builders for a project, considering alternate uses for the project and site and handling any structural and environmental issues that might arise.
Loans secured by commercial real estate are generally larger and involve a greater degree of risk than one-to four-family residential mortgage loans. Of primary concern in commercial and multi-family real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties are often dependent on the successful operation or management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy.
The Bank seeks to reduce the risks associated with commercial mortgage lending by generally lending in its primary market area and obtaining periodic financial statements and tax returns from borrowers. It is also the Bank’s general policy to obtain personal guarantees from the principals of the borrowers and assignments of all leases related to the collateral.
The size of loans which the Bank can offer to potential borrowers is less than the size of loans which many of the Bank’s competitors with larger capitalization are able to offer. The Bank may engage in loan participations with other banks for loans in excess of the Bank’s legal lending limits. However, no assurance can be given that such participations will be available at all or on terms which are favorable to the Bank and its customers.
When a loan is more than 30 days delinquent, the borrower is contacted by mail or phone and payment is requested. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower. In certain instances, the Bank may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize their financial affairs. If the loan continues in a delinquent status for 90 days or more, the Bank generally will initiate foreclosure proceedings.
disposal costs. Management also periodically performs valuations of real estate owned and establishes allowances to reduce book values of the properties to their net realizable values when necessary. Any write-down of real estate owned is charged to operations. Real estate owned at December 31, 20172023 and December 31, 2022, was $7.2$1.6 million. The realReal estate owned consisted of 11two commercial owner occupied properties the largest being a condominium development located in Absecon, New Jersey carried at $2.3 million as of December 31, 2017.2023.
Management’s judgment as to the level of probable losses on existing loans is based on its internal review of the loan portfolio, including an analysis of the borrower's current financial position; the level and trends in delinquencies, non-accruals and impairedindividually evaluated loans; the consideration of national and local economic conditions and trends; concentrations of credit; the impact of any
changes in credit policy; the experience and depth of management and the lending staff; and any trends in loan volume and terms. In determining the collectability of certain loans, management also considers the fair value of any underlying collateral. However, management’s determination of the appropriate allowance level, which is based upon the factors outlined above, which are believed to be reasonable, may or may not prove to be valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loancredit losses or that additional increases in the allowance for loancredit losses will not be required.
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| | | | | | | | |
| 2017 |
| Average Balance | | Yield/Rate | | Percent of Total |
| (Amounts in thousands, except percentages) |
NOWs | $ | 42,582 |
| | 0.49% | | 5.26 | % |
Money markets | 138,084 |
| | 0.78% | | 17.06 |
|
Savings | 180,908 |
| | 0.53% | | 22.36 |
|
Time deposits | 288,617 |
| | 1.17% | | 35.66 |
|
Brokered CDs | 74,357 |
| | 1.16% | | 9.19 |
|
Total interest-bearing deposits | 724,548 |
| | 0.89% | | |
|
Non-interest bearing demand deposits | 84,758 |
| | | | 10.47 |
|
Total deposits | $ | 809,306 |
| | | | 100.00 | % |
|
| | | | | | | | |
| 2016 |
| Average Balance | | Yield/Rate | | Percent of Total |
| (Amounts in thousands, except percentages) |
NOWs | $ | 32,499 |
| | 0.50% | | 4.49 | % |
Money markets | 123,017 |
| | 0.51% | | 17.01 |
|
Savings | 175,163 |
| | 0.53% | | 24.22 |
|
Time deposits | 284,018 |
| | 1.17% | | 39.28 |
|
Brokered CDs | 45,961 |
| | 0.83% | | 6.36 |
|
Total interest-bearing deposits | 660,658 |
| | 0.82% | | |
|
Non-interest bearing demand deposits | 62,483 |
| | | | 8.64 |
|
Total deposits | $ | 723,141 |
| | | | 100.00 | % |
|
| | | | | | | | |
| 2015 |
| Average Balance | | Yield/Rate | | Percent of Total |
| (Amounts in thousands, except percentages) |
NOWs | $ | 31,318 |
| | 0.49% | | 4.75 | % |
Money markets | 112,180 |
| | 0.50% | | 17.00 |
|
Savings | 188,392 |
| | 0.53% | | 28.56 |
|
Time deposits | 251,816 |
| | 1.13% | | 38.17 |
|
Brokered CDs | 30,337 |
| | 0.62% | | 4.60 |
|
Total interest-bearing deposits | 614,043 |
| | 0.77% | | |
|
Non-interest bearing demand deposits | 45,656 |
| | | | 6.92 |
|
Total deposits | $ | 659,699 |
| | | | 100.00 | % |
The following table indicates the amount of the Bank’sCompany’s certificates of deposit of $100,000$250,000 or more, and the portion that are in excess of the Federal Deposit Insurance ("FDIC") limit, by time remaining until maturity as of December 31, 2017.2023.
| | | | | | | | | | | | | | |
Maturity Period | | Certificates of Deposit | | Portion in Excess of FDIC Insurance Limit |
| | (Dollars in thousands) |
Within three months | | $ | 34,533 | | | $ | 11,533 | |
Over three through six months | | 33,060 | | | 12,060 | |
Over six through twelve months | | 15,438 | | | 5,438 | |
Over twelve months | | 10,665 | | | 7,165 | |
Total | | $ | 93,696 | | | $ | 36,196 | |
|
| | | | |
Maturity Period | | Certificates of Deposit |
| | (Amounts in thousands) |
Within three months | | $ | 23,436 |
|
Three through twelve months | | 92,414 |
|
Over twelve months | | 42,028 |
|
Total | | $ | 157,878 |
|
Borrowings. Borrowings consistUnder FDIC regulations, insured banks that are well capitalized with examination ratings in one of subordinated debtthe two highest categories are permitted to accept brokered deposits and advancesare not restricted as to the rates that can be paid on such deposits. Banks that are less than well capitalized or are not in one of the two highest examination rating categories may not accept brokered deposits absent a waiver from the FHLBFDIC and other parties. Borrowingsmay not pay interest on brokered deposits that they are permitted to accept at a rate that is more than 75 basis points greater than the average national rate paid on deposits of similar size and maturity. Pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), the FDIC has amended its brokered deposit rule to exempt reciprocal deposits in an amount not exceeding the lesser of $5 billion or 20% of a bank’s total liabilities from the FHLB outstanding during 2017, 2016,definition of brokered deposits. A bank that was well-capitalized and 2015, had maturitieshighly rated may continue to accept reciprocal deposits after it becomes less than well-capitalized or is no longer highly rated provided that reciprocal deposits do not exceed the average amount of ten years or less and cannot be prepaid without penalty.reciprocal deposits as the preceding four quarter ends.
The following table sets forth information regarding the Bank’s borrowings:
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| | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 |
| (Amounts in thousands, except rates) |
Amount outstanding at year end | $ | 114,650 |
| | $ | 79,650 |
| | $ | 98,053 |
|
Weighted average interest rates at year end | 1.76 | % | | 1.57 | % | | 1.45 | % |
Maximum outstanding at any month end | $ | 114,650 |
| | $ | 103,053 |
| | $ | 98,053 |
|
Average outstanding | $ | 91,705 |
| | $ | 89,720 |
| | $ | 80,729 |
|
Weighted average interest rate during the year | 1.53 | % | | 1.49 | % | | 1.32 | % |
Subsidiary Activities
The largestCompany's only significant subsidiary of the Company is the Bank. Effective April 29, 2016, the Company sold its 51% interest in the assets of 44 Business Capital LLC ("44BC"), and certain related assets held by the Bank, to Berkshire Hills Bancorp, Inc. and its wholly owned banking subsidiary, Berkshire Bank for total consideration of $50.7 million.
Personnel
At December 31, 2017,2023, the Bank had 70101 full-time and 215 part-time employees.
Regulation
Set forth below is a brief description of certain laws that relate to the regulation of the Bank and the Company. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
Consent Orders with Banking Regulators
In the fourth quarter of 2020, the Bank entered into a Stipulation to the Issuance of a Consent Order with each of the Federal Deposit Insurance Corporation (the “FDIC”) and the New Jersey Department of Banking and Insurance (the “NJDOBI”), consenting to the issuance of substantially identical consent orders (the “Consent Orders”) relating to weaknesses in the Bank’s Bank Secrecy Act and Anti-Money Laundering (collectively “BSA”) compliance program. In consenting to the issuance of the Consent Orders, the Bank did not admit or deny any charges of unsafe or unsound banking practices related to the BSA compliance program.
Under the terms of the Consent Orders, the Bank and/or its Board of Directors is required to take certain actions which include, but are not limited to:
•Increase supervision and direction of the Bank’s BSA compliance program and assume full responsibility for the approval and implementation of sound BSA policies and procedures;
•Creation of a compliance committee of the Board of Directors of the Bank with the responsibility of overseeing compliance with the Orders, BSA and the BSA compliance program;
•Designate a qualified individual(s) acceptable to the FDIC and the NJDOBI as a BSA Officer;
•Review and improve the Bank’s BSA compliance program, BSA risk assessment, system of BSA internal controls, and customer due diligence policies;
•Develop, adopt and implement effective training programs for the Board and management on all relevant aspects of laws, regulations and policies relating to BSA and ensure that an adequate number of qualified staff have been retained for the Bank’s BSA Department;
•Ensure the Bank’s adherence to a written program of policies and procedures to provide for BSA compliance and the appropriate identification and monitoring of transactions that pose greater than normal risk for BSA compliance;
•Development and implementation of a customer due diligence program to enhance customer due diligence and risk assessment processes;
•Review and improve policies and procedures for monitoring and reporting suspicious activity;
•Conduct independent testing for compliance with BSA by either a qualified outside party or Bank personnel who are independent of the BSA function and are qualified to perform such testing; and
•Hire a qualified firm acceptable to the FDIC and the NJDOBI to conduct a look back review of accounts and transaction activity for the time period beginning January 1, 2019, through the effective date of the Orders.
Numerous actions have already been taken or commenced by the Bank, which will assist in complying with the Consent Orders and strengthen its BSA compliance practices, policies, procedures and controls.
The Consent Orders have resulted, and are expected to continue to result, in additional BSA compliance expenses for the Bank and the Company. The Consent Orders do not otherwise impact the Bank’s business activities outside of BSA.
The Consent Orders do not require the Bank to pay any civil money penalty or require additional capital.
The foregoing summary description of the Consent Orders is not complete and is qualified by reference to the full text of the Consent Orders, copies of which are filed as Exhibits 99.1 and 99.2 to this Annual Report on Form 10-K.
The Consent Orders will remain in effect and be enforceable until they are modified, terminated, suspended or set aside by the FDIC and the NJDOBI. Management and the Board have expressed their full intention to comply with all parts of the Consent Orders at the earliest possible date. Issuance of the Consent Orders do not preclude further government action with respect to the Bank’s BSA program, including the imposition of fines, sanctions, additional expenses and compliance cost, and/or restrictions on the activities of the Bank.
Holding Company Regulation
General. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHC Act”), and is regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).Reserve. The Federal Reserve Board has enforcement authority over the Company and the Company's non-bank subsidiary which also permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary bank. The Company is required to file periodic reports of its operations with, and is subject to examination by, the Federal Reserve. This regulation and oversight is generally intended to ensure that the Company limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of its subsidiary bank.
Under the BHCA,BHC Act, the Company must obtain the prior approval of the Federal Reserve before it may acquire control of another bank or bank holding company, merge or consolidate with another bank holding company, acquire all or substantially all of the assets of another bank or bank holding company, or acquire direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the Company would directly or indirectly own or control more than 5% of such shares.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the BHC Act on extensions of credit to the bank holding company or any of its subsidiaries, on investments in the stock or other securities of the bank holding company or its subsidiaries, and on the taking of such stock or securities as collateral for loans to any borrower. Furthermore, under amendments to the BHC Act and regulations of the Federal Reserve, Board, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of credit or providing any property or services. Generally, this provision provides that a bank may not extend credit, lease or sell property, or furnish any service to a customer on the condition that the customer obtain additional credit or service from the bank, the bank holding company, or any other subsidiary of the bank holding company or on the condition that the customer not obtain other credit or service from a competitor of the bank, the bank holding company, or any subsidiary of the bank.
Extensions of credit by the Bank to executive officers, directors, and principal shareholders of the Bank or any affiliate thereof, including the Company, are subject to Section 22(h) of the Federal Reserve Act, which among other things, generally prohibits loans to any such individual where the aggregate amount exceeds an amount equal to 15% of a bank’s unimpaired capital and surplus, plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral.
Source of Strength Doctrine. A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the policy
of the Federal Reserve that a bank holding company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve regulations, or both.
Non-Banking Activities. The business activities of the Company, as a bank holding company, are restricted by the BHC Act.Act and the Federal Reserve’s bank holding company regulations. Under the BHC Act and the Federal Reserve Board’s bank holding company regulations,regulation, the Company generally may only engage in, or acquire or control voting securities or assets of a company engaged in, (1) banking or managing or controlling banks and other subsidiaries authorized under the BHC Act and (2) any BHC Act activity the Federal Reserve Board has determined to be so closely related to banking or managing or controlling banks to be a proper incident thereto. These include any incidental activities necessary to carry on those activities, as well as a lengthy list of activities that the Federal Reserve Board has determined to be so closely related to the business of banking as to be a proper incident thereto.
Financial Modernization. The Gramm-Leach-Bliley Act permits greater affiliation among banks, securities firms, insurance companies, and other companies underIn addition, a new type of financial servicesbank holding company knownthat qualifies to be treated as a “financial holding company.” A financial
holding company essentially is a bank holding company with significantly expanded powers. Financial holding companies are authorized by statute to engage in a number of financial activities previously impermissible for bank holding companies, including securities underwriting, dealingcompany” and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; and merchant banking activities. The Act also permits the Federal Reserve and the Treasury Department to authorize additional activities for financial holding companies if they are “financial in nature” or “incidental” to financial activities. A bank holding company may becomesubmits a financial holding company if it and each of its subsidiary banks is well capitalized and well managed, and each of its subsidiary banks has at least a “satisfactory” CRA rating. A financial holding company must provide notice to the Federal Reserve within 30 days after commencingmay engage in a broad range of additional activities previously determined by statutethat are (i) financial in nature or byincidental to such financial activities or (ii) complementary to a financial activity and do not pose a substantial risk to the Federal Reserve Boardsafety and Departmentsoundness of depository institutions or the Treasury to be permissible.financial system generally. These activities include securities underwriting and dealing, insurance agency and underwriting, and making merchant banking investments. The Company has not submitted notice to the Federal Reserve Board of its intent to be deemed a financial holding company.
Regulatory Capital Requirements. The Federal Reserve has adopted regulatory capital adequacy guidelinesrequirements pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHC Act. The Federal Reserve’s capital adequacy guidelinesrequirements are similar to those imposed on the Bank by the FDIC. See “Regulation of the Bank-Regulatory Capital Requirements.” Under the Federal Reserve’s Small Bank Holding Company Policy Statement, however, such regulatory capital requirements generally do not apply on a consolidated basis to a bank holding company with total assets of less than $3 billion unless the holding company: (1) is engaged in significant nonbanking activities either directly or through a nonbank subsidiary; (2) conducts significant off-balance sheet activities (including securitization and asset management or administration) either directly or through a nonbank subsidiary; or (3) has a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the SEC. The Federal Reserve may apply the regulatory capital standards at its discretion to any bank holding company, regardless of asset size, if such action is warranted for supervisory purposes.
Restrictions on Dividends. The Company is subject to various restrictions relating to the payment of dividends. The Federal Reserve has issued guidance indicating that bank holding companies should generally pay dividends only if the company’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the company’s capital needs, asset quality and overall financial condition. The Federal Reserve’s guidance also states that a bank holding company should inform and consult with its regional Federal Reserve Bank in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure.
The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. The Federal Reserve also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. In addition, the Federal Reserve’s guidance states that a bank holding company should consult with its regional Federal Reserve Bank in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure. Finally, under the federal prompt corrective action regulations, the Federal Reserve may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.”
As a majority of the Company’s revenues result from dividends paid to the Company by the Bank, the Company’s ability to pay dividends to our shareholders largely depends on the receipt of such dividends from the Bank. The Bank is subject to various laws and regulations limiting the amount of dividends that it can pay. Under New Jersey law, no dividend may be paid if the dividend would impair the capital stock of the Bank. In addition, no dividend may be paid unless the Bank would, after payment of the dividend, have a surplus of at least 50% of its capital stock (or if the payment of dividend would not reduce surplus). Finally, if the Bank does not maintain the capital conservation buffer required by applicable regulatory capital rules,
its ability to pay dividends or other capital distributions to the Company will be limited. See “- Regulation of the Bank - Regulatory Capital Requirements.”
Federal Securities Law. The Company’s common stock is registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the Company is subject to the periodic reporting and other requirements of Section 12(b) of the 1934 Act, as amended.
Regulation of the Bank
The Bank operates in a highly regulated industry. This regulation and supervision establishes a comprehensive framework of activities in which a bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors and not shareholders of the Bank.
Any change in applicable statutory and regulatory requirements, whether by the New Jersey Department of Banking and Insurance,NJDOBI, the FDIC, or the United States Congress or state legislatures, could have a material adverse impact on the Bank, and its operations. The adoption of regulations or the enactment of laws that restrict the operations of the Bank or impose burdensome requirements upon it could reduce its profitability and could impair the value of the Bank’s franchise, which developments could hurt the trading price of the Bank’sCompany’s stock.
As a New Jersey-chartered commercial bank, the Bank is subject to the regulation supervision, and controlsupervision of the New Jersey Department of Banking and Insurance.NJDOBI. As an FDIC-insured institution, the Bank is subject to regulation supervision and controlsupervision of the FDIC, an agency of the federal government.FDIC. The regulations of the FDIC and the New Jersey Department of Banking and InsuranceNJDOBI affect virtually all activities of the Bank, including the minimum level of capital the Bank must maintain, the ability of the Bank to pay dividends, the ability of the Bank to expand through new branches or acquisitions and various other matters. The NJDOBI and the FDIC regularly examine the Bank and prepare reports to the Bank’s Board of Directors on deficiencies, if any, found in its operations. The regulatory authorities have substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements.
Under the New Jersey Banking Act of 1948, a bank may declare and pay dividends only if after payment of the dividend the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank's surplus.
Federal Deposit Insurance. The Bank’sFDIC insures deposits at federally insured financial institutions such as the Bank. Deposit accounts in the Bank are insured to applicable limits by the FDIC.FDIC's Deposit Insurance Fund up to a maximum of $250,000 per separately insured depositor.
The Bank is subject to deposit insurance assessments established by the FDIC to maintain the Deposit Insurance Fund (the “DIF”). Under the Dodd-Frank Act, the maximum deposit insurance amount has been permanently increased from $100,000FDIC’s risk-based assessment system, banks that are deemed to $250,000.
The FDIC has adopted a risk-based premium system that providesbe less risky pay lower assessments. Assessment rates for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on their examination ratings and capital ratios. The assessment base is the institution’s average consolidated assets less average tangible equity. Insured banks with more than $1.0 billion in assets must calculate quarterly average assets based on daily balances while smaller banks and newly chartered banks may use weekly averages. In the case of a merger, the average assets of the surviving bank for the quarter must include the average assets of the merged institution for the period in the quarter prior to the merger. Average assets are reduced by goodwill and other intangibles. Average tangible equity equals Tier 1 capital. Forsmall institutions with more than $1.0 billion in assets, average tangible equity is calculated on a weekly basis while smaller institutions may use the quarter-end balance.
Effective July 1, 2016, the FDIC amended its assessment regulations for banks(those with less than $10 billion in assets to replace the previous risk categories with updated financial ratios thatassets) are designed to better predict the risk of failure of insured institutions. The amended rules became effective during the first quarter after the reserve ratio of the Deposit Insurance Fund reached 1.15% and will remain in effect until the reserve ratio reaches 2.0%. The amended regulations set a maximum rate that banks rated CAMELS 1 or 2 may be charged and a minimum rate that CAMELS 3, 4 and 5 banks may be charged. Under the amended rules, the FDIC uses a bank’sbased on an institution’s weighted average CAMELS component ratings and certain financial ratios and are applied to the following financial measures to determine assessments: Tier 1 leverage ratio; ratio of net income before taxes to total assets; ratio of non-performing loans to gross assets; and ratio of other real estate owned to gross assets. In addition, assessments take into consideration core deposits toinstitution’s assessment base, which equals its average total assets one-year asset growth andminus its average tangible equity.
In October 2022, the FDIC adopted a loan mix index.final rule that increased the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023. The loan mix measuresincreased assessment is expected to improve the extent to which a bank’s total assets include higher risk loans. To calculatelikelihood that the loan mix index, each categoryDIF reserve ratio would reach the statutory minimum of loan in the bank’s portfolio (other than credit card loans) would be divided1.35% by the bank’s total assetsstatutory deadline of September 30, 2028, consistent with the FDIC’s amended restoration plan. The FDIC assessment rates effective January 1, 2023 (which are subject to determinecertain adjustments) range from 5 to 18 basis points for institutions with CAMELS composite ratings of 1 or 2, 8 to 32 basis points for those with a CAMELS composite score of 3, and 18 to 32 basis points for those with CAMELS composite scores of 4 or 5. Significant increases in assessments may have an adverse effect on the percentageoperating expenses and results of assets representedoperations of the Bank.
Insurance of deposits may be terminated by that loan category. Each percentage is then multiplied by that loan category’s historical weighted average industry-wide charge-off rate. The sum of these numbers determines the loan mix index value for that bank. The amended regulations are intended to be revenue neutral to the FDIC butupon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to shift premium payments to higher risk institutions. Most institutions are expected to see lower premiums. A companioncontinue operations or has violated any applicable law, regulation, assesses banks over $10 billion in assets at higher rates for two years in accordance with the requirements of the Dodd-Frank Act.
In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issuedrule, order or condition imposed by the Financing Corporation (“FICO”), an agencyFDIC. We do not currently know of the Federal government establishedany practice, condition or violation that may lead to recapitalize the Federal Savings and Loan Insurance Corporation. The FICO assessment rates, which are determined quarterly, averaged .01%termination of insured deposits on an annualized basis in fiscal year 2016. These assessments will continue until the FICO bonds mature in 2019.our deposit insurance.
Regulatory Capital Requirements. The FDIC has promulgatedBank is required to comply with applicable capital adequacy requirements for state-chartered banks that, like the Bank, are not members of the Federal Reserve System. Effective January 1, 2015, the capital adequacy requirements were substantially revised to conform them to the international regulatory standards agreed torules adopted by the Basel Committee on Banking Supervision in the accord often referred to asFDIC and other federal bank regulatory agencies (the “Basel III”III Capital Rules”). The final rule appliesBasel III Capital Rules apply to all depository institutions as well as to all top-tier bank and savings and loan holding companies that are not subject to the Federal Reserve Board’s Small Bank Holding Company Policy Statement.
Under the FDIC’s revised capital adequacy regulations, the Bank isBasel III Capital Rules, banks are required to meet four minimum capital standards: (1) a “Tier 1” or “core” capital leverage ratio equal to at least 4% of total adjusted assets,assets; (2) a common equity Tier 1 capital ratio equal to 4.5% of risk-weighted assets,assets; (3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets,assets; and (4) a total capital ratio equal to 8% of total risk-weighted assets. Common equity Tier 1 capital is defined as common stock instruments, retained earnings, any common equity Tier 1 minority interest and, unless the bank has made an “opt-out” election, accumulated other comprehensive income, net of goodwill and certain other intangible assets. Tier 1 or core capital is defined as common equity Tier 1 capital plus certain qualifying subordinated interests and grandfathered capital instruments. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, qualifying subordinated instruments and certain grandfathered capital instruments. An institution’s risk-based capital requirements are measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight. Risk weightings range from 0% for cash to 100% for property acquired through foreclosure, commercial loans, and certain other assets to 150% for exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property.
The federal banking agencies have recently proposed to simplify the capital rules for smaller, non-complex banks, like the Bank. The proposal would simplify the calculation of acquisition, development and construction exposures for such banks and reduce their risk weighting to 130%. In addition, the proposal would raise the threshold for requiring deductions from capital for mortgage servicing assets and certain deferred tax assets as well as simplify the calculation of the amount of minority interests in consolidated subsidiaries includable in regulatory capital.
In addition to higher capitalthe above minimum requirements, the new capital rules willBasel III Capital Rules require banks and covered financial institution holding companies to maintain a capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement will be phased in over four years beginning January 1, 2016. The fully phased-in capital buffer requirement will effectively raiseraises the minimum required risk-based capital ratios to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital on a fully phased-in basis.
In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.
Prompt Corrective Regulatory Action. Under applicable federal statutes,statute, the federal bank regulatory agencies are required to take “prompt corrective action” with respect to institutions that do not meet specified minimum capital requirements. For these purposes, the lawstatute establishes five capital categories: well capitalized, adequately capitalized, under capitalized,undercapitalized, significantly under capitalizedundercapitalized and critically under capitalized.undercapitalized. Under the FDIC’s prompt corrective actionimplementing regulations, an institution is deemedin order to be “well capitalized” if it hasconsidered well capitalized, a Total Risk-Based Capital Ratiobank must have a ratio of 10.0% or greater, acommon equity Tier 1 Risk-Based Capital Ratiocapital to risk-weighted assets of 8.0% or greater,6.5%, a Common Equityratio of Tier 1 risk-based capital to risk-weighted assets of 8%, a ratio of 6.5% or bettertotal capital to risk-weighted assets of 10%, and a leverage ratio of 5.0% or greater. 5%.
An institution is “adequately capitalized” if it has a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, a Common Equity Tier 1 Capital Ratio of 4.5% or better and a Leverage Ratio of 4.0% or greater. An institution is “under capitalized”“undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital ratio of less than 6.0%, a Common Equity Tier 1 ratio of less than 4.5% or a Leverage Ratio of less than 4.0%. An institution is deemed to be “significantly under capitalized”undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of less than 4.0%, a Common Equity Tier 1 ratio of less than 3.0% or a Leverage Ratio of less than 3.0%. An institution is considered to be “critically under capitalized”undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%
The prompt corrective action regulations provide for the imposition of a variety of requirements and limitations on institutions that fail to meet the above capital requirements. In particular, the FDIC may require any state non-member bank that is not “adequately capitalized” to take certain action to increase its capital ratios. If the non-member bank’s capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the bank’s activities may be restricted. At December 31, 2017, the Bank qualified as “well capitalized” under the prompt corrective action rules.
Volcker Rule. On July 21, 2015, banking entities, which include insured depository institutions, their holding companies and affiliates of either, became subject to regulations implementing the so-called Volcker Rule of the Dodd-Frank Act, which prohibits proprietary trading for the entity’s own account in certain financial instruments, including securities, derivatives, futures and options but excluding loans, physical commodities and foreign exchange and currency. Under the rules adopted by the federal financial regulatory agencies, the purchase or sale of a financial instrument that has been held for less than 60 days is presumed to be proprietary trading for the purpose of short-term resale or benefiting from short-term price movements or for another prohibited purpose unless the banking organization can demonstrate a contrary purpose. Purchases and sales of financial instruments pursuant to repurchase and reverse repurchase agreements or securities lending agreements, however, are excluded from the definition of proprietary trading. Also excluded from the definition of proprietary trading are purchases and sales of financial instruments where the bank is acting solely as agent for a customer, as trustee for a pension or deferred compensation plan or in connection with the collection of debts previously contracted. Purchases and sales of highly liquid securities that are not reasonably expected to result in short-term trading gains and in an amount consistent with near-term funding needs are excluded from proprietary trading if conducted pursuant to a documented liquidity management plan. Certain proprietary trading activities are permitted if conducted in connection with underwriting or market-making activities or risk-mitigating hedging activities. Proprietary trading is also permitted in U.S. government, agency and government sponsored-enterprise securities and obligations of states and political subdivisions and the FDIC but not in derivatives of the foregoing.
The Volcker Rule also prohibits banking entities from sponsoring or directly or indirectly acquiring as principal any ownership interest in a “covered fund” unless permitted by the rule. For purposes of this prohibition, a covered fund is any investment fund such as a hedge or private equity fund that would be required to register as an investment company under SEC rules but for the statutory exemptions for funds held by not more than 100 persons or owned solely by high net worth investors, any exempt or substantively similar non-exempt commodity pool and certain foreign investment funds. Excluded from the definition of covered fund are wholly owned subsidiaries of a banking entity or its affiliates, certain permissible joint ventures, insurance company separate accounts for which the banking entity is a beneficiary provided the banking entity does not control investment decisions on the underlying assets or participate in the profits for the separate account except in accordance with supervisory guidance regarding bank owned life insurance, certain vehicles for loan and other permissible securitizations, small business investment companies, public welfare companies permitted under the National Bank Act, business development companies, registered investment companies and investment funds exempt from SEC registration under other statutory provisions. Investments in pooled trust preferred securities are permitted if acquired before December 10, 2013 and the banking entity reasonably believes that the trust preferred securities in the pool were issued prior to May 19, 2010 by depository institution holding companies with less than $15 billion in assets or by mutual holding companies.
The Volcker Rule prohibits a banking entity from engaging in certain covered transactions, including loans, securities and asset purchases, with any covered fund for which it serves as investment manager, advisor or sponsor or that it organizes and offers. Any transactions with a covered fund must be on terms as favorable to the banking entity as transactions with non-affiliates. Finally, the Volcker Rule prohibits any otherwise permitted proprietary trading or covered fund activity that would involve a material conflict of interest between the banking entity and its customers, result in a material exposure of the banking entity to high risk assets or trading strategies or would pose a threat to the safety and soundness of the banking entity or the financial stability of the United States.
Set forth below are risks and uncertainties that could materially and adversely affect the Company's results of operations, financial condition, liquidity and cash flows. The risks set forth below are not the only risks we face. Our business operations could also be affected by other factors not presently known to us or factors that we currently do not consider to be material.
RISKS RELATED TO OUR BUSINESS
If our allowance for loan losses is not sufficient to cover actual losses, our earnings would decrease.
There is no precise method of predicting loan losses. The required level of reserves, and the related provision for loan losses, can fluctuate from year to year, based on charge-offs and/or recoveries, loan volume, credit administration practices, and local and national economic conditions, among other factors. In 2017, we recorded a provision for loan losses of $2.5 million compared with a provision of $1.5 million in 2016. The Company recorded net charge-offs of $1.6 million in 2017 compared with net charge-offs of $2.0 million in 2016. Risk elements, including nonperforming loans, troubled debt restructuring still accruing, loans greater than 90 days past due still accruing, and other real estate owned totaled $25.5 million at December 31, 2017 compared with $36.4 million at December 31, 2016. The allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, represents management’s best estimate of probable incurred losses within the existing portfolio of loans. The level of the allowance reflects management’s evaluation of, among other factors, the status of specific impaired loans, trends in historical loss experience, delinquency, credit concentrations and economic conditions within our market area. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our allowance for loan losses.
In addition, bank regulatory agencies periodically review our allowance for loan losses and may require us to increase the provision for loan losses or to recognize further loan charge-offs, based on judgments that differ from those of management. If loan charge-offs in future periods exceed the allowance for loan losses, there could be a need to record additional provisions to increase our allowance for loan losses. Furthermore, growth in the loan portfolio would generally lead to an increase in the provision for loan losses. Generally, increases in our allowance for loan losses will result in a decrease in net income and stockholders’ equity, and may have a material adverse effect on the financial condition of the Company, results of operations and cash flows.
The allowance for loan losses was 1.6% of total loans and 65.0% of non-accrual and restructured loans still accruing at December 31, 2017, compared with 1.8% of total loans and 42.8% of non-accrual and restructured loans still accruing at December 31, 2016. Material additions to the allowance could materially decrease our net income. In addition, at December 31, 2017, the top 25 lending relationships individually had commitments of $322.9 million, and an aggregate total outstanding loan balance of $220.8 million, or 21.8% of the loan portfolio. The deterioration of one or more of these loans could result in a significant increase in the nonperforming loans and the provisions for loan losses, which would negatively impact our results of operations.
Commercial real estate and commercial and industrial lending may expose us to a greater risk of loss and impact our earnings and profitability.
Our business strategy includes making loans secured by commercial real estate. These types of loans generally have higher risk-adjusted returns and shorter maturities than other loans. Loans secured by commercial real estate properties are generally for larger amounts and may involve a greater degree of risk than other loans. Payments on loans secured by these properties are often dependent on the income produced by the underlying properties which, in turn, depends on the successful operation and management of the properties. Accordingly, repayment of these loans is subject to conditions in the real estate market or the local economy. These loans present higher risk and could result in an increase in our total net charge-offs, requiring us to increase our allowance for loan losses, which could have a material adverse effect on our financial condition or results of operations. While we seek to minimize these risks in a variety of ways, there can be no assurance that these measures will protect against credit-related losses.
Our commercial and industrial loan portfolio grew by $12.2 million, or approximately 4.0%, during the year ended December 31, 2017 to $39.0 million. Commercial and industrial loans generally carry larger loan balances and involve a greater degree of risk of nonpayment or late payment than home equity loans or residential mortgage loans.
Commercial and industrial loans include advances to local and regional businesses for general commercial purposes and include permanent and short-term working capital, machinery and equipment financing, and may be either in the form of lines of credit or term loans. Although commercial and industrial loans may be unsecured to our highest rated borrowers, the majority of these loans are secured by the borrower’s accounts receivable, inventory and machinery and equipment. In a significant number of these loans, the collateral also includes the business real estate or the business owner’s personal real estate or assets. Commercial and industrial loans are more susceptible to risk of loss during a downturn in the economy, as borrowers may have greater difficulty in meeting their debt service requirements and the value of the collateral may decline. We attempt to mitigate this risk through our underwriting standards, including evaluating the credit worthiness of the borrower and, to the extent available, credit ratings on the business. Additionally, monitoring of the loans through annual renewals and meetings with the borrowers are typical. However, these procedures cannot eliminate the risk of loss associated with commercial and industrial lending.
Because our business is concentrated in Southern New Jersey and the Philadelphia Area, our financial performance could be materially adversely affected by economic conditions and real estate values in these market areas.
Our operations and the properties securing our loans are primarily located in Southern New Jersey and the Philadelphia area in Pennsylvania. Our operating results depend largely on economic conditions and real estate valuations in these and surrounding areas. A deterioration in the economic conditions in these market areas could materially adversely affect our operations and increase loan delinquencies, increase problem assets and foreclosures, increase claims and lawsuits, decrease the demand for our products and services and decrease the value of collateral securing loans, especially real estate, in turn reducing customers’ borrowing power, the value of assets associated with nonperforming loans and collateral coverage.
Additionally, most of the Bank’s loans are secured by real estate located in Southern New Jersey and the Philadelphia area. A decline in local economic conditions could adversely affect the values of such real estate. Consequently, a decline in local economic conditions may have a greater effect on the Bank’s earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse.
Most of our loans are secured, in whole or in part, with real estate collateral which may be subject to declines in value.
In addition to the financial strength and cash flow characteristics of the borrower in each case, we often secure our loans with real estate collateral. As of December 31, 2017, approximately 94.5% of our loans had real estate as a primary or secondary component of collateral. In addition, approximately 91.6% of our securities portfolio consisted of mortgage-backed securities. Real estate values and real estate markets are generally affected by, among other things, changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies, and acts of nature. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower. If real estate prices in our markets decline, the value of the real estate
collateral securing our loans could be reduced. If we are required to liquidate the collateral securing a loan during a period of reduced real estate values to satisfy the debt, our earnings and capital could be adversely affected.
We may be required to record other-than-temporary impairment charges in respect of our investment securities portfolio and restricted stock.
As of December 31, 2017, we had approximately $40.3 million2023, the Bank was in investments,compliance with all regulatory capital standards and qualified as “well capitalized.” See Note 13 of Notes to Consolidated Financial Statements.
Bank Secrecy Act / Anti-Money Laundering Laws. The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including mortgage-backed securities, on which we had unrealized lossesthe USA PATRIOT Act of $207,000.2001. These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, we had $6.1 millionprovisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions.
Privacy Regulations and Cybersecurity. Federal regulations generally require that the Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of
establishing the customer relationship and annually thereafter. In addition, the Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. The Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.
In November 2021, the federal bank regulatory agencies issued a final rule requiring banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours of determining that a “computer-security incident” that rises to the level of a “notification incident,” as those terms are defined in the final rule, has occurred. A notification incident is a “computer-security incident” that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector. The final rule also requires bank service providers to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for four or more hours.
Transactions with Related Parties. The Bank is subject to the Federal Reserve’s Regulation W, which implements the restrictions of Sections 23A and 23B of the Federal Reserve Act on transactions between a bank and its “affiliates.” The sole “affiliate” of the Bank, as defined in Regulation W, is the Company. Section 23A and Regulation W generally place limits on the amount of a bank’s loans or extensions of credit to, investments in, or certain other transactions with its affiliates, and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Section 23B and Regulation W also require a bank’s transactions with affiliates to be on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies.
The Bank is also subject to certain restrictions under Sections 22(g) and 22(h) of the Federal Reserve Act on extensions of credit to the executive officers, directors, principal shareholders of the Bank and the Company, as well as to entities controlled by such persons. Among other things and subject to certain exceptions, these provisions generally require that the Bank’s extensions of credit to the insiders of the Bank and the Company must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and must not involve more than the normal risk of repayment or present other unfavorable features.
Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank (“FHLB”) of New York, which is one of 11 regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain restricted stock in the FHLB of New York. WeYork (“FHLBNY”) in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of the Bank’s outstanding advances from the FHLB. At December 31, 2023, the Bank was in compliance with this requirement.
Community Reinvestment Act and Fair Lending Laws. Under the Community Reinvestment Act, every insured depository institution, including the Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The Community Reinvestment Act requires the depository institution’s record of meeting the credit needs of its community to be assessed and taken into account in the evaluation of certain applications by such institution, such as a merger or the establishment of a branch office by the Bank. An unsatisfactory Community Reinvestment Act examination rating may be required to record impairment charges on our investments and FHLB stock if they suffer a decline in value that is considered other-than-temporary. Numerous factors, including lack of liquidity for resales of certain investment securities, absence of reliable pricing information for investment securities, adverse changes inused as the business climate, or adverse actions by regulators could have a negative effect on the value of our investments and mortgage backed securities. If an impairment charge is significant enough to result in a lossbasis for the period, it could affectdenial of an application. The Bank received a “needs to improve” rating in its most recent Community Reinvestment Act examination.
In May 2022, the abilityFDIC and the other federal bank regulatory agencies issued a joint proposal to modernize the regulations implementing the CRA, which would change both the process and substantive tests that the regulators use to assess the record of oureach bank subsidiaryin fulfilling its obligation to upstream dividendsthe community. The regulatory agencies stated that the proposal is intended to us, which could have a material adverse effect on our liquidityachieve the following objectives: (i) expand access to credit, investment and our ability to pay dividends to stockholdersbasic banking services in low- and could also negatively impact our regulatory capital ratios and result in us not being classified as “well capitalized” for regulatory purposes.
Changes in interest rates could adversely impact the Company’s financial condition and results of operations.
Our operations are subject to risks and uncertainties surrounding our exposuremoderate-income communities, (ii) adapt to changes in the interest rate environment. Operating income, net incomebanking industry, including internet and liquidity dependmobile banking, (iii) provide greater clarity, consistency and transparency in the application of the regulations and (iv) tailor performance standards to a great extent onaccount for differences in bank size, business model, and local conditions. The Company will evaluate the impact of the
proposal’s potential changes to the regulations implementing the CRA and their impact to our net interest margin, i.e.,financial condition and/or results of operations, which cannot be predicted at this time.
In addition, the difference between the interest yields we receive on interest-earning assets, such as loans and securities,Equal Credit Opportunity Act and the interest rates we payFair Housing Act prohibit lenders from discriminating in their lending practices on interest-bearing liabilities, suchthe basis of characteristics specified in those statutes. A failure to comply with the Equal Credit Opportunity Act or the Fair Housing Act or with the federal fair lending regulations implementing those statutes could result in an enforcement action by the FDIC, as depositswell as by the Department of Justice.
Incentive Compensation. The FDIC and borrowings.the Federal Reserve review, as part of their regular, risk-focused examinations, the incentive compensation arrangements of banking organizations. These ratesreviews are highly sensitivetailored to many factors beyond oureach organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. Deficiencies are incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control including competition, general economic conditionsor governance processes, pose a risk to the organization’s safety and monetarysoundness and fiscalthe organization is not taking prompt and effective measures to correct the deficiencies.
In 2010, the FDIC and the other federal bank regulatory agencies issued comprehensive guidance on incentive compensation policies intended to ensure that the incentive compensation policies of various governmentalbanking organizations do not undermine the safety and regulatory authorities, including the FRB. If the ratesoundness 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, and liquidity could be materially adversely affected. Our earnings and liquidity 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 also can affect our ability to originate loans; the ability of borrowers to repay adjustable or variable rate loans; our ability to obtain and retain deposits in competition with other available investment alternatives; and the value of interest-earning assets,such organizations by encouraging excessive risk-taking. The guidance, which would negatively impact stockholders’ equity, andcovers all employees that have the ability to realize gains from the sale of such assets. Based on our interest rate sensitivity analysis, an increase in the general level of interest rates will negativelymaterially affect the market valuerisk profile of an organization, is based upon the principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.
In 2016, the U.S. financial regulators, including the FDIC, the Federal Reserve and the SEC, proposed revised rules on incentive-based payment arrangements at financial institutions having at least $1 billion in total assets. These proposed rules have not been finalized.
In October 2023, the Nasdaq adopted listing standards requiring listed companies to adopt policies providing for the recovery or “clawback” of excess incentive-based compensation earned by current or former executive officers during the three fiscal years preceding the date the listed company determines an accounting restatement is required. The Company adopted a clawback policy compliant with the new Nasdaq listing standard, effective October 2 ,2023.
Item 1A. Risk Factors.
Not applicable
Item 1B. Unresolved Staff Comments.
None.
Item 1C.Cybersecurity
The Risk Management Committee of the investment portfolio becauseBoard of Directors (the “Committee”) is responsible for overseeing the risks from cybersecurity threats. The Committee receives reports from, and oversees, IT Risk Assessment, Cybersecurity Risk Assessment, Annual IT Program Status Report, Vendor Management Risk Assessment, and Quarterly Internal Vulnerability Reports and current Cyber Events briefings. The Committee also makes budgeting, procedure, and policy decisions designed and intended to improve the Company’s residual risk.
The IT Steering Committee consists of the relatively long durationCompany’s senior management, the entire IT team, and various operations personnel. The primary function of certain securities included in the investment portfolio.IT Steering Committee is to perform Strategic Planning, discuss hardware and software replacement, new projects, current cybersecurity threats, and ongoing cybersecurity issues and threats. The IT manager provides an IT status report to the Risk Management committee on a quarterly basis.
Competition from other banks
The Company has adopted an Incident Response Plan (the “Plan”) to monitor, detect, mitigate and financial institutions in originating loans, attracting depositsremediate cybersecurity incidents. The Plan requires all employees to have a working knowledge of the Company’s Information Security Program and providing other financial services may adversely affect our profitabilityIncident Response Policies. Pursuant to the Plan, the Information Technology Administrator and liquidity.Senior\Compliance Management identify information owners for sensitive customer information and create an incident
We experience substantial competition in originating loans, both commercial
response team. Each Department Manager, upon notification of a potential unauthorized access, manipulation of data or theft of any item identified under GLBA Inventory and consumer loans, in our market area. This competition comes principally from other banks, savings institutions, credit unions, mortgage banking companies and other lenders. Some of our competitors enjoy advantages, including greater financial resources, and higher lending limits, a wider geographic presence, more accessible branch office locations,Asset Classification, is responsible for further assessing the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce our net income and liquidity by decreasing the number and size of loans that we originate and the interest rates we are able to charge on these loans.
We will face competition, particularly in residential mortgage lending, from non-bank lenders (financial institutions that only make loans and do not offer deposit accounts such as a savings account or checking account) and financial technology companies (that use new technology and innovation with available resourcessituation in order to compete indocument the marketplacesuspected or actual breech, and forward the appropriate documentation to the Information Technology Administrator. The documentation of traditional financial institutions and intermediaries in the delivery of financial services). This competition could similarly reduce our net income and liquidity.
In attracting business and consumer deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Some of our competitors enjoy advantages, including more aggressive marketing campaigns, better brand recognition and more branch locations. These competitors may offer higher interest rates than we do, which could decrease the deposits that we attractsuspected or require us to increase our rates to retain existing deposits or attract new deposits. Increased deposit competition could materially adversely affect our ability to generate the funds necessary for lending operations. As a result, we may need to seek other sources of funds that may be more expensive to obtain and could increase our cost of funds.
The Company’s business strategyactual incident includes the continuationfollowing:
a.Identify the nature and scope of moderate growth plans,the incident.
b.Identify the information systems affected.
c.Identify the types of customer information potentially affected.
Once the Department Manager has determined that unauthorized access, manipulation of data or theft of any item identified under GLBA Inventory and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.
OverAsset Classification has occurred, Senior Management, the long term, we expect to continue to experience growth in loans and total assets, the level of our depositsCompliance Officer and the scaleInformation Technology Administrator must be contacted immediately.
If theft of our operations. Achieving our growth targets requires us to successfully execute our business strategies, which includes continuing to grow our loan portfolio. Our ability to successfully grow will also dependany item identified under GLBA Inventory and Asset Classification has occurred, and it cannot be determined what specific information was included on the continued availabilityAsset, the Asset is treated as if it contained sensitive customer information and Senior Management, the Compliance Officer and the Information Technology Administrator must be contacted immediately. If the Information Technology Administrator and Senior\Compliance Management declare an incident or if there is a confirmed theft or loss of loan opportunities that meet underwriting standards. We believe we havecustomer information, appropriate regulatory authorities, law enforcement, and legal counsel are notified.
During the resources and internal systems in place to successfully achieve and
manage our future growth. If we do not manage our growth effectively, we may not be able to achieve our business plan and our business and prospects could be harmed.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Liquidity is essential to our business. As offiscal year ended December 31, 2017, our ratio of loans to deposits was 116.8%. An inability to continue to raise funds through deposits, borrowings,2023, the sale of loans and investments and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activityrisks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected the Company, its business strategy, results of operations, or financial condition.
Item 2. Properties.
(a)Properties
| | | | | | | | | | | | | | |
Office Location | | Year Facility Opened | | Lease or Owned |
| | | | |
Parke Main Office | | 1999 | | Owned |
601 Delsea Drive | | | | |
Sewell, NJ 08080 | | | | |
| | | | |
Northfield Branch | | 2002 | | Leased |
501 Tilton Road | | | | |
Northfield, NJ 08225 | | | | |
| | | | |
Kennedy Branch | | 2003 | | Owned |
567 Egg Harbor Road | | | | |
Sewell, NJ 08080 | | | | |
| | | | |
Spruce Street Branch | | 2006 | | Leased |
1610 Spruce Street | | | | |
Philadelphia, PA 19103 | | | | |
| | | | |
Galloway Township Branch | | 2010 | | Owned |
67 E. Jimmy Leeds Road | | | | |
Galloway Township, NJ 08205 | | | | |
| | | | |
Collingswood Branch | | 2016 | | Owned |
1150 Haddon Avenue | | | | |
Collingswood, NJ 08108 | | | | |
| | | | |
Arch Street Branch | | 2016 | | Leased |
1032 Arch Street | | | | |
Philadelphia, PA 19108 | | | | |
| | | | |
Philadelphia Lending Office | | 2023 | | Leased |
1817 E. Venango St. | | | | |
Philadelphia, PA 19108 | | | | |
Item 3. 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 downturnComplaint, alleging that the damages total approximately $1.7 million. The matter is in the marketsearly stages of discovery so it is difficult to determine whether that amount accurately reflects the claimed damages, or whether the Company is in which our loans are concentrated or adverse regulatory action against us. Our abilityany way culpable for the damages. At this time it is too early to borrow could also be impaired by factors that are not specific to us, such as a disruptionpredict whether an unfavorable outcome will result. The Company is vigorously defending this matter. See "Note 15. Commitments and Contingencies" in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the continued deterioration in credit markets. If we were unable to continue to raise funds through deposits and borrowings, we would be required to sell interest-earning assets which would affect our profitability.
The loss of senior executive officers and certain other key personnel could hurt our business.
Our success depends, to a great extent, upon the services of Vito S. Pantilione, our President and Chief Executive Officer. Although we have an employment agreement with non-compete provisions with Mr. Pantilione, the existence of such agreement does not assure that we will retain his services. The unexpected loss of Mr. Pantilione could have a material adverse effect on our operations. From time to time, we also need to recruit personnel to fill vacant positions for experienced lending officers and branch managers. Competition for qualified personnel in the banking industry is intense, and there can be no assurance that we will continue to be successful in attracting, recruiting and retaining the necessary skilled managerial, marketing and technical personnel for the successful operation of our existing lending, operations, accounting and administrative functions or to support the expansion of the functions necessary for our future growth. Our inability to hire or retain key personnel could have a material adverse effect on our results of operations.
The short-term and long-term impact of the changing regulatory capital requirements and anticipated new capital rules is uncertain.
The federal banking agencies have recently adopted proposals that substantially amend the regulatory risk-based capital rules applicableNotes to the Company andConsolidated Financial Statements.
Mori Restaurant LLC v. Parke Bank Matter
On May 20, 2014, Parke Bank (the "Bank") loaned Voorhees Diner Corporation ("VDC") the Bank. The amendments implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The amended rules include new minimum risk-based capital and leverage ratios, which became effective in January 2015 with certain requirements to be phased in beginning in 2016, and will refine the definitionoriginal principal sum of what constitutes “capital”$1,000,000.00 for purposes of calculating those ratios.
The new minimum capital level requirements applicabletenant 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 CompanyBank. On March 6, 2015, the loan was modified, and the principal amount of the loan was increased to $1,400,000.00. 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 include: (i) a new common equity Tier 1 capital ratiofor rent allegedly accruing due during the period that the Receiver was in possession of 4.5%; (ii) a Tier 1 capital ratiothe premises. As to all of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules);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 (iv) a Tier 1 leverage ratio of 4% for all institutions. The new rules also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement is being phased in beginning in January 2016 and will increase each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions. While the Basel III changes and other regulatory capital requirements will likely result in generally higher regulatory capital standards, it is difficult at this time to predict when or how any new standards will ultimately be applied to the Company and the Bank.
The application of more stringent capital requirements to the Companybetween Mori Restaurant and the Bank, could, amongin 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.
Other than the foregoing, neither the Company nor the Bank are involved in any other things, resultpending legal proceedings, other than routine legal matters occurring in lower returns on invested capital, require the raisingordinary course of additional capital, and resultbusiness, which in regulatory actions if we werethe aggregate involve amounts which are believed by management to be unableimmaterial to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets. Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy and could limit our ability to make distributions, including paying out dividends or buying back shares.
The Company may be adversely affected by technological advances.
Technological advances impact our business. The banking industry undergoes technological change with frequent introductions of new technology-driven products and services. In addition to improving customer services, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success may depend, in part, on our ability to address the needs of our current and prospective customers by using technology to provide products and services that will satisfy demands for convenience as well as to create additional efficiencies in operations.
An interruption or breach in security with respect to our information systems, or our outsourced service providers, could adversely impact the Company’s reputation and have an adverse impact on ourconsolidated financial condition or results of operations.operations of the Company.
Information systems are critical to our business. We use various technological systems to manage our customer relationships, general ledger, securities investments, deposits
Item 4. Mine Safety Disclosures.
Not Applicable.
Part II
Item 5. Market for Common Equity, Related Stockholder Matters and loans. We rely on software, communication, and information exchange on a varietyIssuer Purchases of computing platforms and networks and over the Internet. We have established policies and procedures to prevent or limit the effect of system failures, business interruptions and security breaches, but we cannot be certain that all of our systems are entirely free from vulnerability to attack or other technological difficulties or failures. In addition, any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide security and authentication necessary to affect the secure transmission of data, these precautions may not protect our systems from security breaches.Equity Securities
We rely
The Company's common stock is listed on the servicesNasdaq Capital Market under the trading symbol of a variety"PKBK". The number of vendors to meet our data processing and communication needs. If these third-party providers encounter difficulties,shareholders of record of common stock as of December 31, 2023, was approximately 238. This does not reflect the number of persons or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected. Threats to information security also existentities who held stock in the processing of customer informationnominee or "street" name through various other vendors and their personnel.
If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted and we could be exposed to claims from customers. Anybrokerage firms. As of these results could have a material adverse effect on our financial condition, results of operations or liquidity.
We could be adversely affected by failure in our internal controls.
A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of us. We continue to devote a significant amount of effort and resources to continually strengthening our controls and ensuring compliance with complex accounting standards and banking regulations. However, these efforts may not be effective in preventing a breach in our controls.
RISKS RELATED TO OUR INDUSTRY
Governmental regulation and regulatory actions against us may impair our operations or restrict our growth.
The Company is subject to regulation and supervision under federal and state laws and regulations. The requirements and limitations imposed by such laws and regulations limit the manner in which we conduct our business, undertake new investments and activities and obtain financing. These regulations are designed primarily for the protection of the deposit insurance funds and consumers and not to benefit our shareholders. Financial institution regulation has been the subject of significant legislation in recent years and may be the subject of further significant legislation in the future, none of which is within our control. Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied or enforced. The Company cannot predict the substance or impact of pending or future legislation, regulation or the application thereof. Compliance with such current and potential regulation and scrutiny may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an efficient manner. Bank regulations can hinder our ability to compete with financial services companies that are not regulated in the same manner or are subject to less regulation.
Legislative, regulatory and legal developments involving income and other taxes could materially adversely affect the Company’s results of operations, cash flows and capital ratios.
The Company is subject to U.S. federal and U.S. state income, payroll, property, sales and use, and other types of taxes. Significant judgment is required in determining the Company's provisions for income taxes. Changes in tax rates, enactments of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities could result in substantially higher taxes, and therefore, could have a significant adverse effect on the Company's results of operations, financial condition and liquidity. The recently-enacted U.S. tax reform law that reduces corporate tax rates may have a significant adverse effect on results of operations as the Company's net deferred tax asset would be impacted, resulting in an increase in tax expense. While only a portion of the deferred tax asset is counted for purposes of regulatory capital, the Company’s capital ratios may only be reduced.
The Company is required to use judgment in applying accounting policies and different estimates and assumptions in the application of these policies could result in a decrease in capital and/or other material changes to the reports of financial condition and results of operations.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, accounting for income taxes and the ability to recognize deferred tax assets, and the fair value of certain financial instruments, particularly securities. While we have identified those accounting policies that we consider critical and have procedures in place to facilitate the associated judgments, different assumptions in the application of these policies could have a material adverse effect on our financial condition and results of operations.
Changes in accounting standards could impact the Company's financial condition and results of operations.
The Financial Accounting Standards Board (the "FASB"), the SEC and other regulatory bodies periodically change financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes, including a significant proposal which would change the accounting for the determination of the allowance for loan losses from a
probable loss to an expected loss model, can be hard to predict and can materially impact how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply new or revised guidance retrospectively, which may result in the revision of prior financial statements by material amounts. The implementation of new or revised guidance could result in material adverse effects to our reported regulatory capital.
The Company is a holding company dependent for liquidity on payments from its bank subsidiary, which is subject to restrictions.
The Company is a holding company and depends on dividends, distributions and other payments from the Bank to fund dividend payments and stock repurchases, if permitted, and to fund all payments on obligations. The Bank is subject to laws that restrict dividend payments or authorize regulatory bodies to block or reduce the flow of funds from it to us. In addition, our right to participate in a distribution of assets upon the Bank’s liquidation or reorganization is subject to the prior claims of the Bank’s creditors.
The soundness of other financial institutions could adversely affect the Company.
Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have historically led to market-wide liquidity problems, losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions. We could experience increases in deposits and assets as a result of other banks’ difficulties or failure, which would increase the capital we need to support such growth.
RISKS RELATED TO OUR COMMON STOCK
If the Company wants to, or is compelled to, raise additional capital in the future, that capital may not be available when it is needed and on terms favorable to current shareholders.
Federal banking regulators require us and our banking subsidiary to maintain adequate levels of capital to support our operations. These capital levels are determined and dictated by law, regulation and banking regulatory agencies. In addition, capital levels are also determined by our management and board of directors based on capital levels that, they believe, are necessary to support our business operations. At December 31, 2017, all four capital ratios for us and our banking subsidiaryMarch 11, 2024, there were above regulatory minimum levels to be deemed “well capitalized” under current bank regulatory guidelines. To be “well capitalized,” banking companies generally must maintain a tier 1 leverage ratio of at least 5.0%, common equity Tier 1 capital ratio of 6.5%, Tier 1 risk-based capital ratio of at least 8.0%, and a total risk-based capital ratio of at least 10.0%. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).
The Company’s ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside of our control, and on our financial performance. Accordingly, we cannot provide assurance of our ability to raise additional capital on terms and time frames acceptable to us or to raise additional capital at all. Additionally, the inability to raise capital in sufficient amounts may adversely affect our operations, financial condition and results of operations. Our ability to borrow could also be impaired by factors that are nonspecific to us, such as severe disruption of the financial markets or negative news and expectations about the prospects for the financial services industry as a whole as evidenced by recent turmoil in the domestic and worldwide credit markets. If we raise capital through the issuance of additional 11,958,321shares of our common stock or other securities, we would likely dilute the ownership interests of current investorsissued and the price at which we issue additional shares of stock could be less than the current market price of our common stock and, thus, could dilute the per share book value and earnings per share of our common stock. Furthermore, a capital raise through the issuance of additional shares may have an adverse impact on our stock price.outstanding.
The market price of our common stock is subject to volatility.
The market price of the Company’s Common Stock has been subject to fluctuations in response to numerous factors, many of which are beyond our control. These factors include actual or anticipated variations in our operational results and cash flows, changes in financial estimates by securities analysts, trading volume, large purchases or sales of our common stock, market conditions within the banking industry, the general state of the securities markets and the market for stocks of financial institutions, as well as general economic conditions.
The Company’s primary source of income is dividends received from its bank subsidiary.
The Company ispaid a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses,$0.18 per share quarterly common stock cash dividend during each quarter of 2023. During 2023, the Company is responsible for paying any dividends declared to its shareholders. paid a total of $8.6 million in common stock cash dividends.
The Company also has repurchased375 shares of its6% non-Cumulative Series B Preferred Stock outstanding at December 31, 2023. The preferred stock has a liquidation preference of $1,000 per share. Each share of Series B Preferred Stock is convertible, at the option of the holder into approximately 137.6 shares of Common Stock at December 31, 2023. Upon full conversion of the outstanding shares of the Series B Preferred Stock, the Company will issue approximately 51,600 shares of Common Stock assuming that the conversion rate does not change. The conversion rate and the total number of shares to be issued would be adjusted for future stock dividends, stock splits and other corporate actions.
The Company has recorded dividends on preferred stock in the approximate amount of $26,000 and $27,000 for the years ended December 31, 2023 and 2022, respectively. The Company paid quarterly cash dividends of $15 per share on the preferred stock for the years 2023 and 2022. During 2023, preferred stockholders converted 70 shares of preferred shares into 9,628
shares of common stock. The preferred stock qualifies, and is accounted, as equity securities and is included in the Company’s primary source of income is dividends received from the Bank. Banking regulations limit theTier I capital since issued.
The timing and amount of future dividends that may be paid from the Bank to the Company without prior approval of regulatory agencies. Restrictions on the Bank’s ability to dividend funds to the Company are included in "Market Prices and Dividends", to the Consolidated Financial Statements included in Exhibit 13 to this Form 10-K.
There are restrictions on our ability to pay cash dividends.
Although we have paid cash dividends on a quarterly basis since 2014, there is no assurance that we will continue to pay cash dividends. Future payment of cash dividends, if any, will be atwithin the discretion of the Board of Directors and will be dependent upon ourdepend on the consolidated earnings, financial condition, results of operations,liquidity, and capital requirements of the Company and suchits subsidiaries, applicable governmental regulations and restrictions, and Board policies, and other factors asdeemed relevant by the Board may deem relevant and will be subject to applicable federal and state laws that impose restrictions on ourBoard.
The Company's ability to pay dividends.
Our common stockdividends is not insured and you could losesubstantially dependent upon the value of your entire investment.
An investment in shares of our common stock is not a depositdividends it receives from the Bank and is not insured against loss bysubject to other restrictions. Under current regulations, the government.
Our management and significant shareholders control a substantial percentage of our stock and therefore have theBank's ability to exercise substantial control over our affairs.pay dividends is restricted as well.
As of December 31, 2017, our directors and executive officers beneficially owned approximately 1,887,333 shares, or approximately 23.2% of our common stock, including options to purchase 43,570 shares, in the aggregate, of our common stock at an exercise price of $9.45 per share. Because of the large percentage of stock held by our directors and executive officers and other significant shareholders, these persons could influence the outcome of any matter submitted to a vote of our shareholders.
Provisions of our Certificate of Incorporation andUnder the New Jersey Business CorporationBanking Act of 1948, a bank may declare and pay dividends only if after payment of the dividend the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank's surplus.
Pursuant to the terms of the Series B Preferred Stock, the Company may not pay a cash dividend on the common stock unless all dividends on the Series B Preferred Stock for the then-current dividend period have been paid or set aside.
The Federal Deposit Insurance Act generally prohibits all payments of dividends by any insured bank that is in default of any assessment to the FDIC. Additionally, because the FDIC may prohibit a bank from engaging in unsafe or unsound practices, it is possible that under certain circumstances the FDIC could deter takeovers which are opposed by the Board of Directors.
Our certificate of incorporation, theclaim that a dividend payment constitutes an unsafe or unsound practice. The New Jersey Business Corporation ActDepartment of Banking and Insurance has similar power to issue cease and desist orders to prohibit what might constitute unsafe or unsound practices. The payment of dividends may also be affected by other factors (e.g., the New Jersey Stockholders’ Protection Act contain provisions that could delay, deferneed to maintain adequate capital or prevent a tender offer or takeover attempt. Such provisions may impose limitations on voting rights for significant holdersto meet loan loss reserve requirements).
There were no repurchases of ourthe Company’s Common Stock may renderduring the replacement of a majority of our board more difficult and may prohibit mergers, consolidations, substantial asset sales and other transactions involving interested stockholders. In addition, with certain limited exceptions, federal regulations prohibit a persontwelve months ended December 31, 2023.
Shareholders wishing to change the name, address or company or group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of directors or otherwise direct the management or policies of any bank holding company without prior notice or application to and the approvalownership of the FRB.
| |
Item 1B. | Unresolved Staff Comments |
None.
The Company’s stock, report lost certificates or consolidate accounts are asked to contact the Company’s Transfer Agent and the Bank’s main office is located in Washington Township, Gloucester County, New Jersey, in an office building of approximately 13,000 square feet. The main office facilities include teller windows, a lobby area, drive-through windows, automated teller machine, a night depository, and executive and administrative offices. In December 2002, the Bank executed its lease option to purchase the building for $1.5 million.
The Bank also conducts business from a full-service office in Northfield, New Jersey, a full-service office in Washington Township, Gloucester County, New Jersey, a full-service office in Philadelphia, Pennsylvania, and a full-service office in Galloway Township, NJ. These offices were opened by the Bank in September 2002, February 2003, August 2006 and May 2010, respectively. The Northfield office and the Philadelphia office are leased. The Washington Township office was purchased in February 2003. The Bank opened two new offices, a full service office in Collingswood, New Jersey, opened in September 2016, and a full service office in Philadelphia, Pennsylvania, opened December 2016. Both the new offices are leased. Management considers the physical condition of all offices to be good and adequate for the conduct of the Bank’s business. At December 31, 2017, net property and equipment totaled approximately $7.0 million.
On June 19, 2015, Devon Drive Lionville, LP, North Charlotte Road Pottstown, LP, Main Street Peckville, LP, Rhoads Avenue Newtown Square, LP, VG West Chester Pike, LP, 1301 Phoenix, LP, John M. Shea and George Spaeder (collectively, the “Plaintiffs”Registrar directly: Computershare Investor Services ("Computershare"), filed suit in the U.S. District Court for the Eastern District of Pennsylvania, against Parke Bancorp, Inc., Parke BankP.O. Box 43078, Providence, Rhode Island 02940-3078. Shareholders may also contact Computershare at 1-800-942-5909 and Parke Bank's President and Chief Executive Officer and Senior Vice President (collectively the "Parke Parties") alleging civil violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), among other claims, seeking compensatory and punitive damages. The allegations stem from a series of loans made by Parke Bank to the various Plaintiffs which subsequently went into default. The Plaintiffs are alleging that funds of one or more of the Plaintiffs were used to repay loans of another. The Parke Parties believe the material allegations of wrongdoing are without merit and intend to vigorously defend against the claims asserted in this litigation. The Parke Parties have filed a motion to dismiss all of the claims asserted against the Parke Parties on the grounds that, among other things, the claims asserted were addressed in prior litigation between the parties, including foreclosure actions, resolved in favor of the Parke Parties.www.computershare.com.
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Item 4. | Mine Safety Disclosures |
Item 6. [Reserved]
Not applicable
PART II
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Item 5. | Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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(a) | The information contained under the section captioned “Market Prices and Dividends” in the Company’s 2017 Annual Report filed as Exhibit 13 hereto (the "Annual Report") is incorporated herein by reference. |
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(c) | There were no repurchases of shares of the Company’s Common Stock during the last quarter of 2017. |
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Item 6. | Selected Financial Data |
The information contained under the section captioned “Selected Financial Data” in the 2017 Annual Report is incorporated herein by reference.
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Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
The information contained in the section captioned “Management’sItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations.
Overview
We are a bank holding company and are headquartered in Washington Township, New Jersey. Through the Bank, we provide personal and business financial services to individuals and small to mid-sized businesses primarily in New Jersey, Pennsylvania, and New York. The Bank has branches in Galloway Township, Northfield, Washington Township, and Collingswood, New Jersey and Philadelphia, Pennsylvania. The vast majority of our revenue and income is currently generated through the Bank.
We manage our Company for the long term. We are focused on the fundamentals of growing customers, loans, deposits and revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our commitments to our customers, shareholders, employees and the communities where we do business. Our approach is concentrated on organically growing and deepening client relationships across our businesses that meet our risk/return measures.
We focus on small to mid - sized business and retail customers and offer a range of loan products, deposit services, and other financial products through our retail branches and other channels. The Company's results of operations are dependent primarily on its net interest income, which is the difference between the interest income earned on its interest earning-assets and the
interest expense paid on its interest-bearing liabilities. In our operations, we have three major lines of lending: residential real estate mortgage, commercial real estate mortgage, and construction lending. Our interest income is primarily generated from our lending and investment activities. Our deposit products include checking, savings, money market accounts, and certificates of deposit. The majority of our deposit accounts are obtained through our retail banking business, which provides us with low cost funding to grow our lending efforts. The Company also generates income from loan and deposit fees and other non-interest related activities. The Company's non-interest expense primarily consists of employee compensation, administration, and other operating expenses.
As of December 31, 2023, we had total assets of $2.02 billion, total liabilities of $1.74 billion, and total shareholders' equity of $284.3 million. Net income available to common shareholders for 2023 was $28.4 million. In 2023, net income available to common shareholders decreased 32.0% over the previous year primarily due to a $11.4 million increase in non-interest expenses, primarily due to a one-time recognition of a $9.5 million contingent loss related to cash that was stolen from a third-party armored car carrier facility that was used by the Company. In addition, non-interest expense increased due to an increase in compensation and benefits expense, lower net interest income, and lower non-interest income, partially offset by lower provision for credit losses. At December 31, 2023, total assets increased 1.9% and total equity increased 6.9%, compared to December 31, 2022. Our risk based tier 1 capital ratio was 20.8% at December 31, 2023. In addition, during 2023 we returned $8.6 million of capital to our common shareholders through common stock dividends.
Our business operations are subject to risks and uncertainties that could materially affect our operating results. The extent of such impact will depend on future developments, which are highly uncertain. There continues to be various other risks and uncertainties that could impact the Company’s businesses and future results, such as changes to the U.S. economic condition, market interest rates, the Federal Reserve Board's monetary policy, other government policies, and actions of regulatory agencies.
Results of Operations
Net Income
We recorded net income available to common shareholders of $28.4 million or $2.38 per basic common share and $2.35 per diluted common share, for the year ended December 31, 2023, compared to $41.8 million, or $3.51 per basic common share and $3.44 per diluted common share, for the year ended December 31, 2022, a decrease of $13.4 million or 32.0%.
Net Interest Income
Net interest income decreased $9.1 million, or 12.4%, to $64.2 million for the year ended 2023 compared to $73.3 million for the year ended 2022. The decrease in net interest income was primarily due to an increase in interest expense of $34.3 million, partially offset by an increase in interest income of $25.2 million. Interest income for 2023 increased to $112.7 million, an increase of $25.2 million, or 28.8%, from $87.5 million for 2022, primarily due to an increase in interest and fees on loans of $23.2 million, or 27.9%. Interest and fees on loans increased during the year ended December 31, 2023, due to higher average outstanding loan balances and higher market interest rates, and an increase in interest earned on average deposits held at the Federal Reserve Bank ("FRB") of $1.8 million, due to higher interest rates paid on deposits, partially offset by a decrease in the Annual Report is incorporated herein by reference.average balance of $225.1 million. Interest expense increased to $48.5 million for 2023, from $14.2 million for 2022, an increase of $34.3 million, or 242.5%. The increase in interest expense was primarily due to an increase in market interest rates on deposit accounts at the Bank, as well as a change in the deposit mix. In addition, a decrease in non-interest bearing demand balances and an increase in brokered deposit balances contributed to the increase in interest expense during the 2023 fiscal year..
Comparative Average Balances, Yields and Rates | |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
The information containedfollowing table 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 years ended December 31, 2023 and 2022. Interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is net interest income divided by average earning assets. All average balances are daily average balances. Non-accrual loans were included in the section captioned “Management’s Discussioncomputation of average balances and Analysishave been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2023 | | 2022 |
| Average Balance | Interest Income/ Expense | Yield/ Cost | | Average Balance | Interest Income/ Expense | Yield/ Cost |
| (Dollars in thousands) |
Assets | | | | | | | |
Loans (1) (2) | $ | 1,782,055 | | $ | 106,061 | | 5.95 | % | | $ | 1,580,318 | | $ | 82,900 | | 5.25 | % |
Investment securities | 25,168 | | 1,048 | | 4.16 | % | | 25,922 | | 772 | | 2.98 | % |
Deposits with banks | 114,880 | | 5,595 | | 4.87 | % | | 338,277 | | 3,811 | | 1.13 | % |
Total interest-earning assets | 1,922,103 | | $ | 112,704 | | 5.86 | % | | 1,944,517 | | $ | 87,483 | | 4.50 | % |
Non-interest earning assets | 78,253 | | | | | 79,869 | | | |
Allowance for credit losses | (31,965) | | | | | (30,449) | | | |
Total assets | $ | 1,968,391 | | | | | $ | 1,993,937 | | | |
Liabilities and Equity | | | | | | | |
Interest bearing deposits | | | | | | | |
NOWs | $ | 86,932 | | $ | 1,377 | | 1.58 | % | | $ | 92,535 | | $ | 417 | | 0.45 | % |
Money markets | 403,292 | | 17,120 | | 4.25 | % | | 352,339 | | 3,927 | | 1.11 | % |
Savings | 127,442 | | 1,486 | | 1.17 | % | | 195,029 | | 905 | | 0.46 | % |
Time deposits | 498,089 | | 15,232 | | 3.06 | % | | 514,421 | | 4,890 | | 0.95 | % |
Brokered certificates of deposit | 121,702 | | 6,044 | | 4.97 | % | | 26,785 | | 932 | | 3.48 | % |
Total interest-bearing deposits | 1,237,457 | | 41,259 | | 3.33 | % | | 1,181,109 | | 11,071 | | 0.94 | % |
Borrowings | 170,093 | | 7,231 | | 4.25 | % | | 119,422 | | 3,085 | | 2.58 | % |
Total interest-bearing liabilities | 1,407,550 | | $ | 48,490 | | 3.44 | % | | 1,300,531 | | $ | 14,156 | | 1.09 | % |
Non-interest bearing deposits | 265,148 | | | | | 428,549 | | | |
Other liabilities | 16,802 | | | | | 14,389 | | | |
Total liabilities | 1,689,500 | | | | | 1,743,469 | | | |
Equity | 278,891 | | | | | 250,468 | | | |
Total liabilities and equity | $ | 1,968,391 | | | | | $ | 1,993,937 | | | |
Net interest income | | $ | 64,214 | | | | | $ | 73,327 | | |
Interest rate spread | | | 2.42 | % | | | | 3.41 | % |
Net interest margin | | | 3.34 | % | | | | 3.77 | % |
(1) Interest income includes $3.8 million and $5.0 million of net fee income for the years ended 2023 and 2022, respectively.
(2) Average balances are net of unearned income and include nonperforming loans.
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. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.
Rate/Volume Analysis
For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by the previous rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2023 vs 2022 |
| Variance due to change in |
| Average Volume | | Average Rate | | Net Increase/ (Decrease) |
| (Dollars in thousands) |
Interest Income: | | | | | |
Loans (net of deferred costs/fees) | $ | 10,583 | | | $ | 12,578 | | | $ | 23,161 | |
Investment securities | (22) | | | 298 | | | 276 | |
Deposits with banks | (2,517) | | | 4,301 | | | 1,784 | |
Total interest income | 8,044 | | | 17,177 | | | 25,221 | |
Interest Expense: | | | | | |
NOWs | (25) | | | 985 | | | 960 | |
Money markets | 568 | | | 12,625 | | | 13,193 | |
Savings | (314) | | | 895 | | | 581 | |
Time deposits | (155) | | | 10,497 | | | 10,342 | |
Brokered CDs | 3,303 | | | 1,809 | | | 5,112 | |
Borrowed funds | 1,309 | | | 2,837 | | | 4,146 | |
Total interest expense | 4,686 | | | 29,648 | | | 34,334 | |
Net interest income | $ | 3,358 | | | $ | (12,471) | | | $ | (9,113) | |
Provision for credit losses
Our provision for credit losses in each period is driven by net charge-offs and changes to the allowance for credit losses. We recorded a recovery for credit losses of $2.1 million and a provision for loan losses of $1.8 million in 2023 and 2022, respectively. The (recovery) provision for credit losses as a percentage of interest income was (1.82)% and 2.06% in 2023 and 2022, respectively.
Our provision for credit losses decreased by $3.9 million in 2023 compared to 2022 primarily as a result of a decrease in vintage loss rates and a change in the loan portfolio mix, partially offset by an increase in outstanding loan balances. Additionally, the provision for unfunded commitments contributed to $461.0 thousand of the decrease. For more information about our provision and allowance for credit losses and our loss experience, see “Risk Management and Asset Quality-Allowance for Credit Losses” and NOTE 4. Loans and Allowance for Credit Losses in the Notes to the Consolidated Financial Statements.
Non-interest Income
The table below shows the components of non-interest income for the years ended December 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | $ Change | | % Change |
| (Dollars in thousands) | | | | |
Service fees on deposit accounts | $ | 3,872 | | | $ | 4,927 | | | $ | (1,055) | | | (21.4) | % |
Other Loan fees | 851 | | | 1,379 | | | (528) | | | (38.3) | % |
Bank owned life insurance income | 737 | | | 568 | | | 169 | | | 29.8 | % |
Gain on sale of SBA loans | — | | | 98 | | | (98) | | | (100.0) | % |
Gain on sale and valuation adjustments of OREO | 38 | | | 328 | | | (290) | | | (88.4) | % |
Other | 1,194 | | | 1,082 | | | 112 | | | 10.4 | % |
Total non-interest income | $ | 6,692 | | | $ | 8,382 | | | $ | (1,690) | | | (20.2) | % |
Non-interest income decreased by $1.7 million to $6.7 million during the year ended December 31, 2023 compared to 2022, primarily due to a decrease in fee income related to commercial deposit accounts and other loan fees, partially offset by an increase in income earned on bank owned life insurance.
The fee income for the year ended December 31, 2023 from the commercial deposit accounts of depositors who do business in the cannabis industry totaled $3.4 million and is included in service fees on deposit accounts in the accompanying consolidated statements of income. Such deposit fee income totaled $4.4 million during the year ended December 31, 2022. Please refer to Note 15. Commitments and Contingencies in the Notes to the Consolidated Financial Statements for our banking services to customers who do business in the cannabis industry.
Non-Interest Expense
The following table displays the components of non-interest expense for 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | $ Change | | % Change |
| (Dollars in thousands) | | | | |
Compensation and benefits | $ | 12,340 | | | $ | 10,835 | | | $ | 1,505 | | | 13.9 | % |
Professional services | 2,328 | | | 2,249 | | | 79 | | | 3.5 | % |
Occupancy and equipment | 2,604 | | | 2,522 | | | 82 | | | 3.3 | % |
Data processing | 1,385 | | | 1,293 | | | 92 | | | 7.1 | % |
FDIC insurance and other assessments | 1,292 | | | 1,050 | | | 242 | | | 23.0 | % |
OREO expense | 839 | | | 493 | | | 346 | | | 70.2 | % |
Other operating expense | 14,479 | | | 5,391 | | | 9,088 | | | 168.6 | % |
Total non-interest expense | $ | 35,267 | | | $ | 23,833 | | | $ | 11,434 | | | 48.0 | % |
Non-interest expense increased $11.4 million to $35.3 million for the year ended December 31, 2023, from $23.8 million for 2022 primarily due to an increase in other operating expense of $9.1 million, an increase in compensation and benefits of $1.5 million, and an increase in OREO expense of $0.3 million. The increase in other operating expense was primarily driven from a one-time recognition of a $9.5 million contingent loss related to cash that was stolen from a third-party armored car carrier facility that was used by the Company. The increase in compensation and benefits was primarily due to a $0.5 million increase in salaries, and a $0.9 million decrease in deferred loan origination costs, attributable to a reduction in the number of loans originated. The increase in OREO expense is due to higher costs to maintain the Company's OREO inventory.
Income Tax
Income tax expense decreased $5.0 million to $9.2 million on income before taxes of $37.7 million for 2023, compared to income tax expense of $14.3 million on income before taxes of $56.1 million for 2022. The effective income tax rates for 2023 and 2022 were 24.5% and 25.4%, respectively.
Financial Condition
General
At December 31, 2023, the Company’s total assets were $2.02 billion, an increase of $38.6 million or 1.9%, from December 31, 2022. The increase in total assets was primarily attributable to an increase in loans, restricted stock, and Resultsother assets. Cash and cash equivalents decreased $1.8 million, to $180.4 million at December 31, 2023. Total loans outstanding increased $35.9 million at December 31, 2023, primarily due to an increase in residential 1 to 4 family loans of Operations — $29.0 million; residential 1 to 4 family investment loans of $24.0 million; and commercial owner occupied loans of $15.7 million; partially offset by a decrease in construction loans of $34.8 million.
Total liabilities were $1.74 billion at December 31, 2023. This represented a $20.3 million, or 1.2%, increase from $1.72 billion at December 31, 2022. The increase in total liabilities was primarily due to an increase in borrowings, partially offset by a decrease in deposits. Total deposits decreased $23.2 million, or 1.5%, to $1.55 billion at December 31, 2023, from $1.58 billion at December 31, 2022. Deposits from the cannabis industries decreased to $96.7 million at December 31, 2023, from
$177.3 million at December 31, 2022. Total borrowings were $168.1 million at December 31, 2023, an increase of $42.0 million, compared to December 31, 2022, primarily due to an increase in FHLB advances of $41.9 million.
Total equity was $284.3 million and $266.0 million at December 31, 2023 and December 31, 2022, respectively, an increase of $18.3 million from December 31, 2022.
The following table presents certain key condensed balance sheet data as of December 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 | | $ Change | | % Change |
| (Dollars in thousands) | | | | |
Cash and cash equivalents | $ | 180,376 | | | $ | 182,150 | | | $ | (1,774) | | | (1.0) | % |
Investment securities | 16,387 | | | 18,744 | | | (2,357) | | | (12.6) | % |
| | | | | | | |
Loans, net of unearned income | 1,787,340 | | | 1,751,459 | | | 35,881 | | | 2.0 | % |
Allowance for credit losses | (32,131) | | | (31,845) | | | (286) | | | 0.9 | % |
Total assets | 2,023,500 | | | 1,984,915 | | | 38,585 | | | 1.9 | % |
Total deposits | 1,552,827 | | | 1,575,981 | | | (23,154) | | | (1.5) | % |
FHLBNY borrowings | 125,000 | | | 83,150 | | | 41,850 | | | 50.3 | % |
Subordinated debt | 43,111 | | | 42,921 | | | 190 | | | 0.4 | % |
| | | | | | | |
Total liabilities | 1,739,183 | | | 1,718,881 | | | 20,302 | | | 1.2 | % |
Total equity | 284,317 | | | 266,034 | | | 18,283 | | | 6.9 | % |
Total liabilities and equity | 2,023,500 | | | 1,984,915 | | | 38,585 | | | 1.9 | % |
Cash and cash equivalents
Cash and cash equivalents decreased $1.8 million to $180.4 million at December 31, 2023, from $182.2 million at December 31, 2022, a decrease of 1.0%.
Investment securities
Total investment securities decreased to $16.4 million at December 31, 2023, from $18.7 million at December 31, 2022, a decrease of $2.4 million or 12.6%. The decrease was primarily due to pay downs of $2.5 million, partially offset by a $0.1 million valuation increase.
Loans, net unearned income
Loans receivable increased to $1.79 billion at December 31, 2023, from $1.75 billion at December 31, 2022. The increase was primarily due to an increase in residential 1 - 4 family of $29.0 million; residential 1 to 4 family investment of $24.0 million; and commercial owner-occupied loans of $15.7 million; partially offset by a decrease of $34.8 million in construction loans.
Allowance for credit losses
Allowance for credit losses increased $0.3 million, to $32.1 million, or 0.90%, at December 31, 2023, from $31.8 million at December 31, 2022. The increase was primarily due to an increase in the portfolio balance, net of a decrease in historical loss rates. In 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and held-to-maturity debt securities, and unfunded commitments. On January 1, 2023, the Company recorded a cumulative effect decrease to retained earnings of $2.1 million, net of tax, of which $1.9 million related to loans, and $960.0 thousand related to unfunded commitments. There were no such charges for securities held by the Company at the date of adoption.
Deposits
At December 31, 2023, the Bank’s total deposits decreased to $1.55 billion from $1.58 billion at December 31, 2022, a decrease of $23.2 million, or 1.5%. The decrease in deposits was primarily attributed to a decrease in non-interest bearing demand deposits of $120.4 million, savings of $105.1 million, time deposits of $42.2 million, and interest checking of $20.1 million
partially offset by an increase in money market of $218.4 million, and brokered CD balances of $46.2 million. Deposits from the cannabis businesses decreased to $96.7 million at December 31, 2023, from $177.3 million at December 31, 2022, a decrease of $80.6 million. The decrease in such deposits is primarily attributable to increased competition from other banks, and the consolidation of the cannabis industry. The Bank expects this trend to continue in the foreseeable future.
Borrowings
At December 31, 2023, total borrowings increased $42.0 million to $168.1 million at December 31, 2023, from $126.1 million at December 31, 2022. The increase in borrowings was primarily due to an increase in FHLBNY advances of $41.9 million.
Equity
Total shareholders’ equity increased to $284.3 million at December 31, 2023, from $266.0 million at December 31, 2022, an increase of $18.3 million or 6.9%. The increase in total shareholders' equity was primarily due to the retention of earnings from the period, partially offset by the recognition of $8.6 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 December 31, 2023, our cash position was $180.4 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 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. While deposit accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLBNY. At December 31, 2023, the Company had a $944.4 million line of credit from the FHLBNY, of which $125.0 million was outstanding, $50.0 million was a letter of credit to secure public deposits, and $769.4 million was unused.
Our investment portfolio primarily consists of mortgage-backed available for sale securities issued by US government agency and government sponsored entities. These available for sale securities are readily marketable and are available to meet our additional liquidity needs. At December 31, 2023, the Company's investment securities portfolio classified as available for sale was $7.1 million.
We had unused loan commitments of $93.8 millionat December 31, 2023. Our loan commitments are normally originated with the full amount of collateral. Such commitments have historically been drawn at only a fraction of the total commitment. 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.
Capital Adequacy
Consistent with the goal to operate a sound and profitable financial organization, the Company and Bank actively seeks to maintain their status as well-capitalized in accordance with regulatory standards. As of December 31, 2023, the Company and the Bank exceeded all applicable regulatory capital requirements. See Note 13 to our Consolidated Financial Statements for more information about the Company's and the Bank's regulatory capital compliance.
Interest Rate Sensitivity and Liquidity — Rate Sensitivity Analysis”
Interest rate sensitivity is an important factor in the Annual Reportmanagement of the composition and maturity configurations of earning assets and funding sources. The primary objective of asset/liability management is incorporated hereinto ensure the steady growth of our primary earnings component, net interest income. Net interest income can fluctuate with significant interest rate movements. To lessen the impact of interest rate movements, management endeavors to structure the balance sheet so that repricing opportunities exist for both assets and liabilities in roughly equivalent amounts at approximately the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest rate sensitivity.
The measurement of our interest rate sensitivity, or "gap," is one of the principal techniques used in asset/liability management. Interest sensitive gap is the dollar difference between assets and liabilities that are subject to interest-rate pricing within a given time period, including both floating rate or adjustable rate instruments and instruments that are approaching maturity.
Our management and the Board of Directors oversee the asset/liability management function through the asset/liability committee of the Board that meets periodically to monitor and manage the balance sheet, control interest rate exposure, and evaluate our pricing strategies. The asset mix of the balance sheet is continually evaluated in terms of several variables: yield, credit quality, appropriate funding sources and liquidity. Management of the liability mix of the balance sheet focuses on expanding the various funding sources.
In theory, interest rate risk can be diminished by reference.maintaining a nominal level of interest rate sensitivity. In practice, this is made difficult by a number of factors, including cyclical variation in loan demand, different impacts on interest-sensitive assets and liabilities when interest rates change, and the availability of funding sources. Accordingly, we undertake to manage the interest-rate sensitivity gap by adjusting the maturity of and establishing rates on the earning asset portfolio and certain interest-bearing liabilities commensurate with management's expectations relative to market interest rates. Management generally attempts to maintain a balance between rate-sensitive assets and liabilities as the exposure period is lengthened to minimize our overall interest rate risk.
The interest rate sensitivity position as of December 31, 2023 is presented in the following table. Assets and liabilities are scheduled based on maturity or re-pricing data except for mortgage loans and mortgage-backed securities, which are based on prevailing prepayment assumptions and expected maturities and deposits which are based on recent retention experience of core deposits. The difference between rate-sensitive assets and rate-sensitive liabilities, or the interest rate sensitivity gap, is shown at the bottom of the table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 |
| 3 Months or Less | | Over 3 Months Through 12 Months | | Over 1 Year Through 3 Years | | Over 3 Years Through 5 Years | | Over 5 Years | | Total |
| (Dollars in thousands) |
Interest-earning assets: | | | | | | | | | | | |
Loans (1) | $ | 283,271 | | | $ | 446,949 | | | $ | 785,851 | | | $ | 212,231 | | | $ | 49,112 | | | $ | 1,777,414 | |
Investment securities | 8,127 | | | 1,442 | | | 3,676 | | | 4,049 | | | 7,272 | | | 24,566 | |
Cash and cash equivalents | 167,659 | | | — | | | — | | | — | | | — | | | 167,659 | |
Total interest-earning assets | $ | 459,057 | | | $ | 448,391 | | | $ | 789,527 | | | $ | 216,280 | | | $ | 56,384 | | | $ | 1,969,639 | |
Interest-bearing liabilities: | | | | | | | | | | | |
NOW, Saving and Money market deposits | $ | 33,543 | | | $ | 100,627 | | | $ | 345,578 | | | $ | 203,450 | | | $ | 30,370 | | | $ | 713,568 | |
Retail time deposits | 153,882 | | | 257,720 | | | 35,947 | | | 2,937 | | | — | | | 450,486 | |
Brokered time deposits | 106,692 | | | 49,150 | | | 742 | | | — | | | — | | | 156,584 | |
Borrowed funds | 43,403 | | | — | | | 95,000 | | | — | | | 30,000 | | | 168,403 | |
Total interest-bearing liabilities | $ | 337,520 | | | $ | 407,497 | | | $ | 477,267 | | | $ | 206,387 | | | $ | 60,370 | | | $ | 1,489,041 | |
Interest rate sensitive gap | $ | 121,537 | | | $ | 40,894 | | | $ | 312,260 | | | $ | 9,893 | | | $ | (3,986) | | | $ | 480,598 | |
Cumulative interest rate gap | $ | 121,537 | | | $ | 162,431 | | | $ | 474,691 | | | $ | 484,584 | | | $ | 480,598 | | | $ | — | |
Ratio of rate-sensitive assets to rate-sensitive liabilities | 136.0 | % | | 110.0 | % | | 165.4 | % | | 104.8 | % | | 93.4 | % | | 132.3 | % |
Cumulative interest sensitivity gap to total assets | 6.0 | % | | 8.0 | % | | 23.5 | % | | 23.9 | % | | 23.8 | % | | — | |
(1) Loan balances exclude nonaccruing loans, deferred fees and costs, and loan discounts.
Off-Balance Sheet Arrangements and Contractual Obligations
In the ordinary course of business, we engage in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements include commitments to extend credit, standby letters of credit and other commitments. These transactions are primarily designed to meet the financial needs of our customers.
We enter into commitments to lend funds to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we make commitments, we are exposed to credit risk. However, the maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments is expected to expire without being used by the customer. In addition, we manage the potential risk in commitments to lend by limiting the total amount of commitments, by monitoring maturity structure of these commitments and by applying the same credit standards for these commitments as for all of our credit activities.
For commitments to lend, we generally require collateral or a guarantee. We may require various types of collateral, including accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. Collateral requirements for each loan or commitment may vary based on the commitment type and our assessment of a customer’s credit risk according to the specific credit underwriting, including credit terms and structure.
Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. These commitments generally have fixed expiration dates, may require payment of a fee, and contain termination clauses in the event the customer’s credit quality deteriorates. At December 31, 2023 and December 31, 2022, unused commitments to extend credit amounted to approximately $93.8 million and $159.0 million, respectively. Commitments to fund fixed-rate loans were immaterial at December 31, 2023. Variable-rate commitments are generally issued for less than one year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. Management believes that off-balance sheet risk is not material to the results of operations or financial condition of the Company.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At December 31, 2023 and December 31, 2022, standby letters of credit with customers were $1.5 million and $1.5 million, respectively.
At December 31, 2023, we had contractual obligations primarily relating to commitments to extent credits, deposits, secured and unsecured borrowings, and operating leases. We have adequate resources to fund all unfunded commitments to the extent required and meet all contractual obligations as they come due. Please refer to Notes 6, 7, 9, and 15 of the Notes to the Consolidated Financial Statements for detailed information regarding our contractual obligations.
Impact of Inflation and Changing Prices
The financial statements included in this document have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.
Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturities of our assets and liabilities are critical to the maintenance of acceptable performance levels.
The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of non-interest expense. Expense items such as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.
Critical Accounting Policies
The Company’s accounting policies are more fully described in Note 1 - Description of Business and Summary of Significant Accounting Policies in the Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP") 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. Refer to Note 1 in the Notes to the Consolidated Financial Statements for further information.
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 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
Item 8. Financial Statements and Supplementary Data.
Report On Management’s Assessment Of Internal Control Over Financial Reporting
To The Shareholders Of Parke Bancorp, Inc.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a- 15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Under supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
March 13, 2024
| | | | | | | | |
/s/ Vito S. Pantilione | | /s/ Jonathan D. Hill |
Item 8.Vito S. Pantilione | | Jonathan D. Hill |
President and Chief Executive Officer | | Senior Vice President and Chief Financial Statements and Supplementary DataOfficer |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Parke Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Parke Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022; the related consolidated statements of income, comprehensive income, equity, and cash flows for the years then ended; and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Codification (ASC) Topic 326, Financial Instruments – Credit Losses.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses (ACL) – Qualitative Adjustments
The Company’s loan portfolio totaled $1.8 billion as of December 31, 2023, and the associated ACL was $32.1 million. As discussed in Notes 1 and 4 to the financial statements, listeddetermining the amount of the ACL requires significant judgment about the expected future losses, which is based on a base loss projection determined through a historical vintage loss rate analysis, which is then adjusted for current qualitative conditions and reasonable and supportable forecasts. Management applies these qualitative adjustments to the base loss projection to reflect changes in the current and forecasted environment, both internal and external, that are different from the conditions that existed during the historical loss calculation period. The qualitative adjustments include analysis of items related to economic conditions, credit quality indicators within the loan portfolio, and other internal and external factors.
We identified these qualitative adjustments within the ACL as critical audit matters because they involve a high degree of subjectivity. While the determination of these qualitative adjustments includes analysis of observable data over the historical loss period, the judgments required to assess the directionality and magnitude of adjustments is highly subjective. Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the nature of audit evidence and the nature and extent of effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
- Testing the design, implementation, and operating effectiveness of internal controls over the
calculation of the allowance for credit losses, including the qualitative factor adjustments.
- Testing the completeness and accuracy of the significant data points that management uses in
their evaluation of the qualitative adjustments.
- Testing the anchoring calculation that management completes to properly align the magnitude
of the adjustments with the Company's historical loss data.
- Evaluating the directional consistency and reasonableness of management's conclusions
regarding basis points applied (whether positive or negative) based on the trends identified in
the underlying data.
- Testing the mathematical accuracy of the application of the qualitative adjustments to the loan
segments within the ACL calculation.
We have served as the Company’s auditor since 2022.
/s/ S.R. Snodgrass, P.C.
Cranberry Township, Pennsylvania
March 13, 2024
Parke Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2023 and 2022
(Dollars in thousands except per share data)
| | | | | | | | | | | | | | |
| | December 31, | | December 31, |
| | 2023 | | 2022 |
Assets | | | | |
Cash and due from banks | | $ | 12,716 | | | $ | 27,165 | |
Interest earning deposits with banks | | 167,660 | | | 154,985 | |
Cash and cash equivalents | | 180,376 | | | 182,150 | |
Investment securities available for sale, at fair value | | 7,095 | | | 9,366 | |
Investment securities held to maturity, net of allowance for credit losses of $0 at December 31, 2023 (fair value of $7,892 at December 31, 2023 and $7,805 at December 31, 2022) | | 9,292 | | | 9,378 | |
Total investment securities | | 16,387 | | | 18,744 | |
| | | | |
Loans, net of unearned income | | 1,787,340 | | | 1,751,459 | |
Less: Allowance for credit losses | | (32,131) | | | (31,845) | |
Net loans | | 1,755,209 | | | 1,719,614 | |
Accrued interest receivable | | 8,555 | | | 8,768 | |
Premises and equipment, net | | 5,579 | | | 5,958 | |
Restricted stock | | 7,636 | | | 5,439 | |
Bank owned life insurance (BOLI) | | 28,415 | | | 28,145 | |
Deferred tax asset | | 9,262 | | | 9,184 | |
Other real estate owned (OREO) | | 1,550 | | | 1,550 | |
Other | | 10,531 | | | 5,363 | |
Total Assets | | $ | 2,023,500 | | | $ | 1,984,915 | |
Liabilities and Shareholders' Equity | | | | |
Liabilities | | | | |
Deposits | | | | |
Noninterest-bearing deposits | | $ | 232,189 | | | $ | 352,546 | |
Interest-bearing deposits | | 1,320,638 | | | 1,223,435 | |
Total deposits | | 1,552,827 | | | 1,575,981 | |
FHLBNY borrowings | | 125,000 | | | 83,150 | |
| | | | |
Subordinated debentures | | 43,111 | | | 42,921 | |
Accrued interest payable | | 4,146 | | | 2,664 | |
Accrued expenses and other liabilities | | 14,099 | | | 14,165 | |
Total liabilities | | 1,739,183 | | | 1,718,881 | |
Shareholders' Equity | | | | |
Preferred stock, 1,000,000 shares authorized, $1,000 liquidation value Series B non-cumulative convertible; 375 shares and 445 shares outstanding at December 31, 2023 and 2022, respectively | | 375 | | | 445 | |
Common stock, $0.10 par value; authorized 15,000,000 shares; Issued: 12,240,821 shares and 12,225,097 shares at December 31, 2023 and 2022, respectively | | 1,224 | | | 1,223 | |
Additional paid-in capital | | 136,700 | | | 136,201 | |
Retained earnings | | 149,437 | | | 131,706 | |
Accumulated other comprehensive loss | | (404) | | | (526) | |
Treasury stock, 284,522 shares at December 31, 2023 and 2022, at cost | | (3,015) | | | (3,015) | |
Total shareholders’ equity | | 284,317 | | | 266,034 | |
| | | | |
| | | | |
Total liabilities and shareholders' equity | | $ | 2,023,500 | | | $ | 1,984,915 | |
See accompanying notes to consolidated financial statements
Parke Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2023 and 2022
(Dollars in thousands except per share data)
| | | | | | | | | | | | | | |
| | December 31, 2023 | | December 31, 2022 |
Interest income: | | | | |
Interest and fees on loans | | $ | 106,061 | | | $ | 82,900 | |
Interest and dividends on investments | | 1,048 | | | 772 | |
Interest on deposits with banks | | 5,595 | | | 3,811 | |
Total interest income | | 112,704 | | | 87,483 | |
Interest expense: | | | | |
Interest on deposits | | 41,259 | | | 11,071 | |
Interest on borrowings | | 7,231 | | | 3,085 | |
Total interest expense | | 48,490 | | | 14,156 | |
Net interest income | | 64,214 | | | 73,327 | |
(Recovery of) provision for credit losses | | (2,051) | | | 1,800 | |
Net interest income after (recovery of) provision for credit losses | | 66,265 | | | 71,527 | |
Non-interest income | | | | |
Service fees on deposit accounts | | 3,872 | | | 4,927 | |
Other loan fees | | 851 | | | 1,379 | |
Bank owned life insurance income | | 737 | | | 568 | |
Gain on sale of SBA loans | | — | | | 98 | |
Net gain on OREO | | 38 | | | 328 | |
Other | | 1,194 | | | 1,082 | |
Total non-interest income | | 6,692 | | | 8,382 | |
Non-interest expense | | | | |
Compensation and benefits | | 12,340 | | | 10,835 | |
Professional services | | 2,328 | | | 2,249 | |
Occupancy and equipment | | 2,604 | | | 2,522 | |
Data processing | | 1,385 | | | 1,293 | |
FDIC insurance and other assessments | | 1,292 | | | 1,050 | |
OREO expense | | 839 | | | 493 | |
Other operating expense | | 14,479 | | | 5,391 | |
Total non-interest expense | | 35,267 | | | 23,833 | |
Income before income tax expense | | 37,690 | | | 56,076 | |
Income tax expense | | 9,228 | | | 14,253 | |
Net income attributable to Company | | 28,462 | | | 41,823 | |
| | | | |
| | | | |
Less: Preferred stock dividend | | (26) | | | (27) | |
Net income available to common shareholders | | $ | 28,436 | | | $ | 41,796 | |
Earnings per common share | | | | |
Basic | | $ | 2.38 | | | $ | 3.51 | |
Diluted | | $ | 2.35 | | | $ | 3.44 | |
Weighted average common shares outstanding | | | | |
Basic | | 11,945,740 | | | 11,918,319 | |
Diluted | | 12,137,052 | | | 12,175,440 | |
See accompanying notes to consolidated financial statements
Parke Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2023 and 2022
| | | | | | | | | | | | | | |
| | For the Year ended December 31, |
| | 2023 | | 2022 |
| | (Dollars in thousands) |
Net income | | $ | 28,462 | | | $ | 41,823 | |
Unrealized gains (losses) on investment securities, net of reclassification into income: | | | | |
Unrealized gains (losses) on available for sale securities | | 165 | | | (1,039) | |
Tax impact on unrealized (loss) gain | | (43) | | | 268 | |
| | | | |
Total other comprehensive gain (loss) | | 122 | | | (771) | |
| | | | |
| | | | |
Comprehensive income attributable to the Company | | $ | 28,584 | | | $ | 41,052 | |
See accompanying notes to consolidated financial statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Parke Bancorp, Inc. and Subsidiaries |
Consolidated Statements of Equity |
Years Ended December 31, 2023 and 2022 |
(Dollars in thousands except share data) |
| Shares of Preferred Stock Outstanding | | Preferred Stock | | Shares of Common Stock issued | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | | | | | Total Equity |
Balance, December 31, 2021 | 445 | | | $ | 445 | | | 12,182,081 | | | $ | 1,218 | | | $ | 135,451 | | | $ | 98,017 | | | $ | 245 | | | $ | (3,015) | | | | | | | $ | 232,361 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 41,823 | | | — | | | — | | | | | | | 41,823 | |
Stock compensation issued/exercised | — | | | — | | | 43,016 | | | 5 | | | 401 | | | — | | | — | | | — | | | | | | | 406 | |
| | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (771) | | | — | | | | | | | (771) | |
Stock compensation expense | — | | | — | | | — | | | — | | | 349 | | | — | | | — | | | — | | | | | | | 349 | |
| | | | | | | | | | | | | | | | | | | | | |
Dividend on preferred stock ($60.00 per share) | — | | | — | | | — | | | — | | | — | | | (27) | | | — | | | — | | | | | | | (27) | |
Dividend on common stock ($0.68 per share) | — | | | — | | | — | | | — | | | — | | | (8,107) | | | — | | | — | | | | | | | (8,107) | |
Balance, December 31, 2022 | 445 | | | $ | 445 | | | 12,225,097 | | | $ | 1,223 | | | $ | 136,201 | | | $ | 131,706 | | | $ | (526) | | | $ | (3,015) | | | | | | | $ | 266,034 | |
| | | | | | | | | | | | | | | | | | | | | |
Cumulative effect of adoption of ASU 2016-13 | — | | | — | | | — | | | — | | | — | | | (2,102) | | | — | | | — | | | | | | | (2,102) | |
Net income | — | | | — | | | — | | | — | | | — | | | 28,462 | | | — | | | — | | | | | | | 28,462 | |
Stock compensation issued/exercised | — | | | — | | | 6,096 | | | — | | | 33 | | | — | | | — | | | — | | | | | | | 33 | |
Preferred stock shares conversion | (70) | | | (70) | | | 9,628 | | | 1 | | | 69 | | | — | | | — | | | — | | | | | | | — | |
Other comprehensive gain | — | | | — | | | — | | | — | | | — | | | — | | | 122 | | | — | | | | | | | 122 | |
Stock compensation expense | — | | | — | | | — | | | — | | | 397 | | | — | | | — | | | — | | | | | | | 397 | |
| | | | | | | | | | | | | | | | | | | | | |
Dividend on preferred stock ($60.00 per share) | — | | | — | | | — | | | — | | | — | | | (26) | | | — | | | — | | | | | | | (26) | |
Dividend on common stock ($0.72 per share) | — | | | — | | | — | | | — | | | — | | | (8,603) | | | — | | | — | | | | | | | (8,603) | |
Balance, December 31, 2023 | 375 | | | $ | 375 | | | 12,240,821 | | | $ | 1,224 | | | $ | 136,700 | | | $ | 149,437 | | | $ | (404) | | | $ | (3,015) | | | | | | | $ | 284,317 | |
See accompanying notes to consolidated financial statements
Parke Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2023 and 2022
(Dollars in thousands)
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Cash Flows from Operating Activities | | | | |
Net income | | $ | 28,462 | | | $ | 41,823 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 464 | | | 646 | |
(Recovery of) provision for credit losses | | (2,051) | | | 1,800 | |
Increase in value of bank-owned life insurance | | (736) | | | (568) | |
Gain on sale of SBA loans | | — | | | (98) | |
SBA loans originated for sale | | — | | | (1,723) | |
Proceeds from sale of SBA loans originated for sale | | — | | | 1,821 | |
Net gain on OREO | | (38) | | | (328) | |
Net accretion of purchase premiums and discounts on securities | | (37) | | | (9) | |
Stock based compensation | | 397 | | | 349 | |
Decrease (increase) in deferred income tax | | 595 | | | (1,325) | |
Net changes in: | | | | |
Increase in accrued interest receivable and other assets | | (4,955) | | | (727) | |
Increase in accrued interest payable and other accrued liabilities | | 917 | | | 1,789 | |
| | | | |
Net cash provided by operating activities | | 23,018 | | | 43,450 | |
Cash Flows from Investing Activities | | | | |
Repayments and maturities of investment securities available for sale | | 2,412 | | | 2,905 | |
Repayments and maturities of investment securities held to maturity | | 147 | | | 590 | |
| | | | |
Net increase in loans | | (35,986) | | | (268,420) | |
Sales (purchases) of bank premises and equipment | | 105 | | | (150) | |
Proceeds from sale of OREO, net | | 161 | | | 2,426 | |
Proceeds from bank owned life insurance policy | | 466 | | | — | |
Redemptions of restricted stock | | 10,819 | | | 912 | |
Purchases of restricted stock | | (13,016) | | | (1,207) | |
Net cash used in investing activities | | (34,892) | | | (262,944) | |
Cash Flows from Financing Activities | | | | |
Cash dividends | | (8,629) | | | (7,886) | |
Proceeds from exercise of stock options | | 33 | | | 406 | |
Net proceeds from issuance of subordinate debt | | — | | | — | |
Earnings distribution from non-controlling interest | | — | | | — | |
(Decrease) increase in FHLBNY short-term borrowings | | (53,150) | | | 63,150 | |
Increase (decrease) in FHLBNY long-term borrowings | | 95,000 | | | (58,150) | |
Net decrease in other borrowed funds | | — | | | — | |
Net decrease in noninterest-bearing deposits | | (120,357) | | | (201,264) | |
Net increase in interest-bearing deposits | | 97,203 | | | 8,835 | |
Net cash provided by (used in) financing activities | | 10,100 | | | (194,909) | |
Decrease in cash and cash equivalents | | (1,774) | | | (414,403) | |
Cash and Cash Equivalents, January 1, | | 182,150 | | | 596,553 | |
Cash and Cash Equivalents, December 31, | | $ | 180,376 | | | $ | 182,150 | |
| | | | |
Supplemental Disclosure of Cash Flow Information: | | | | |
Interest paid | | $ | 47,008 | | | $ | 13,095 | |
Income taxes paid | | $ | 14,677 | | | $ | 13,923 | |
| | | | |
Non-cash Investing and Financing Items | | | | |
Loans transferred to OREO | | $ | 123 | | | $ | 1,994 | |
Accrued dividends payable | | $ | 2,158 | | | $ | 2,156 | |
See accompanying notes to consolidated financial statements
Note 1. Description of Business and Summary of Significant Accounting Policies
Business:
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 Item 15the 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 seven branch offices with its principal office at 601 Delsea Drive, Sewell, New Jersey, and additional branch office locations; 631 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.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with GAAP. We have reclassified certain prior year amounts to conform to the 2023 presentation, which did not have a material impact on our consolidated financial condition or results of operations. The accounting policies that materially affect the determination of financial position, results of operations and cash flows are summarized below.
Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Parke Bank. Parke Capital Trust I, Parke Capital Trust II and Parke Capital Trust III are wholly-owned subsidiaries but are not consolidated because they do not meet the requirements for consolidation under applicable accounting guidance. All material inter-company balances and transactions have been eliminated.
Cash and cash equivalents: Consists of cash and due from banks, and interest-bearing deposits and other-short term investments, all of which, if applicable, have stated maturities of three months or less when acquired.
Investment Securities: Debt securities are recorded on a trade-date basis. We classify debt securities as held to maturity if we have the positive intent and ability to hold the securities to maturity. We report securities held to maturity on our consolidated balance sheets at carrying value, which generally equals amortized cost. Amortized cost reflects historical cost adjusted for amortization of premiums, accretion of discounts and any previously recorded impairments. Debt securities not classified as held to maturity or trading are designated as securities available for sale ("AFS") and carried at fair value with unrealized gains and losses, net of income taxes, reflected in accumulated other comprehensive income (loss). We did not have any securities classified as trading securities during 2023 or 2022.
Interest on debt securities, including amortization of premiums and accretion of discounts, is included in interest income. Premiums and discounts are amortized or accreted to interest income at a constant effective yield over the contractual lives of the securities. Realized gains and losses from the sales of debt securities are determined on a specific security basis. These securities gains/(losses) are included in other noninterest income.
Restricted Stock: Restricted stock includes investments in the common stock of the FHLBNY and the Atlantic Central Bankers Bank for which no readily available market exists and, accordingly, is carried at cost. The stocks have no quoted market value and are subject to redemption restrictions. Management reviews these stocks for credit loss based on the ultimate recoverability of the cost basis in the stock. The stocks’ values are determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. Management considers such criteria as the significance of the decline in net assets, if any, the length of time this situation has persisted and the financial performance of the issuers. In addition, management considers any commitments by the FHLBNY to make payments required by law or regulation, the impact of legislative and regulatory changes on the customer base of the FHLBNY and the liquidity position of the FHLBNY.
Loans: We classify loans as held for investment or held for sale based on our investment strategy and management’s intent and ability with regard to the loans which may change over time. The accounting and measurement framework for loans differs depending on the loan classification. Loans that we have the ability and intent to hold for the foreseeable future or until maturity or pay-off are classified as held for investment. Loans classified as held for investment are reported at their amortized cost, which is the outstanding principal balance, adjusted for any unearned income, unamortized deferred fees and costs, unamortized premiums and discounts and charge-offs. Interest income on the loans is recognized as earned based on contractual interest rates
applied to daily principal amounts outstanding. Loan origination fees, direct loan origination costs, and loan premiums and discounts are deferred and accreted or amortized into net interest income using the constant effective yield method, over the contractual life of the loan.
Loans originated with the intent to sell or for which we do not have the ability and intent to hold for the foreseeable future are classified as held for sale. Interest on these loans is recognized on an accrual basis. These loans are recorded at the lower of cost or fair value. Our Small Business Administration ("SBA") loans that management has the intention to sell are designated as held for sale and are reported at fair value. Fair value represents the face value of the guaranteed portion of SBA loans pending settlement. Loan origination fees and direct loan origination costs are deferred until the loan is sold and are recognized as part of the total gain or loss on sale. We calculate the gross gain or loss on loan sales as the difference between the proceeds received and the carrying value of the loans sold.
Loan Fees: Loan fees and direct costs associated with loan originations are netted and deferred. The deferred amount is recognized as an adjustment to loan interest over the term of the related loan using the interest method. Prepayment penalties on loans are recognized in loan interest. Loan brokerage fees represent commissions earned for facilitating loans between borrowers and other companies and is recorded as other loan fee income.
Non-accrual Loans: Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet contractual payment obligations as they become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due.
Allowance for Credit Losses on Loans and Leases: The allowance for credit losses represents management’s estimate of expected losses inherent in the Company’s lending activities excluding loans accounted for under fair value. The allowance for credit losses is maintained through charges to the provision for credit losses in the Consolidated Statements of Income as expected losses are estimated. Loans or portions thereof that are determined to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.
The Company performs periodic reviews of its loan and lease portfolios to identify credit risks and to assess the overall collectability of those portfolios. The Company's allowance for credit losses includes a general component and an asset-specific component for collateral-dependent loans. To determine the asset-specific component of the allowance, the loans are evaluated individually based on the fair value of the underlying collateral. The Company generally measures the asset-specific allowance as the difference between the net realizable value of loan collateral and the recorded investment of a loan.
The general component of the allowance evaluates the impairments of pools of the loan portfolio collectively. It incorporates a historical valuation allowance and qualitative allowance. The historical valuation utilizes a vintage loss rate approach utilizing a third party software model. The vintage loss rate approach creates pools of loans based on the segments defined by management, and consists of commercial and industrial, construction, commercial - owner occupied, commercial - non-owner occupied, residential - 1 to 4 family, residential - 1 to 4 family investment, residential - multifamily, and consumer. The loan pools are aggregated by origination year. Charge-offs, net of recoveries, are allocated by the year of charge-off to each loan pool. An average life is prescribed to a pool of loans that were originated in a particular year. The actual charge-offs as a percent of total loans are calculated for each historical year, and projected for future years for each year within the average life time horizon. The sum of the actual charge-offs and projected charge-offs are divided by the average amortized origination amount for each respective year. Those charge-off percentages are added together to obtain an aggregated vintage loss percentage which is then multiplied by the outstanding loan balances to obtain a reserve requirement.
The qualitative allowance component is based on general economic conditions and other qualitative risk factors both internal and external to the Company. It is generally determined by evaluating, among other things: (i) the experience, ability and effectiveness of the Bank's lending management and staff; (ii) the effectiveness of the Bank's lending policies, procedures and internal controls;(iii) volume and severity of loan credit quality; (iv) nature and volume of portfolio and term of loans (v) the composition and concentrations of credit; (vi) the effectiveness of the internal loan review system; and (vii) national and local economic trends and conditions, and industry conditions. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, high-moderate, moderate, low-moderate or low degree of risk. The results are then input into a "general allocation matrix" to determine an appropriate general valuation allowance.
The Company has elected to exclude accrued interest receivable from the measurement of the ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is generally reversed against interest income.
The process of determining the level of the allowance for credit losses requires a high degree of estimate and judgment. It is reasonably possible that actual outcomes may differ from our estimates.
Allowance for Credit Losses on Lending-Related Commitments: Parke estimates expected credit losses over the contractual period in which it is exposed to credit risk on contractual obligations to extend credit, unless the obligation is unconditionally cancellable by the Company. The allowance for credit losses on lending-related commitments is recorded in other liabilities in the consolidated balance sheet and is recorded as a provision for credit losses in the consolidated income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The lifetime loss rates for off-balance sheet credit exposures are calculated in the same manner as on-balance sheet credit exposures, using the same model and economic forecasts, adjusted for the estimated likelihood that funding will occur.
Individually Assessed Loans and Leases: ASC 326 provides that a loan or lease is measured individually if it does not share similar risk characteristics with other financial assets. For Parke, loans and leases which are identified to be individually assessed under CECL typically are those that are on non-accrual at the reporting date, and include collateral dependent loans.
Collateral Dependent Loans
Parke considers a loan to be collateral dependent when foreclosure of the underlying collateral is probable. Parke has also elected to apply the practical expedient to measure expected credit losses of a collateral dependent asset using the fair value of the collateral, less any estimated costs to sell, when foreclosure is not probable but repayment of the loan is expected to be provided substantially through the operation or sale of the collateral, and the borrower is experiencing financial difficulty.
Allowance for Credit Losses on Held to Maturity Securities: We follow Accounting Standards Codification (ASC) 326-20, Financial Instruments - Credit Loss - Measured at Amortized Cost, to measure expected credit losses on held-to-maturity debt securities on a collective basis by security investment grade. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
The Company classifies the held-to-maturity debt securities into the following major security types: residential mortgage backed, and state and political subdivisions. These securities are highly rated with a history of no credit losses, and are assigned ratings based on the most recent data from ratings agencies depending on the availability of data for the security. Credit ratings of held-to-maturity debt securities, which are a significant input in calculating the expected credit loss, are reviewed on a quarterly basis. Based on the credit ratings of our held-to-maturity securities and our historical experience including no losses, we have determined that an allowance for credit loss on the held-to-maturity portfolio is not required
Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses and is included in Accrued interest receivable on the Consolidated Statements of Financial Condition.
Allowance for Credit Losses on Available for Sale Securities: We follow ASC 326-30, Financial Instruments - Credit Loss - Available-for-Sale Debt Securities, which provides guidance related to the recognition of and expanded disclosure requirements for expected credit losses on available-for-sale debt securities. For available-for-sale debt securities in an unrealized loss position, the Company first evaluates whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the security's amortized cost basis is reduced to fair value and recognized as a reduction to non-interest income in the Consolidated Statements of Income.
For debt securities available-for-sale which the Company does not intend to sell, or it is not likely the security would be required to be sold before recovery, we evaluate whether a decline in fair value has resulted from credit losses or other adverse factors, such as a change in the security's credit rating. In assessing whether a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance is recorded, limited to the fair value of the security.
Charge-Offs: We charge off loans as a reduction to the allowance for credit losses when we determine the loan is uncollectible and record subsequent recoveries of previously charged off amounts as an increase to the allowance for credit losses.
Concentration of Credit Risk: The Company’s loans are generally to customers in Southern New Jersey, the Philadelphia area of Pennsylvania, and New York, New York. Loans to general building contractors, general merchandise stores, restaurants, motels, warehouse space, and real estate ventures (including construction loans) constitute a majority of commercial loans. The
concentrations of credit by type of loan are set forth in Note 4. Generally, loans are collateralized by assets of the borrower and are expected to be repaid from the borrower’s cash flow or proceeds from the sale of selected assets of the borrower.
Other Real Estate Owned (“OREO”): Real estate acquired through foreclosure or other proceedings is carried at the lower of cost or estimated fair value, less estimated costs to sell. When a property is acquired, the excess of the loan balance over the estimated fair value is charged to the allowance for credit losses. Costs of improving OREO are capitalized to the extent that the carrying value does not exceed its fair value less estimated selling costs. Subsequent valuation adjustments, declines, if any, are recognized as a charge against current earnings. Holding costs are charged to expense. Gains and losses on sales are recognized in noninterest income as they occur. The OREO balance is included in other assets on the balance sheets.
Interest Rate Risk: The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other borrowed and brokered funds, to make commercial, commercial mortgage, residential mortgage, and consumer loans, and to invest in overnight and term investment securities. Inherent in such activities is interest rate risk that results from differences in the maturities and repricing characteristics of these assets and liabilities. For this reason, management regularly monitors the level of interest rate risk and the potential impact on net income.
Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed and charged to expense using the straight-line method over the estimated useful lives of the assets, generally three years for computers and software, five to ten years for equipment and forty years for buildings. Leasehold improvements are amortized to expense over the shorter of the term of the respective lease or the estimated useful life of the improvements.
Lease: Lease classification is determined at inception for all lease transactions with an initial term greater than one year. Operating leases are included as right-of-use (“ROU”) assets within other assets, and operating lease liabilities are classified as other liabilities on our consolidated balance sheets. Our operating lease expense is included in occupancy and equipment within non-interest expense in our consolidated statements of income.
Stock-Based Compensation: Stock-based compensation expense is based on the grant date fair value, which is estimated using a Black-Scholes option pricing model. The fair value of stock-based compensation used in determining compensation expense generally equals the fair market value of our common stock on the date of grant. We generally recognize compensation expense on a straight-line basis over the award’s requisite service period based on the fair value of the award at grant date. Stock-based compensation expense is included in compensation and benefits in the consolidated statements of income.
Revenue recognition: Our revenue includes net interest income on financial instruments and non-interest income. Interest income and fees on loans, investment securities, and other financial instruments are recognized based on the contractual provisions of the underlying arrangements according to applicable accounting guidance. Deposit-related-fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers (Topic 606) is included in non-interest income in our consolidated statements of income.
Our deposit-related-fee-based revenues are recognized when or as those services are transferred to the customer and are generally recognized either immediately upon the completion of our service or over time as we perform services. Any services performed over time generally require that we render services each period and therefore we measure our progress in completing these services based upon the passage of time. Deposit-related fees are recognized over the period in which the related service is provided. Service charges on deposit accounts are earned on depository accounts for customers and include fees for account and overdraft services. Account services include fees for event-driven services and fees for periodic account maintenance activities. Our obligation for event-driven services is satisfied at the time of the event when the service is delivered, while our obligation for maintenance services is satisfied over the course of each month. Our obligation for overdraft services is satisfied at the time of the overdraft.
Income Taxes: We recognize the current and deferred tax consequences of all transactions that have been recognized in the financial statements using the provisions of the enacted tax laws. Current income tax expense represents our estimated taxes to be paid or refunded for the current period. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Thus, at the enactment date, deferred taxes are remeasured and the change is recognized in income tax expense. The recognition of deferred tax assets requires an assessment to determine the realization of such assets. Realization refers to the incremental benefit achieved through the reduction in future taxes payable or refunds receivable. We establish a valuation allowance for tax assets when it is more likely than not that they will not be realized, based
upon all available evidence. Realization of deferred tax assets is dependent on generating sufficient taxable income in the future.
When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits would be recognized in income tax expense on the income statement.
The Company did not recognize any interest or penalties related to income tax during the years ended December 31, 2023 and 2022, respectively. The Company does not have an accrual for uncertain tax positions as of December 31, 2023 and 2022, as deductions taken and benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. All years after 2019 are open under the original federal statute of limitations. For state tax returns, the Company is subject to income tax examinations by local tax authorities for years 2019 and after, except for the State of New Jersey which is still subject to income tax examinations for years 2018 and after.
Fair value: Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. Fair value measurement of a financial asset or liability is assigned to a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The accounting guidance for fair value requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value.
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. Our most significant estimates pertain to our allowances for loan and lease losses, fair value measurements, individually evaluated loans, the carrying value of OREO, and the valuation of deferred income taxes. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.
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.
Other Comprehensive Income: Comprehensive income consists of net income and other gains and losses affecting shareholders' equity that, under GAAP, are excluded from net income, including unrealized gains and losses on available for sale securities.
For year 2023 and 2022, we did not reclassify any amounts from accumulated other comprehensive income (loss) to income. The following table provides the components of other comprehensive income, reclassifications to net income and the related tax effect for the year ended December 31, 2023 and 2022:
| | | | | | | | | | | |
Year ended December 31, | 2023 | | 2022 |
| (Dollars in thousands) |
Investment securities: | | | |
Net unrealized gain (loss) | $ | 165 | | | $ | (1,039) | |
Tax effect related to the unrealized (gain) loss | (43) | | | 268 | |
| | | |
Accumulated other comprehensive income | $ | 122 | | | $ | (771) | |
Earnings Per Common Share: Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share considers common stock equivalents (when dilutive) outstanding during the period such as options outstanding and
convertible preferred stock. To the extent that stock equivalents are anti-dilutive, they have been excluded from the earnings per share calculation. Earnings per common share have been computed based on the following for 2023 and 2022:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (Dollars in thousands, except per share data) |
Basic earnings per common share | | | |
Net income available to common shareholders | $ | 28,436 | | | $ | 41,796 | |
Basic weighted-average common shares outstanding | 11,945,740 | | | 11,918,319 | |
Basic earnings per common share | $ | 2.38 | | | $ | 3.51 | |
Diluted earnings per common share | | | |
Net income available to common shareholders | $ | 28,436 | | | $ | 41,796 | |
Dividend on Preferred Series B | 26 | | | 27 | |
Net income attributable to diluted common shares | $ | 28,462 | | | $ | 41,823 | |
Basic weighted-average common shares outstanding | 11,945,740 | | | 11,918,319 | |
Dilutive potential common shares | 191,312 | | | 257,121 | |
Total diluted weighted-average common shares outstanding | 12,137,052 | | | 12,175,440 | |
Diluted earnings per common share | $ | 2.35 | | | $ | 3.44 | |
For 2023 and 2022, there were 330,536 and 125,938 weighted average option shares outstanding, respectively, that were not included in the Annual Reportcomputation of diluted EPS because these shares were anti-dilutive.
Contingent loss: Included in other operating expense is the one-time recognition of a $9.5 million contingent loss related to cash that was stolen from a third-party armored car carrier facility that was used by the Company.
Statement of Cash Flows: Cash and cash equivalents include cash and due from financial institutions and federal funds sold. For the purposes of the statement of cash flows, changes in loans and deposits are incorporated hereinshown on a net basis.
Recently Issued Accounting Pronouncements:
ASU 2020-04, Reference Rate Reform (Topic 848): In March 2020, the FASB issued ASU No. 2020.-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance to entities for a limited period of time to ease the transition in accounting for and recognizing the effects of reference rate reform on financial reporting. Under the guidance, modifications of contracts due to reference rate reform will not require contract remeasurement or reassessment of a previous accounting determination. For hedge accounting, modification of critical terms of the hedge due to changes in reference rate reform will not affect hedge accounting or dedesignate the hedging relationship. The guidance also provides specific expedients for fair value hedges, cash flow hedges, and excluded components. Further, the guidance provides a none-time election to sell or transfer held to maturity debt securities that are affected by reference.the reference rate change. The guidance is effective upon issuance through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis. The Company does not expect the application of this guidance to have a material impact on the Consolidated Financial Statements.
Accounting Pronouncements Adopted in 2023
In June 2016, the Financial Accounting Standard Board (FASB) issued accounting standards update ("ASU") 2016-13, Financial Instruments-Credit Losses. ASU 2016-13 (Topic 326), replaces the incurred loss impairment methodology in current GAAP with a CECL methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. The ASU was amended in some aspects by subsequent Accounting Standards Updates. This guidance became effective on January 1, 2023 for the Company. Results and disclosures for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.
The Company adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and held-to-maturity debt securities, and unfunded commitments. On January 1, 2023, the Company recorded a cumulative effect decrease to retained earnings of $2.1 million, net of tax, of which $1.9 million related to loans, and $960.0 thousand related to unfunded commitments. There were no such charges for securities held by the Company at the date of adoption.
The following table illustrates the impact of adopting ASC 326:
| | | | | | | | | | | | | | | | | | | | |
(Amounts in thousands) | | January 1, 2023 |
Assets | | Pre-adoption | | Adoption Impact | | As Reported |
ACL on loans | | | | | | |
Commercial and Industrial | | $ | 390 | | | $ | 168 | | | $ | 558 | |
Construction | | 2,581 | | | 1,899 | | | 4,480 | |
Commercial - Owner Occupied | | 2,298 | | | (171) | | | 2,127 | |
Commercial - Non-owner Occupied | | 9,709 | | | (951) | | | 8,758 | |
Residential - 1 to 4 Family | | 6,076 | | | 1,782 | | | 7,858 | |
Residential - 1 to 4 Family Investment | | 9,381 | | | (794) | | | 8,587 | |
Residential - Multifamily | | 1,347 | | | (128) | | | 1,219 | |
Consumer | | 63 | | | 53 | | | 116 | |
Total ACL on loans | | 31,845 | | | 1,858 | | | 33,703 | |
Deferred Tax Assets | | 9,184 | | | 716 | | | 9,900 | |
Liabilities | | | | | | |
ACL for unfunded commitments | | — | | | 960 | | | 960 | |
Equity | | | | | | |
Retained Earnings | | $ | 131,706 | | | $ | (2,102) | | | $ | 129,604 | |
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Note 2. Cash and Due from Banks
The Company maintains various deposit accounts with other banks to meet normal funds transaction requirements, to satisfy deposit reserve requirements, and to compensate other banks for certain correspondent services. Management is responsible for assessing the credit risk of its correspondent banks. At December 31, 2023 and 2022, the vast majority of the Company's cash deposits with other banks were due from the Federal Reserve Bank of Philadelphia and the Federal Home Loan Bank of New York.
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 December 31, 2023 and 2022:
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As of December 31, 2023 | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | | Credit Losses |
| (Dollars in thousands) | | |
Available for sale: | | | | | | | | | |
| | | | | | | | | |
Residential mortgage-backed securities | $ | 7,639 | | | $ | 3 | | | $ | 547 | | | $ | 7,095 | | | $ | — | |
| | | | | | | | | |
Total available for sale | $ | 7,639 | | | $ | 3 | | | $ | 547 | | | $ | 7,095 | | | $ | — | |
| | | | | | | | | |
Held to maturity: | | | | | | | | | |
States and political subdivisions | $ | 3,886 | | | $ | 38 | | | $ | 384 | | | $ | 3,540 | | | $ | — | |
Residential mortgage-backed securities | 5,406 | | | — | | | 1,054 | | | 4,352 | | | — | |
Total held to maturity | $ | 9,292 | | | $ | 38 | | | $ | 1,438 | | | $ | 7,892 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2022 | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
| (Dollars in thousands) |
Available for sale: | | | | | | | |
Corporate debt obligations | $ | 500 | | | $ | — | | | $ | — | | | $ | 500 | |
Residential mortgage-backed securities | 9,575 | | | 3 | | | 712 | | | 8,866 | |
| | | | | | | |
Total available for sale | $ | 10,075 | | | $ | 3 | | | $ | 712 | | | $ | 9,366 | |
| | | | | | | |
Held to maturity: | | | | | | | |
States and political subdivisions | $ | 3,822 | | | $ | 56 | | | $ | 533 | | | $ | 3,345 | |
Residential mortgage-backed securities | 5,556 | | | — | | | 1,096 | | | 4,460 | |
Total held to maturity | $ | 9,378 | | | $ | 56 | | | $ | 1,629 | | | $ | 7,805 | |
The amortized cost and fair value of debt securities classified as available for sale and held to maturity, by contractual maturity as of December 31, 2023, are as follows:
| | | | | | | | | | | |
| Amortized Cost | | Fair Value |
| (Dollars in thousands) |
Available for sale: | |
Due within one year | $ | — | | | $ | — | |
Due after one year through five years | 2,996 | | | 2,814 | |
Due after five years through ten years | 1,008 | | | 942 | |
Due after ten years | 3,635 | | | 3,339 | |
Total available for sale | $ | 7,639 | | | $ | 7,095 | |
| | | |
Held to maturity: | | | |
Due within one year | $ | — | | | $ | — | |
Due after one year through five years | 1,412 | | | 1,450 | |
Due after five years through ten years | — | | | — | |
Due after ten years | 7,880 | | | 6,442 | |
Total held to maturity | $ | 9,292 | | | $ | 7,892 | |
Expected maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without any penalty.
During the year ending December 31, 2023 and 2022, the Company did not sell any investment securities.
The following tables show the gross unrealized losses and fair value of the Company's available for sale securities which are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2023 | | Less Than 12 Months | | 12 Months or Greater | | Total |
Description of Securities | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | (Dollars in thousands) |
Available for sale: | | | | | | | | | | | | |
Residential mortgage-backed securities | | $ | 25 | | | $ | — | | | $ | 6,870 | | | $ | (547) | | | $ | 6,895 | | | $ | (547) | |
Total available for sale | | $ | 25 | | | $ | — | | | $ | 6,870 | | | $ | (547) | | | $ | 6,895 | | | $ | (547) | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2022 | | Less Than 12 Months | | 12 Months or Greater | | Total |
Description of Securities | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | (Dollars in thousands) |
Available for sale: | | | | | | | | | | | | |
Residential mortgage-backed securities | | $ | 7,579 | | | $ | 576 | | | $ | 1,043 | | | $ | 136 | | | $ | 8,622 | | | $ | 712 | |
Total available for sale | | $ | 7,579 | | | $ | 576 | | | $ | 1,043 | | | $ | 136 | | | $ | 8,622 | | | $ | 712 | |
| | | | | | | | | | | | |
Held to maturity: | | | | | | | | | | | | |
States and political subdivisions | | $ | — | | | $ | — | | | $ | 1,943 | | | $ | 533 | | | $ | 1,943 | | | $ | 533 | |
Residential mortgage-backed securities | | — | | | — | | | 4,460 | | | 1,096 | | | 4,460 | | | 1,096 | |
Total held to maturity | | $ | — | | | $ | — | | | $ | 6,403 | | | $ | 1,629 | | | $ | 6,403 | | | $ | 1,629 | |
The Company’s unrealized loss for the available for sale securities is comprised of 3 securities in the less than 12 months loss position and 16 securities in the 12 months or greater loss position at December 31, 2023. The mortgage-backed securities that had unrealized losses were issued or guaranteed by the US government or government sponsored entities. The unrealized losses associated with those mortgage-backed securities are generally driven by changes in interest rates and not due to credit losses given the explicit or implicit guarantees provided by the U.S. government. The states and political subdivisions securities shown in the 2022 table that had unrealized losses were issued by a school district, and therefore the loss is attributed to changes in interest rates and not due to credit losses. Additionally, these securities are classified as held to maturity. 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 a credit loss at December 31, 2023.
Impairment of Debt Securities
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. Please refer to Note 1 - Description of Business and Summary of Significant Accounting Policies for a detailed description of our accounting policy for the impairment of securities.
Note 4. Loans Receivable and Allowance for Credit Losses
Loans Receivable
As of December 31, 2023, the Company had $1.79 billion in loans receivable outstanding. Outstanding balances include $2.7 million and $1.9 million at December 31, 2023 and 2022, respectively, for net deferred loan costs, and unamortized discounts.
The portfolios of loans receivable at December 31, 2023, and December 31, 2022, consist of the following, by portfolio segment:
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| (Dollars in thousands) |
Commercial and Industrial | $ | 35,451 | | | $ | 32,383 | |
Construction | 157,556 | | | 192,357 | |
Real Estate Mortgage: | | | |
Commercial – Owner Occupied | 141,742 | | | 125,950 | |
Commercial – Non-owner Occupied | 369,909 | | | 377,452 | |
Residential – 1 to 4 Family | 449,682 | | | 444,820 | |
Residential - 1 to 4 Family Investment | 524,167 | | | 476,210 | |
Residential – Multifamily | 103,324 | | | 95,556 | |
Consumer | 5,509 | | | 6,731 | |
Total Loan receivable | 1,787,340 | | | 1,751,459 | |
Allowance for credit losses on loans | (32,131) | | | (31,845) | |
Total loan receivable, net of allowance for credit losses on loans | $ | 1,755,209 | | | $ | 1,719,614 | |
An age analysis of past due loans by class at December 31, 2023 and December 31, 2022 as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2023 | 30-59 Days Past Due | | 60-89 Days Past Due | | Greater than 90 Days | | Total Past Due | | Current | | Total Loans | | |
| (Dollars in thousands) |
Commercial and Industrial | $ | — | | | $ | — | | | $ | 712 | | | $ | 712 | | | $ | 34,739 | | | $ | 35,451 | | | |
Construction | — | | | — | | | 1,091 | | | 1,091 | | | 156,465 | | | 157,556 | | | |
Real Estate Mortgage: | | | | | | | | | | | | | |
Commercial – Owner Occupied | — | | | — | | | 1,117 | | | 1,117 | | | 140,625 | | | 141,742 | | | |
Commercial – Non-owner Occupied | — | | | 1,549 | | | 3,107 | | | 4,656 | | | 365,253 | | | 369,909 | | | |
Residential – 1 to 4 Family | 58 | | | 1,793 | | | 1,211 | | | 3,062 | | | 446,620 | | | 449,682 | | | |
Residential - 1 to 4 Family Investment | — | | | 440 | | | — | | | 440 | | | 523,727 | | | 524,167 | | | |
Residential – Multifamily | — | | | — | | | — | | | — | | | 103,324 | | | 103,324 | | | |
Consumer | 66 | | | — | | | — | | | 66 | | | 5,443 | | | 5,509 | | | |
Total Loans | $ | 124 | | | $ | 3,782 | | | $ | 7,238 | | | $ | 11,144 | | | $ | 1,776,196 | | | $ | 1,787,340 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2022 | 30-59 Days Past Due | | 60-89 Days Past Due | | Greater than 90 Days | | Total Past Due | | Current | | Total Loans | | |
| (Dollars in thousands) |
Commercial and Industrial | $ | — | | | $ | 89 | | | $ | — | | | $ | 89 | | | $ | 32,294 | | | $ | 32,383 | | | |
Construction | — | | | — | | | 1,091 | | | 1,091 | | | 191,266 | | | 192,357 | | | |
Real Estate Mortgage: | | | | | | | | | | | | | |
Commercial – Owner Occupied | — | | | — | | | 400 | | | 400 | | | 125,550 | | | 125,950 | | | |
Commercial – Non-owner Occupied | — | | | — | | | 14,553 | | | 14,553 | | | 362,899 | | | 377,452 | | | |
Residential – 1 to 4 Family | 58 | | | — | | | 162 | | | 220 | | | 444,600 | | | 444,820 | | | |
Residential - 1 to 4 Family Investment | — | | | — | | | — | | | — | | | 476,210 | | | 476,210 | | | |
Residential – Multifamily | — | | | — | | | — | | | — | | | 95,556 | | | 95,556 | | | |
Consumer | 78 | | | — | | | 70 | | | 148 | | | 6,583 | | | 6,731 | | | |
Total Loans | $ | 136 | | | $ | 89 | | | $ | 16,276 | | | $ | 16,501 | | | $ | 1,734,958 | | | $ | 1,751,459 | | | |
The following table provides the amortized cost of loans on nonaccrual status:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
(amounts in thousands) | | Nonaccrual with no ACL | | Nonaccrual with ACL | | Total Nonaccrual | | Loans Past Due Over 90 Days Still Accruing | | Total Nonperforming |
Commercial and Industrial | | $ | 277 | | | $ | 435 | | | $ | 712 | | | $ | — | | | $ | 712 | |
Construction | | 1,091 | | | — | | | 1,091 | | | — | | | 1,091 | |
Commercial - Owner Occupied | | 717 | | | 400 | | | 1,117 | | | — | | | 1,117 | |
Commercial - Non-owner Occupied | | 3,107 | | | — | | | 3,107 | | | — | | | 3,107 | |
Residential - 1 to 4 Family | | 1,211 | | | — | | | 1,211 | | | — | | | 1,211 | |
Residential - 1 to 4 Family Investment | | — | | | — | | | — | | | — | | | — | |
Residential - Multifamily | | — | | | — | | | — | | | — | | | — | |
Consumer | | — | | | — | | | — | | | — | | | — | |
Total | | $ | 6,403 | | | $ | 835 | | | $ | 7,238 | | | $ | — | | | $ | 7,238 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2022 |
Item 9.(amounts in thousands) | | Changes | | | | Total Nonaccrual | | Loans Past Due Over 90 Days Still Accruing | | |
Commercial and Industrial | | | | | | $ | — | | | $ | — | | | |
Construction | | | | | | 1,091 | | | — | | | |
Commercial - Owner Occupied | | | | | | 587 | | | — | | | |
Commercial - Non-owner Occupied | | | | | | 19,568 | | | — | | | |
Residential - 1 to 4 Family | | | | | | 417 | | | — | | | |
Residential - 1 to 4 Family Investment | | | | | | — | | | — | | | |
Residential - Multifamily | | | | | | — | | | — | | | |
Consumer | | | | | | 70 | | | — | | | |
Total | | | | | | $ | 21,733 | | | $ | — | | | |
Allowance For Credit Losses (ACL)
We maintain the ACL at a level that we believe to be appropriate to absorb estimated credit losses in the loan portfolios as of the balance sheet date. We established our allowance in accordance with guidance provided in Accounting Standard Codification ("ASC") - Financial Instruments - Credit Losses ("ASC 326").
The following tables present the information regarding the allowance for credit losses and associated loan data by portfolio segment under the CECL model in accordance with ASC 326:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2023 |
As of December 31, 2023 | | | | | Real Estate Mortgage | | | | |
(Dollars in thousands) | Commercial and Industrial | | Construction | | Commercial Owner Occupied | | Commercial Non-owner Occupied | | Residential 1 to 4 Family | | Residential 1 to 4 Family Investment | | Residential Multifamily | | Consumer | | Total |
December 31, 2022 | $ | 390 | | | $ | 2,581 | | | $ | 2,298 | | | $ | 9,709 | | | $ | 6,076 | | | $ | 9,381 | | | $ | 1,347 | | | $ | 63 | | | $ | 31,845 | |
Impact of adoption ASC 326 | 168 | | | 1,899 | | | (171) | | | (951) | | | 1,782 | | | (794) | | | (128) | | | 53 | | | 1,858 | |
Charge-offs | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Recoveries | 15 | | | — | | | 3 | | | — | | | — | | | — | | | — | | | — | | | 18 | |
Provisions (benefits) | 353 | | | (1,133) | | | (335) | | | (1,650) | | | 1,203 | | | 196 | | | (170) | | | (54) | | | (1,590) | |
Ending Balance December 31 2023 | $ | 926 | | | $ | 3,347 | | | $ | 1,795 | | | $ | 7,108 | | | $ | 9,061 | | | $ | 8,783 | | | $ | 1,049 | | | $ | 62 | | | $ | 32,131 | |
| | | | | | | | | | | | | | | | | |
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The increase in allowance for credit losses for construction is due to an increase in the vintage loss rate upon the implementation of CECL, partially offset by a decrease in loan balance during the year. The increase in the allowance for credit losses for residential 1 to 4 family is due to an increase in the vintage loss rate upon the implementation of CECL, as well as an increase in loan balance during the year. The decrease in allowance for credit losses for residential 1 to 4 family investment, and residential multifamily is due to lower vintage loss rates upon the implementation of CECL, partially offset by increases in loan balances during the year. The decrease in allowance for credit losses for commercial non-owner occupied is due to lower vintage loss rates upon the implementation of CECL, a decrease in loan balance, and a decrease in loss rates due to a decrease in non-performing loans.
The following tables present the information regarding the allowance for loan losses and associated loan data by portfolio
segment under the incurred loss model:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2022 |
As of December 31, 2022 | | | | | Real Estate Mortgage | | | | |
(Dollars in thousands) | Commercial and Industrial | | Construction | | Commercial Owner Occupied | | Commercial Non-owner Occupied | | Residential 1 to 4 Family | | Residential 1 to 4 Family Investment | | Residential Multifamily | | Consumer | | Total |
December 31, 2021 | $ | 417 | | | $ | 2,662 | | | $ | 2,997 | | | $ | 7,476 | | | $ | 7,045 | | | $ | 7,925 | | | $ | 1,215 | | | $ | 108 | | | $ | 29,845 | |
Charge-offs | — | | | — | | | — | | | — | | | (66) | | | — | | | — | | | — | | | (66) | |
Recoveries | 14 | | | 100 | | | 18 | | | — | | | 134 | | | — | | | — | | | — | | | 266 | |
Provisions | (41) | | | (181) | | | (717) | | | 2,233 | | | (1,037) | | | 1,456 | | | 132 | | | (45) | | | 1,800 | |
Ending Balance December 31 2022 | $ | 390 | | | $ | 2,581 | | | $ | 2,298 | | | $ | 9,709 | | | $ | 6,076 | | | $ | 9,381 | | | $ | 1,347 | | | $ | 63 | | | $ | 31,845 | |
| | | | | | | | | | | | | | | | | |
Allowance for loan losses | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | — | | | $ | — | | | $ | 31 | | | $ | 500 | | | $ | 18 | | | $ | — | | | $ | — | | | $ | — | | | $ | 549 | |
Collectively evaluated for impairment | 390 | | | 2,581 | | | 2,267 | | | 9,209 | | | 6,058 | | | 9,381 | | | 1,347 | | | 63 | | | 31,296 | |
Balance at December 31, 2022 | $ | 390 | | | $ | 2,581 | | | $ | 2,298 | | | $ | 9,709 | | | $ | 6,076 | | | $ | 9,381 | | | $ | 1,347 | | | $ | 63 | | | $ | 31,845 | |
| | | | | | | | | | | | | | | | | |
Loans | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | — | | | $ | 1,091 | | | $ | 587 | | | $ | 19,568 | | | $ | 417 | | | $ | — | | | $ | — | | | $ | 70 | | | $ | 21,733 | |
Collectively evaluated for impairment | 32,383 | | | 191,266 | | | 125,363 | | | 357,884 | | | 444,403 | | | 476,210 | | | 95,556 | | | 6,661 | | | 1,729,726 | |
Balance at December 31, 2022 | $ | 32,383 | | | $ | 192,357 | | | $ | 125,950 | | | $ | 377,452 | | | $ | 444,820 | | | $ | 476,210 | | | $ | 95,556 | | | $ | 6,731 | | | $ | 1,751,459 | |
Collateral-Dependent Loans
The following table presents the collateral-dependent loans by portfolio segment and collateral type at December 31, 2023:
| | | | | | | | | | | | | | | | | | | | |
(amounts in thousands) | | Real Estate | | Business Assets | | Other |
Commercial and Disagreements with Accountants on Accounting and Financial DisclosureIndustrial | | $ | 712 | | | $ | — | | | $ | — | |
Construction | | 1,091 | | | — | | | — | |
Commercial - Owner Occupied | | 1,117 | | | — | | | — | |
Commercial - Non-owner Occupied | | 3,107 | | | — | | | — | |
Residential - 1 to 4 Family | | 1,211 | | | — | | | — | |
Residential - 1 to 4 Family Investment | | — | | | — | | | — | |
Residential - Multifamily | | — | | | — | | | — | |
Consumer | | — | | | — | | | — | |
Total | | $ | 7,238 | | | $ | — | | | $ | — | |
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 December 31, 2023 under the current expected credit loss model.
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(Dollars in thousands) | Term Loans Amortized Cost Basis by Origination Year | Revolving Loans at Amortized Cost Basis | |
As of December 31, 2023 | 2023 | 2022 | 2021 | 2020 | | 2019 | Prior | Total |
Commercial and Industrial | | | | | | | | | |
Pass | $ | 4,724 | | $ | 1,269 | | $ | 87 | | $ | 759 | | | $ | 598 | | $ | 7,154 | | $ | 20,148 | | $ | 34,739 | |
OAEM | — | | — | | — | | — | | | — | | — | | — | | — | |
Substandard | — | | 435 | | — | | — | | | — | | — | | 277 | | 712 | |
Doubtful | — | | — | | — | | — | | | — | | — | | — | | — | |
| $ | 4,724 | | $ | 1,704 | | $ | 87 | | $ | 759 | | | $ | 598 | | $ | 7,154 | | $ | 20,425 | | $ | 35,451 | |
Current period gross charge-offs | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | |
Construction | | | | | | | | | |
Pass | $ | 323 | | $ | 3,335 | | $ | 4,499 | | $ | 195 | | | $ | — | | $ | — | | $ | 148,113 | | $ | 156,465 | |
OAEM | — | | — | | — | | — | | | — | | — | | — | | — | |
Substandard | — | | — | | — | | — | | | — | | 1,091 | | — | | 1,091 | |
Doubtful | — | | — | | — | | — | | | — | | — | | — | | — | |
| $ | 323 | | $ | 3,335 | | $ | 4,499 | | $ | 195 | | | $ | — | | $ | 1,091 | | $ | 148,113 | | $ | 157,556 | |
Current period gross charge-offs | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | |
Commercial – Owner Occupied | | | | | | | | | |
Pass | $ | 19,842 | | $ | 36,030 | | $ | 21,536 | | $ | 7,104 | | | $ | 8,346 | | $ | 45,249 | | $ | 2,518 | | $ | 140,625 | |
OAEM | — | | — | | — | | — | | | — | | — | | — | | — | |
Substandard | — | | — | | — | | — | | | — | | 1,117 | | — | | 1,117 | |
Doubtful | — | | — | | — | | — | | | — | | — | | — | | — | |
| $ | 19,842 | | $ | 36,030 | | $ | 21,536 | | $ | 7,104 | | | $ | 8,346 | | $ | 46,366 | | $ | 2,518 | | $ | 141,742 | |
Current period gross charge-offs | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial – Non-owner Occupied | | | | | | | | | |
Pass | $ | 19,123 | | $ | 93,805 | | $ | 37,002 | | $ | 33,316 | | | $ | 54,484 | | $ | 112,471 | | $ | 1,180 | | $ | 351,381 | |
OAEM | — | | — | | — | | — | | | — | | 15,421 | | — | | 15,421 | |
Substandard | — | | — | | — | | 250 | | | 2,586 | | 271 | | — | | 3,107 | |
Doubtful | — | | — | | — | | — | | | — | | — | | — | | — | |
| $ | 19,123 | | $ | 93,805 | | $ | 37,002 | | $ | 33,566 | | | $ | 57,070 | | $ | 128,163 | | $ | 1,180 | | $ | 369,909 | |
Current period gross charge-offs | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | |
Residential – 1 to 4 Family | | | | | | | | | |
Performing | $ | 58,358 | | $ | 117,044 | | $ | 61,580 | | $ | 33,037 | | | $ | 25,623 | | $ | 148,124 | | $ | 4,705 | | $ | 448,471 | |
Nonperforming | 155 | | — | | — | | 285 | | | 771 | | — | | — | | 1,211 | |
| $ | 58,513 | | $ | 117,044 | | $ | 61,580 | | $ | 33,322 | | | $ | 26,394 | | $ | 148,124 | | $ | 4,705 | | $ | 449,682 | |
Current period gross charge-offs | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | |
Residential – 1 to 4 Family Investment | | | | | | | | | |
Performing | $ | 87,734 | | $ | 138,884 | | $ | 116,487 | | $ | 50,119 | | | $ | 54,576 | | $ | 76,367 | | $ | — | | $ | 524,167 | |
Nonperforming | — | | — | | — | | — | | | — | | — | | — | | — | |
| $ | 87,734 | | $ | 138,884 | | $ | 116,487 | | $ | 50,119 | | | $ | 54,576 | | $ | 76,367 | | $ | — | | $ | 524,167 | |
Current period gross charge-offs | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | |
Residential – Multifamily | | | | | | | | | |
Pass | $ | 2,292 | | $ | 23,030 | | $ | 27,006 | | $ | 12,159 | | | $ | 9,989 | | $ | 28,848 | | $ | — | | $ | 103,324 | |
OAEM | — | | — | | — | | — | | | — | | — | | — | | $ | — | |
Substandard | — | | — | | — | | — | | | — | | — | | — | | $ | — | |
Doubtful | — | | — | | — | | — | | | — | | — | | — | | — | |
| $ | 2,292 | | $ | 23,030 | | $ | 27,006 | | $ | 12,159 | | | $ | 9,989 | | $ | 28,848 | | $ | — | | $ | 103,324 | |
Current period gross charge-offs | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | |
Consumer | | | | | | | | | |
Performing | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | 5,493 | | $ | 16 | | $ | 5,509 | |
Nonperforming | — | | — | | — | | — | | | — | | — | | — | | — | |
| $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | 5,493 | | $ | 16 | | $ | 5,509 | |
Current period gross charge-offs | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | |
An analysis of the credit risk profile by internally assigned grades under the incurred loss model as of December 31, 2022 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2022 | Pass | | OAEM | | Substandard | | Doubtful | | Total |
| (Dollars in thousands) |
Commercial and Industrial | $ | 32,383 | | | $ | — | | | $ | — | | | $ | — | | | $ | 32,383 | |
Construction | 191,266 | | | — | | | 1,091 | | | — | | | 192,357 | |
Real Estate Mortgage: | | | | | | | | | |
Commercial – Owner Occupied | 122,523 | | | 3,027 | | | 400 | | | — | | | 125,950 | |
Commercial – Non-owner Occupied | 362,899 | | | — | | | 14,553 | | | — | | | 377,452 | |
Residential – 1 to 4 Family | 920,868 | | | — | | | 162 | | | — | | | 921,030 | |
Residential – Multifamily | 95,556 | | | — | | | — | | | — | | | 95,556 | |
Consumer | 6,661 | | | — | | | 70 | | | — | | | 6,731 | |
Total | $ | 1,732,156 | | | $ | 3,027 | | | $ | 16,276 | | | $ | — | | | $ | 1,751,459 | |
Modifications to Borrowers Experiencing Financial Difficulty
At December 31, 2023, the Company did not make any modifications to borrowers experiencing financial difficulty.
The following table provides detail on impaired loans and the associated ALLL at December 31, 2022:
| | | | | | | | | | | | | | | | | |
December 31, 2022 | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
| (Dollars in thousands) |
With no related allowance recorded: | | | | | |
Commercial and Industrial | $ | — | | | $ | — | | | $ | — | |
Construction | 1,091 | | | 5,808 | | | — | |
Real Estate Mortgage: | | | | | |
Commercial – Owner Occupied | — | | | — | | | — | |
Commercial – Non-owner Occupied | 11,116 | | | 11,116 | | | — | |
Residential – 1 to 4 Family | 162 | | | 162 | | | — | |
Residential – Multifamily | — | | | — | | | — | |
Consumer | 70 | | | 70 | | | — | |
| 12,439 | | | 17,156 | | | — | |
With an allowance recorded: | | | | | |
Commercial and Industrial | — | | | — | | | — | |
Construction | — | | | — | | | — | |
Real Estate Mortgage: | | | | | |
Commercial – Owner Occupied | 587 | | | 587 | | | 31 | |
Commercial – Non-owner Occupied | 8,452 | | | 8,452 | | | 500 | |
Residential – 1 to 4 Family | 255 | | | 255 | | | 18 | |
Residential – Multifamily | — | | | — | | | — | |
Consumer | — | | | — | | | — | |
| 9,294 | | | 9,294 | | | 549 | |
Total: | | | | | |
Commercial and Industrial | — | | | — | | | — | |
Construction | 1,091 | | | 5,808 | | | — | |
Real Estate Mortgage: | | | | | |
Commercial – Owner Occupied | 587 | | | 587 | | | 31 | |
Commercial – Non-owner Occupied | 19,568 | | | 19,568 | | | 500 | |
Residential – 1 to 4 Family | 417 | | | 417 | | | 18 | |
Residential – Multifamily | — | | | — | | | — | |
Consumer | 70 | | | 70 | | | — | |
| $ | 21,733 | | | $ | 26,450 | | | $ | 549 | |
The following table presents by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the year ended December 31, 2022:
| | | | | | | | | | | |
| 2022 |
| Average Recorded Investment | | Interest Income Recognized |
| (Dollars in thousands) |
Commercial and Industrial | $ | 114 | | | $ | — | |
Construction | 1,129 | | | — | |
Real Estate Mortgage: | | | |
Commercial – Owner Occupied | 1,772 | | | 31 | |
Commercial – Non-owner Occupied | 11,108 | | | 645 | |
Residential – 1 to 4 Family | 541 | | | 20 | |
Residential – Multifamily | — | | | — | |
Consumer | 42 | | | 1 | |
Total | $ | 14,706 | | | $ | 697 | |
At December 31, 2022, we reported performing TDR loans (not reported as non-accrual loans) of $5.5 million. Non-performing TDRs were zero at December 31, 2022. There were no new loans modified as a TDR and no additional commitments to lend additional funds to debtors whose loans have been modified in TDRs for the year ended December 31, 2022.
Loans to Related Parties:In the normal course of business, the Company has granted loans to its executive officers, directors and their affiliates (related parties). All loans to related parties were made in the ordinary course of business.
An analysis of the activity of such related party loans for 2023 is as follows:
| | | | | |
| 2023 |
| (Dollars in thousands) |
Balance, beginning of year | $ | 843 | |
Advances | 301 | |
Less: repayments | (448) | |
Balance, end of year | $ | 696 | |
Pledged Loans: At December 31, 2023 and 2022, approximately$1.3 billionand $923.0 million, respectively, of unpaid principal balance of loans were pledged to the FHLBNY on borrowings (Note 7). This pledge consists of a blanket lien on residential mortgages and certain qualifying commercial real estate loans.
Concentrations of Credit: Most of the Company's lending activity occurs within the areas of southern New Jersey and southeastern Pennsylvania, as well as other markets. We maintain discipline in our lending with a focus on portfolio diversification. In our underwriting process, we have limits on loans to one borrower, one industry as well as product concentrations. Our loan portfolio consists of residential, commercial real estate loans, construction loans, commercial and industry loans as well as consumer loans.
Note 5. OREO
Other real estate owned (OREO) at December 31, 2023 was $1.6 million, compared to $1.6 million at December 31, 2022. The real estate owned at December 31, 2023, consisted of two properties. During 2023, the Company disposed of $161.0 thousand of OREO, recognizing a gain of $38.0 thousand, compared to $2.4 million of OREO sold in 2022, recognizing a gain of $328.0 thousand. The Company did not write-down any OREO property during 2023 or 2022. Operating expenses related to OREO, net of related income, for 2023 and 2022, were $839.0 thousand and $493.0 thousand, respectively.
An analysis of OREO activity for the years ended December 31, 2023 and 2022 is as follows:
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 |
| (Dollars in thousands) |
Balance at beginning of period | $ | 1,550 | | | $ | 1,654 | |
Real estate acquired in settlement of loans | 123 | | | 1,994 | |
Sales of OREO, net | (161) | | | (2,426) | |
Valuation adjustments | 38 | | | 328 | |
Balance at end of period | $ | 1,550 | | | $ | 1,550 | |
Note 6. Deposits
Deposits at December 31, 2023 and 2022, consisted of the following:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (Dollars in thousands) |
Noninterest-bearing demand | $ | 232,189 | | | $ | 352,546 | |
NOWs | 63,017 | | | 83,080 | |
Money market deposits | 567,080 | | | 348,680 | |
Savings deposits | 83,470 | | | 188,540 | |
Time deposits over $250,000 | 93,696 | | | 119,009 | |
Other time deposits | 356,791 | | | 373,689 | |
Brokered time deposits | 156,584 | | | 110,437 | |
Total deposits | $ | 1,552,827 | | | $ | 1,575,981 | |
Scheduled maturities of certificates of deposit at December 31, 2023 are as follows:
| | | | | |
Years Ending December 31, | (Dollars in thousands) |
2024 | $ | 567,442 | |
2025 | 28,327 | |
2026 | 8,363 | |
2027 | 2,723 | |
2028 | 216 | |
| |
Total | $ | 607,071 | |
The following table is a summary of interest expense on deposits by category:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (Dollars in thousands) |
NOWs | $ | 1,377 | | | $ | 417 | |
Money market deposits | 17,120 | | | 3,927 | |
Savings deposits | 1,486 | | | 905 | |
Time deposits | 15,232 | | | 4,890 | |
Brokered time deposits | 6,044 | | | 932 | |
Total | $ | 41,259 | | | $ | 11,071 | |
| | | |
Note 7. Borrowings
An analysis of borrowings at December 31, 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2023 | | 2022 |
| Maturity Date or Range | | Amount | | Weighted Average Rate | | Amount | | Weighted Average Rate |
| | | (Dollars in thousands, except rates) |
Borrowed funds: | | | | | | | | | |
Federal Home Loan Bank advances | Less than one year | | $ | 30,000 | | | 5.61 | % | | $ | 83,150 | | | 1.84 | % |
| One to three years | | 95,000 | | | 4.93 | % | | — | | | — | % |
| | | | | | | | | |
| Total | | $ | 125,000 | | | | | $ | 83,150 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Subordinated debentures, capital trusts | November 2035 | | $ | 5,155 | | | 7.30 | % | | $ | 5,155 | | | 6.35 | % |
| November 2035 | | 5,155 | | | 7.30 | % | | 5,155 | | | 6.35 | % |
| September 2037 | | 3,093 | | | 7.15 | % | | 3,093 | | | 6.27 | % |
| Total | | $ | 13,403 | | | | | $ | 13,403 | | | |
Subordinated debentures notes, net | July 15, 2030 | | $ | 29,708 | | | 6.50 | % | | $ | 29,518 | | | 6.50 | % |
At December 31, 2023, the Company had a $944.4 million line of credit from the FHLBNY, of which $125.0 million, as detailed above, was outstanding, $50.0 million was a letter of credit to secure public deposits, and $769.4 million was unused.
Subordinated Debentures – Capital Trusts: On August 23, 2005, Parke Capital Trust I, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $5,000,000 of variable rate capital trust pass-through securities to investors. The variable interest rate re-prices quarterly at the three-month SOFR plus a spread adjustment of 0.26161% plus 1.66% and was 7.30% at December 31, 2023. Parke Capital Trust I purchased $5,155,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after November 23, 2010, at par. The capital securities must be redeemed upon final maturity of the subordinated debentures on November 23, 2035. Proceeds of approximately $4.2 million were contributed to paid-in capital at the Bank. The remaining $955,000 was retained at the Company for future use.
On August 23, 2005, Parke Capital Trust II, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $5,000,000 of fixed/variable rate capital trust pass-through securities to investors. Currently, the interest rate is variable at 7.30%. The variable interest rate re-prices quarterly at the three-month SOFR plus a spread adjustment of 0.26161% plus 1.66% beginning November 23, 2010. Parke Capital Trust II purchased $5,155,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after November 23, 2010, at par. The capital securities must be redeemed upon final maturity of the subordinated debentures on November 23, 2035. Proceeds of approximately $4.2 million were contributed to paid-in capital at the Bank. The remaining $955,000 was retained at the Company for future use.
On June 21, 2007, Parke Capital Trust III, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $3,000,000 of variable rate capital trust pass-through securities to investors. The variable interest rate re-prices quarterly at the three-month SOFR plus a spread adjustment of 0.26161% plus 1.50% and was 7.15% at December 31, 2023. Parke Capital Trust III purchased $3,093,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after December 15, 2012, at par. The capital securities must be redeemed upon final maturity of the subordinated debentures on September 15, 2037. The proceeds were contributed to paid-in capital at the Bank.
Subordinated Debentures – Notes: On July 15, 2020, Parke Bancorp, Inc. (the “Company”) issued and sold $30 million in aggregate principal amount of its 6.50% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “Notes”) to certain qualified
institutional buyers and accredited investors (the “Purchasers”). The Notes were offered and sold by the Company to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and the provisions of Regulation D promulgated thereunder (the “Private Placement”). The Company intends to use the net proceeds from the offering for general corporate purposes. The Notes have a ten-year term and, from and including the date of issuance to but excluding July 15, 2025, will bear interest at a fixed annual rate of 6.50%, payable semi-annually in arrears. From and including July 15, 2025 to but excluding the maturity date or earlier redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then-current three-month SOFR (provided, that in the event the three-month SOFR is less than zero, the three-month SOFR will be deemed to be zero) plus 644 basis points, payable quarterly in arrears. The Notes are redeemable, in whole or in part, at the Company’s option, on any scheduled interest payment date on or after July 15, 2025, and at any time upon the occurrence of certain events. Any redemption of the Notes will be subject to prior regulatory approval to the extent required. There were approximately $948,000 in costs associated with the issuance of this debt.
Note 8. Premises and Equipment
A summary of the cost and accumulated depreciation and amortization of Company premises and equipment as of December 31, 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | |
| | | 2023 | | 2022 |
| | | (Dollars in thousands) |
Land | | | $ | 1,044 | | | $ | 1,044 | |
Building and improvements | | | 7,275 | | | 7,282 | |
Furniture and equipment | | | 3,946 | | | 4,044 | |
Total premises and equipment | | | 12,265 | | | 12,370 | |
Less: accumulated depreciation and amortization | | | (6,686) | | | (6,412) | |
Premises and equipment, net | | | $ | 5,579 | | | $ | 5,958 | |
Depreciation and amortization expense was $401,000 and $457,000 in 2023 and 2022, respectively.
Note 9. Leases
We lease three retail branches, a loan office, and a parcel of land for a retail branch location. These leases generally have remaining terms of 10 yearsor lessexcept the land lease, which has a remaining lease term of eighty-two years. Some of the leases may include options to renew the leases. The exercise of lease renewal is at our sole discretion.
Our right-of-use assets and lease liabilities for operating leases are included in other assets and other liabilities on our consolidated balance sheets. We use the interest rate implicit in the lease or incremental borrowing rate in determining the present value of lease payments. At December 31, 2023, we had future minimum lease payments of $27.3 million and imputed interest of $24.9 million and lease liability of $2.5 million. The weighted average remaining lease term was 48.1 years and weighted average discount rate was 7.21%at December 31, 2023, respectively. Our operating lease expense is included in occupancy expenses within non-interest expense in our consolidated statements of income. Total operating lease expense consists of operating lease cost, which is recognized on a straight-line basis over the lease term, and variable lease cost, which is recognized based on actual amounts incurred.
The following table presents information about our operating leases at the year ended December 31, 2023.
| | | | | |
Dollars in thousands | 2023 |
Lease right of use assets (ROU) | $ | 2,455 | |
Lease liabilities | $ | 2,455 | |
The following table presents future undiscounted cash flows on our operating leases:
| | | | | |
Years Ending December 31, | (Dollars in thousands) |
2024 | $ | 360 | |
2025 | 365 | |
2026 | 283 | |
2027 | 187 | |
2028 | 192 | |
Thereafter | 25,922 | |
Total undiscounted lease payments | $ | 27,309 | |
Impact of present value discount | $ | (24,854) | |
Note 10. Shareholders’ Equity
Common Stock Dividend: The Company paid a $0.18 per share dividend each quarter 2023. During 2023, the Company paid a total of $8.6 million in common stock cash dividends. The Company paid a $0.16 per share quarterly dividend for the first and second quarters, and a $0.18 per share quarterly dividend for the third and fourth quarters of 2022. During 2022, the Company paid a total of $7.9 million in common stock cash dividends.
The timing and amount of future dividends will be within the discretion of the Board of Directors and will depend on the consolidated earnings, financial condition, liquidity, and capital requirements of the Company and its subsidiaries, applicable governmental regulations and policies, and other factors deemed relevant by the Board.
Treasury Stock: No treasury stock was repurchased during 2023 and 2022.
Stock Options: After shareholder approval in 2020, the 2020 Equity Incentive Plan (the “2020 Plan”) became effective. In addition, the Company also has the 2015 Equity Incentive Plan (the “2015 Plan”). No future awards are being granted under the 2015 Plan. The 2020 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. Collectively, the 2015 Plan and the 2020 Plan are referred to as Stock Option Plans. Under the 2020 Plan, the Company may grant options to purchase up to 935,000 shares of Company's common stock and award up to 55,000 of restricted stock. At December 31, 2023, there were 455,000 shares remaining for future option grants, and 48,482 shares remaining for future restricted stock awards under the plan.
During 2022, options to purchase 202,500 shares of common stock at $21.66 per share were awarded and will expire no later than ten years following the grant date. The options granted vest over a five-year service period, with 20% of the awards vesting on each anniversary of the date of grant. The fair value of the options granted, as computed using the Black-Sholes option-pricing model, was determined to be $4.96 per option based upon the following underlying assumptions: a risk-free interest rate, expected option life, expected stock price volatility, and dividend yield of 3.25%, 6.5 years, 27.07%, and 2.95%. respectively.
The risk-free interest rate was based on the U.S. Treasury yield at the option grant date for securities with a term matching the expected life of the options granted. The expected life was calculated using the "simplified" method provided for under Staff Accounting Bulletin No. 110. Expected volatility was calculated based upon the actual price history of the Company's common stock up until the date of the option grants. The dividend yield was calculated using the previous four quarter payment history.
The Company did not grant any options in 2023.
Compensation expense for stock options was $397.8 thousand, and $348.7 thousand at December 31, 2023 and 2022, respectively.
A summary of stock options at December 31, 2023 and 2022 was as follows:
| | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 | | |
Stock Options: | Shares | | Weighted Average Exercise Price | | | | |
Outstanding at beginning of period | 689,127 | | | $15.93 | | | | |
Granted | — | | | $— | | | | |
Exercised | (3,782) | | | $8.95 | | | | |
Forfeited | (4,000) | | | $21.66 | | | | |
| | | | | | | |
Outstanding at end of period | 681,345 | | | $15.94 | | | | |
| | | | | | | |
Exercisable at end of period | 470,349 | | | $14.90 | | | | |
The total amount of compensation cost remaining to be recognized relating to unvested employees and directors option grants as of December 31, 2023 was $0.9 million. The weighted-average period over which the expense is expected to be recognized is 3.4 years. At December 31, 2023, the intrinsic value of options exercisable and all options outstanding was approximately $2.7 million and $3.1 million, respectively. The aggregate intrinsic value of options exercised in 2023 was $45.0 thousand.
The total amount of compensation cost remaining to be recognized relating to unvested option grants as of December 31, 2022 was $1.3 million. The weighted-average period over which the expense is expected to be recognized was 4.2 years. At December 31, 2022, the intrinsic value of options exercisable and all options outstanding was approximately $1.7 million and $3.3 million, respectively. The aggregate intrinsic value of options exercised in 2022 was $508.6 thousand.
Under the 2020 Plan, the Company was authorized to issue 55,000 shares of restricted stock upon the grant of awards. All restricted stocks vests over five years. The table below presents the status of the restricted stock units at December 31, 2023, and the changes during the year ended December 31, 2023.
| | | | | | | | | | | | | | |
| | Restricted Stock Units | | Weighted Average Grant-Date Fair Value |
Outstanding and unvested at December 31, 2022 | | 5,691 | | 19.69 |
Granted | | — | | | |
Vested | | (2,022) | | 19.77 |
Outstanding and unvested at December 31, 2023 | | 3,669 | | 19.64 |
| | | | |
The Company recognized $40,006 and $46,007 compensation costs of the restricted shares during year 2023 and 2022. The total amount of restricted stock expense remaining to be recognized is $72.0 thousand at December 31, 2023.
Preferred Stock: In December of 2013, the Company completed a private placement of newly designated 6% Non-Cumulative Perpetual Convertible Preferred Stock, Series B, with a liquidation preference of $1,000 per share. The Company sold 20,000 shares in the placement for gross proceeds of $20.0 million. Each share of Series B Preferred Stock is convertible, at the option of the holder into approximately 137.6 shares of Common Stock at December 31, 2023. There were 375 shares of Series B Preferred Stock outstanding at December 31, 2023. Upon full conversion of the outstanding shares of the Series B Preferred Stock, the Company will issue approximately 51,600 shares of Common Stock assuming that the conversion rate does not change. The conversion rate and the total number of shares to be issued would be adjusted for future stock dividends, stock splits and other corporate actions. The conversion rate was set using a conversion price for the common stock of $10.64, which was approximately 20% over the closing price of the Common Stock on October 10, 2013, the day the Series B Preferred Stock was priced.
During 2023, preferred stockholders converted 70 shares of preferred shares into 9,628 shares of common stock, respectively.
There were no preferred shares converted to common stock during 2022.
The Company has recorded dividends on preferred stock in the approximate amount of $26,000 and $27,000 for the years ended December 31, 2023 and 2022, respectively. The Company paid quarterly cash dividends of $15 per share on the preferred stock for year 2023. The preferred stock qualifies for and is accounted for as equity securities and is included in the Company’s Tier I capital since issued.
Note 11. Income Taxes
Income tax expense for 2023 and 2022 consisted of the following:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (Dollars in thousands) |
Current tax expense: | | | |
Federal | $ | 6,886 | | | $ | 12,696 | |
State | 2,336 | | | 2,865 | |
| 9,222 | | | 15,561 | |
Deferred tax expense/(benefit) | 6 | | | (1,308) | |
Income tax expense | $ | 9,228 | | | $ | 14,253 | |
The components of the net deferred tax asset at December 31, 2023 and 2022 were as follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (Dollars in thousands) |
Deferred tax assets: | | | |
Allowance for credit losses | $ | 7,575 | | | $ | 7,758 | |
Supplemental Executive Retirement Plan ("SERP") | 1,636 | | | 1,537 | |
Deferred Loan Fees | 1,322 | | | 1,254 | |
| | | |
Nonaccrued interest | 58 | | | 67 | |
Non-qualified stock options and restricted stock | 318 | | | 210 | |
Write-down on partnership investment | 138 | | | 133 | |
Unrealized loss on securities | 140 | | | 183 | |
PPP Deferred Loan Fees | 1 | | | 4 | |
| | | |
Other | 210 | | | 54 | |
| 11,398 | | | 11,200 | |
Valuation allowance | (138) | | | (133) | |
Total gross deferred tax assets | 11,260 | | | 11,067 | |
Deferred tax liabilities: | | | |
Depreciation | (71) | | | (79) | |
Partnership income | (58) | | | (55) | |
| | | |
Deferred loan costs | (1,869) | | | (1,749) | |
Total gross deferred tax liabilities | (1,998) | | | (1,883) | |
Net deferred tax asset | $ | 9,262 | | | $ | 9,184 | |
A reconciliation of the Company’s effective income tax rate with the statutory federal rate for 2023 and 2022 is as follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (Dollars in thousands) |
At Federal statutory rate | $ | 7,915 | | | $ | 11,776 | |
Adjustments resulting from: | | | |
State income taxes, net of Federal tax benefit | 1,557 | | | 2,400 | |
Non-controlling interest | — | | | — | |
Tax exempt income | (20) | | | (22) | |
BOLI | (155) | | | (119) | |
Stock compensation | (8) | | | (89) | |
Nondeductible expenses | 1 | | | 1 | |
Nondeductible executive compensation | 84 | | | 84 | |
| | | |
| | | |
Other | (146) | | | 222 | |
| $ | 9,228 | | | $ | 14,253 | |
Management has evaluated the Company’s tax positions and concluded that the Company has taken no uncertain tax positions that require adjustments to the financial statements. With few exceptions, the Company is no longer subject to income tax examinations by federal and local tax authorities for years before 2020, and by the State of New Jersey for years before 2019. The Company is still subject to examination for 2020 and after.
The Company recorded income tax expense of $9.2 million on income before taxes of $37.7 million on for the year ended December 31, 2023, resulting in an effective tax rate of 24.5%, compared to income tax expense of $14.3 million on income before taxes of $56.1 million for the same period of 2022, resulting in an effective tax rate of 25.4%.
Note 12. Retirement Plans
The Company has a Supplemental Executive Retirement Plan (“SERP”) covering certain members of management.
The net SERP pension cost was approximately$367.0 thousand in 2023 and $449.0 thousand in 2022. The unfunded benefit obligation, which was included in other liabilities, was approximately $6.4 million at December 31, 2023 and $6.3 million at December 31, 2022.
The benefit obligation at December 31, 2023 and December 31, 2022 was calculated as follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (Dollars in thousands) |
Benefit obligation, January 1 | $ | 6,311 | | | $ | 6,101 | |
Service cost/(benefit) | 27 | | | 121 | |
Interest cost | 340 | | | 328 | |
Benefits paid | (239) | | | (239) | |
Accrued liability at December 31 | $ | 6,439 | | | $ | 6,311 | |
The net SERP pension cost for 2023 and benefit for 2022 was calculated as follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (Dollars in thousands) |
Service cost | $ | 27 | | | $ | 121 | |
Interest cost | 340 | | | 328 | |
| $ | 367 | | | $ | 449 | |
The service cost for 2023 and 2022 are included in the compensation cost in the income statement. The discount rate used in determining the actuarial present value of the projected benefit obligation was 5.5% for 2023 and 2022. Annual benefit
payments are estimated at $525,696 for 2024, $812,346 for 2025, $812,346 for 2026, $812,346 for 2027, $812,346 for 2028 and $4.9 million thereafter.
The Company has a 401(k) Plan covering substantially all employees. Under the Plan, the Company is required to contribute 3% of all qualifying employees’ eligible salary to the Plan. The Plan expense in 2023 was $243.0 thousand and $246.0 thousand in 2022.
Note 13. Regulatory Matters
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is 2.50%. The Bank made a one-time election to opt-out the net unrealized gain or loss on available for sale securities in computing regulatory capital. At December 31, 2023, the Bank was considered “well capitalized" under the regulatory framework for prompt corrective action.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2023 and 2022 the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.
Community Bank Leverage Ratio
The Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), enacted in May 2018, introduced an optional simplified measure of capital adequacy for qualifying community banking organizations with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of tangible equity capital divided by average consolidated assets (“CBLR”) of between 8 and 10 percent. Under the statute, any qualifying depository institution or holding company that maintains a leverage ratio exceeding the CBLR will be considered to satisfy the generally applicable leverage and risk-based regulatory capital requirements.
Under final regulations adopted by the federal banking agencies under the EGRRCPA, a community banking organization may opt into the CBLR framework if it has a Tier 1 leverage ratio of at least 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework will not be required to report or calculate compliance with risk-based capital requirements and will also be considered to have met the well-capitalized ratio requirements under the prompt corrective action regulations.We have elected to use the CBLR framework and is presented as of December 31, 2023.
The Company and Bank's regulatory capital as of December 31, 2023 and 2022, is presented in the following table.
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As of December 31, 2023 | Actual | For Capital Adequacy Purpose* | | |
Company | Amount | Ratio | Amount | Ratio | | | | |
| (Dollars in thousands except ratios) |
Total risk-based capital | $ | 345,607 | | 24.19% | $ | 114,291 | | 8.00% | | | | |
Tier 1 risk-based capital | 297,749 | | 20.84% | 85,718 | | 6.00% | | | | |
Tier 1 leverage | 297,749 | | 15.04% | 79,207 | | 4.00% | | | | |
Tier 1 common equity | 284,346 | | 19.90% | 64,289 | | 4.50% | | | | |
Parke Bank | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Community Bank Leverage Ratio | 326,465 | | 16.49% | 178,233 | | 9.00% | | | | |
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As of December 31, 2022 | Actual | For Capital Adequacy Purpose* | | |
Company | Amount | Ratio | Amount | Ratio | | | | |
| (Dollars in thousands except ratios) |
Total risk-based capital | $ | 298,056 | | 20.59% | $ | 115,797 | | 8.00% | | | | |
Tier 1 risk-based capital | 279,963 | | 19.34% | 86,848 | | 6.00% | | | | |
Tier 1 leverage | 279,963 | | 14.40% | 77,775 | | 4.00% | | | | |
Tier 1 common equity | 266,115 | | 18.38% | 65,136 | | 4.50% | | | | |
Parke Bank | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Community Bank Leverage Ratio | 308,155 | | 15.85% | 175,009 | | 9.00% | | | | |
| | | | | | | | |
* Combination of both community bank leverage approach and the regular rule of capital adequacy.
Note 14. 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 December 31, 2023. Variable-rate commitments are generally issued for less than one year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. Management believes that off-balance sheet risk is not material to the results of operations or financial condition. As of December 31, 2023 and 2022, unused commitments to extend credit amounted to approximately $93.8 million and $159.0 million, respectively.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of December 31, 2023 and 2022, standby letters of credit with customers were $1.5 million and $1.5 million, respectively.
On January 1, 2023, upon the adoption of ASU 2016-13, we recognized $1.0 million cumulative effect decrease to retained earnings for the allowance for credit losses of unfunded lending commitments. At December 31, 2023 and December 31, 2022, the allowance for credit losses of unfunded lending commitments was $0.5 million and zero, respectively. A provision recovery for unfunded lending commitments of $0.5 million was recognized during the year ended December 31, 2023, while there was no provision expense recognized in during the year ended December 31, 2022.
The Company also has entered into an employment contract with the President of the Company, which provides for continued payment of certain employment salary and benefits prior to the expiration date of the agreement and in the event of a change in control, as defined. The Company has also entered into 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 it is not legal at the federal level. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state legal cannabis businesses. A financial institution that provides services to cannabis-related businesses can comply with Bank Secrecy Act (“BSA”) disclosure standards by following the FinCEN guidelines. We maintain stringent written policies and procedures related to the acceptance of such businesses and to the monitoring and maintenance of such business accounts. We conduct a significant due diligence review of the cannabis business before the business is accepted, including confirmation that the business is properly licensed by the applicable state. Throughout the relationship, we continue monitoring the business, including site visits, to ensure that the business continues to meet our stringent requirements, including maintenance of required licenses and periodic financial reviews of the business.
While we believe we are operating in compliance with the FinCEN guidelines, there can be no assurance that federal enforcement guidelines will not change. Federal prosecutors have significant discretion and there can be no assurance that the federal prosecutors will not choose to strictly enforce the federal laws governing cannabis. Any change in the Federal government’s enforcement position, could cause us to immediately cease providing banking services to the cannabis industry.
At December 31, 2023 and 2022, deposit balances from cannabis customers were approximately $96.7 million and $177.3 million, or 6.2% and 11.3% of total deposits, respectively, with three customers accounting for 60.6% and 36.9% of the total at December 31, 2023 and 2022. At December 31, 2023 and 2022, there were cannabis-related loans in the amounts of $27.1 million and $3.8 million, respectively.
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 the early stages of 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.
Note 15. Fair Value
Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures (Topic 820) of FASB Accounting Standards Codification, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
Fair value is a market-based measurement, not an entity-specific measurement. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:
Level 1 Input:
1)Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 Inputs:
1)Quoted prices for similar assets or liabilities in active markets.
2)Quoted prices for identical or similar assets or liabilities in markets that are not active.
3)Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”
Level 3 Inputs:
1)Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.
2)These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
Fair Value on a Recurring Basis:
The following is a description of the Company’s valuation methodologies for assets carried at fair value on a recurring basis. These methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes that its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting measurement date.
Investments in Available for Sale Securities:
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, 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 include mortgage-backed securities, corporate debt obligations, and collateralized mortgage-backed securities.
The table below presents the balances of assets and liabilities measured at fair value on a recurring basis at December 31, 2023 and 2022.
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Financial Assets | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (Dollars in thousands) |
Investment securities available for sale | | | | | | | | |
As of December 31, 2023 | | | | | | | | |
| | | | | | | | |
Residential mortgage-backed securities | | — | | | 7,095 | | | — | | | 7,095 | |
| | | | | | | | |
| | | | | | | | |
Total | | $ | — | | | $ | 7,095 | | | $ | — | | | $ | 7,095 | |
As of December 31, 2022 | | | | | | | | |
Corporate debt obligations | | $ | — | | | $ | 500 | | | $ | — | | | $ | 500 | |
Residential mortgage-backed securities | | — | | | 8,866 | | | — | | | 8,866 | |
Collateralized mortgage-backed securities | | — | | | — | | | — | | | — | |
| | | | | | | | |
Total | | $ | — | | | $ | 9,366 | | | $ | — | | | $ | 9,366 | |
For the year ended December 31, 2023, there were no transfers between the levels within the fair value hierarchy.
There were no level 3 assets or liabilities held for the year ended at December 31, 2023 and December 31, 2022.
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).
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Financial Assets | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (Dollars in thousands) |
As of December 31, 2023 | | | | | | | | |
Collateral dependent loans | | $ | — | | | $ | — | | | $ | 1,655 | | | $ | 1,655 | |
OREO | | $ | — | | | $ | — | | | $ | 1,550 | | | $ | 1,550 | |
As of December 31, 2022 | | | | | | | | |
Collateral dependent loans | | $ | — | | | $ | — | | | $ | 1,091 | | | $ | 1,091 | |
OREO | | $ | — | | | $ | — | | | $ | 1,550 | | | $ | 1,550 | |
All collateral dependent individually evaluated loans have an independent third-party full appraisal to determine the NRV based on the fair value of the underlying collateral, less cost to sell (a range of 5% to 10%) and other costs, such as unpaid real estate taxes, that have been identified. The appraisal will be based on an "as-is" valuation and will follow a reasonable valuation method that addresses the direct sales comparison, income, and cost approaches to market value, reconciles those approaches, and explains the elimination of each approach not used. Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value.
OREO consists of real estate properties which are recorded at fair value. All properties have an independent third-party full appraisal to determine the fair value, less cost to sell (a range of 5% to 10%) and other costs, such as unpaid real estate taxes, that have been identified. The appraisal will be based on an "as-is" valuation and will follow a reasonable valuation method that addresses the direct sales comparison, income, and cost approaches to market value, reconciles those approaches, and explains
the elimination of each approach not used. Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value.
The following table summarizes the carrying amounts and fair values for financial instruments at December 31, 2023 and December 31, 2022:
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December 31, 2023 | Carrying Amount | | Fair Value |
| Total | | Level 1 | | Level 2 | | Level 3 |
| (Dollars in thousands) |
Financial Assets: | |
Cash and cash equivalents | $ | 180,376 | | | $ | 180,376 | | | $ | 180,376 | | | $ | — | | | $ | — | |
Investment securities AFS | 7,095 | | | 7,095 | | | — | | | 7,095 | | | — | |
Investment securities HTM | 9,292 | | | 7,892 | | | — | | | 7,892 | | | — | |
Restricted stock | 7,636 | | | 7,636 | | | — | | | — | | | 7,636 | |
| | | | | | | | | |
Loans, net | 1,755,209 | | | 1,727,842 | | | — | | | 1,718,866 | | | 8,976 | |
Accrued interest receivable | 8,555 | | | 8,555 | | | — | | | 8,555 | | | — | |
| | | | | | | | | |
Financial Liabilities: | | | | | | | | | |
Non-time deposits | $ | 945,756 | | | $ | 945,756 | | | $ | 945,756 | | | $ | — | | | $ | — | |
Time deposits | — | | | 605,216 | | | — | | | 605,216 | | | — | |
Borrowings | 168,111 | | | 172,985 | | | — | | | 172,985 | | | — | |
Accrued interest payable | 4,146 | | | 4,146 | | | — | | | 4,146 | | | — | |
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December 31, 2022 | Carrying Amount | | Fair Value |
| Total | | Level 1 | | Level 2 | | Level 3 |
| (Dollars in thousands) |
Financial Assets: | |
Cash and cash equivalents | $ | 182,150 | | | $ | 182,150 | | | $ | 182,150 | | | $ | — | | | $ | — | |
Investment securities AFS | 9,366 | | | 9,366 | | | — | | | 9,366 | | | — | |
Investment securities HTM | 9,378 | | | 7,805 | | | — | | | 7,805 | | | — | |
Restricted stock | 5,439 | | | 5,439 | | | — | | | — | | | 5,439 | |
| | | | | | | | | |
Loans, net | 1,719,614 | | | 1,661,974 | | | — | | | 1,641,444 | | | 20,530 | |
Accrued interest receivable | 8,768 | | | 8,768 | | | — | | | 8,768 | | | — | |
| | | | | | | | | |
Financial Liabilities: | | | | | | | | | |
Non-time deposits | $ | 972,846 | | | $ | 972,846 | | | $ | — | | | $ | 972,846 | | | $ | — | |
Time deposits | 603,135 | | | 609,097 | | | — | | | 609,097 | | | — | |
Borrowings | 126,071 | | | 127,254 | | | — | | | 127,254 | | | — | |
Accrued interest payable | 2,664 | | | 2,664 | | | — | | | 2,664 | | | — | |
Note 16. Parent Company Only Financial Statements
Condensed financial information of the parent company only is presented in the following two tables:
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Balance Sheets | December 31, |
| | | |
| 2023 | | 2022 |
| (Dollars in thousands) |
Assets: | | | |
Cash | $ | 4,111 | | | $ | 4,059 | |
Investments in subsidiaries | 326,464 | | | 308,030 | |
| | | |
Total assets | $ | 330,575 | | | $ | 312,089 | |
Liabilities and Equity: | | | |
Subordinated debentures | $ | 43,111 | | | $ | 42,921 | |
Other liabilities | 3,147 | | | 3,134 | |
Equity | 284,317 | | | 266,034 | |
Total liabilities and equity | $ | 330,575 | | | $ | 312,089 | |
| | | |
| | | |
Statements of Income | Years ended December 31, |
| 2023 | | 2022 |
| (Dollars in thousands) |
Income: | | | |
Dividends from bank subsidiary | $ | 11,772 | | | $ | 10,766 | |
Total income | 11,772 | | | 10,766 | |
Expense: | | | |
Interest on subordinated debentures | $ | 3,048 | | | $ | 2,586 | |
Salary | 160 | | | 160 | |
Other expenses | 118 | | | 118 | |
Total expenses | 3,326 | | | 2,864 | |
Net Income | 8,446 | | | 7,902 | |
Equity in undistributed income of subsidiaries | 20,016 | | | 33,921 | |
Net income | 28,462 | | | 41,823 | |
Preferred stock dividend and discount accretion | (26) | | | (27) | |
Net income available to common shareholders | $ | 28,436 | | | $ | 41,796 | |
| | | | | | | | | | | |
Statements of Cash Flows |
| Years ended December 31, |
| 2023 | | 2022 |
| (Dollars in thousands) |
Cash Flows from Operating Activities | | | |
Net income | $ | 28,462 | | | $ | 41,823 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Equity in undistributed earnings of subsidiaries | (20,016) | | | (33,921) | |
Amortization of subordinate debt issuance costs | 190 | | | 190 |
Changes in | | | |
(Increase) decrease in other assets | — | | | (2) | |
Increase in accrued interest payable and other accrued liabilities | 12 | | | 55 | |
| | | |
Net cash provided by operating activities | 8,648 | | | 8,145 | |
| | | |
| | | |
| | | |
Cash Flows from Financing Activities | | | |
| | | |
| | | |
Proceeds from exercise of stock options | 33 | | | 406 | |
Payment of dividend on preferred stock and common stock | (8,629) | | | (7,886) | |
Net cash used in financing activities | (8,596) | | | (7,480) | |
Increase in cash and cash equivalents | 52 | | | 665 | |
Cash and Cash Equivalents, January 1, | 4,059 | | | 3,394 | |
Cash and Cash Equivalents, December 31, | $ | 4,111 | | | $ | 4,059 | |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
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Item 9A. | Controls and Procedures |
Item 9A. Controls and Procedures.
(a) Disclosure Controls and Procedures
Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), the Company’s principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Annual Report on Form 10-K such disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting
1. Management’s Annual Report on Internal Control Over Financial Reporting.
Management’s report on the Company’s internal control over financial reporting appears in the Company’s financial statements that are contained in the 2017 Annual Report filed as Exhibit 13 to this Annual Report on Form 10-K. 10-K immediately following Item 8.Such report is incorporated herein by reference.
2.Changes in internalInternal control over financial reporting.
During the last quarter of the year under report, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
3.Internal Control Over Financial ReportingItem 9B. Other Information.
The effectiveness of the Company’s internal control over financial reporting at December 31, 2017, has been audited by RSM US LLP, an independent registered public accounting firm, as stated in the Report of Independent Registered Public Accounting Firm appearing in in the Company’s financial statements that are contained in the Annual Report. Such report is incorporated herein by reference.
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Item 9B. | Other Information |
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
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Item 10. | Directors, Executive Officers and Corporate Governance |
Item 10.Directors, Executive Officers and Corporate Governance.
The information contained under the headings “Section 16(a) Beneficial Ownership Reporting Compliance”, “Proposal I - Election of Directors”,Directors,” and “Corporate Governance” and "Compensation Committee Report" in the Company’s Proxy Statement for its 20182024 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.
The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Code of Ethics will be furnished without charge upon written request to the Chief Financial Officer, Parke Bancorp, Inc., 601 Delsea Drive, Washington Township, New Jersey, 08080.
There have been no material changes to the procedures by which security holders may recommend nominees to the Registrant’s Board of Directors since the date of the Registrant’s last proxy statement mailed to its stockholders.
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Item 11. | Executive Compensation |
Item 11.Executive Compensation.
The information contained in the sections captioned “Compensation Discussion and Analysis,” “Executive Compensation,” and “Director Compensation,” “Corporate Governance - Committees of the Board of Directors - Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the Proxy Statement is incorporated herein by reference.
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
(a) Security Ownership of Certain Beneficial Owners
The information contained in the section captioned “Principal Holders of our Common Stock” in the Proxy Statement is incorporated herein by reference.
(b) Security Ownership of Management
The information contained in the sections captioned “Principal Holders of our Common Stock” and “Proposal I – Election of Directors” in the Proxy Statement is incorporated herein by reference.
(c) Management of the Registrant knows of no arrangements, including any pledge by any person of securities of the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
Set forth below is information as of December 31, 2017,2023, with respect to compensation plans under which equity securities of the Registrant are authorized for issuance.
| | Equity compensation plans approved by shareholders | ( a ) Number of Securities to be issued upon exercise of outstanding options | | ( b ) Weighted-average exercise price of outstanding options | | ( c ) Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a)) |
Equity compensation plans approved by security holders | | Equity compensation plans approved by security holders | ( a ) Number of Securities to be issued upon exercise of outstanding options | | ( b ) Weighted-average exercise price of outstanding options | | ( c ) Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a)) |
2020 Equity Incentive Plan | | 2020 Equity Incentive Plan | 461,146 | | $16.23 | | 455,000 |
2015 Equity incentive plan | 162,392 | | $9.45 | | 442,608 | 2015 Equity incentive plan | 220,199 | | $15.33 | | — |
Equity compensation plans not approved by security holders | |
None | |
None | |
None | |
Total | 162,392 | | $9.45 | | 442,608 |
Total | |
Total | | 681,345 | | $15.94 | | 675,199 |
The information contained in the sections captioned “Related Party Transactions” and “Corporate Governance” in the Proxy Statement is incorporated herein by reference.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this Reportreport to be signed on its behalf by the undersigned, thereunto duly authorized.