Parke Bancorp - 10-Q quarterly report FY2019 Q1

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2019.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File No. 000-51338

PARKE BANCORP, INC.

(Exact name of registrant as specified in its charter)



New Jersey	65-1241959
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

601 Delsea Drive, Washington Township, New Jersey	08080
(Address of principal executive offices)	(Zip Code)

856-256-2500

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [ ]

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):

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ X] Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbols	Name of Each Exchange on Which Registered
Common Stock, par value $0.10 per share	PKBK	The Nasdaq Stock Market, LLC

As of May 1, 2019, there were 10,759,963 shares of the registrant's common stock ($0.10 par value) outstanding.

INDEX



		Page
Part I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	1
	Consolidated Statements of Income for the three months ended March 31, 2019 and 2018	2
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018	3
	Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2019 and 2018	4
	Consolidated Statements of Cash Flow for the three months ended March 31, 2019 and 2018	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	36

SIGNATURES		38

EXHIBITS and CERTIFICATIONS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Parke Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)

(Dollars in thousands except share and per share data)



	March 31, 2019			December 31, 2018
Assets
Cash and due from banks	$	4,981		$	5,915
Federal funds sold and other interest bearing deposits with banks	183,537			148,556
Cash and cash equivalents	188,518			154,471
Investment securities available for sale, at fair value	30,567			31,278
Investment securities held to maturity (fair value of $1,346 at March 31, 2019 and $1,292 at December 31, 2018)	1,126			1,113
Total investment securities	31,693			32,391
Loans held for sale	—			419
Loans, net of unearned income	1,298,697			1,241,157
Less: Allowance for loan losses	(19,810		)	(19,075		)
Net loans	1,278,887			1,222,082
Accrued interest receivable	5,760			5,191
Premises and equipment, net	6,865			6,783
Other real estate owned (OREO)	5,156			5,124
Restricted stock, at cost	5,858			5,858
Bank owned life insurance (BOLI)	25,956			25,809
Deferred tax asset	6,392			6,511
Other assets	3,080			2,759
Total Assets	$	1,558,165		$	1,467,398
Liabilities and Equity
Liabilities
Deposits
Noninterest-bearing deposits	$	375,326		$	360,329
Interest-bearing deposits	889,982			823,544
Total deposits	1,265,308			1,183,873
FHLBNY borrowings	104,650			104,650
Subordinated debentures	13,403			13,403
Accrued interest payable	1,786			1,390
Other liabilities	11,903			9,086
Total liabilities	1,397,050			1,312,402
Equity
Preferred stock,1,000,000 shares authorized, $1,000 liquidation value Series B non-cumulative convertible; 560 shares and 1,224 shares outstanding at March 31, 2019 and December 31, 2018, respectively	560			1,224
Common stock, $.10 par value; authorized 15,000,000 shares; Issued: 11,044,485 shares at March 31, 2019 and 10,953,081 shares at December 31, 2018	1,104			1,095
Additional paid-in capital	113,561			112,807
Retained earnings	47,624			42,079
Accumulated other comprehensive loss	(272		)	(633		)
Treasury stock, 284,522 shares at March 31, 2019 and December 31, 2018, at cost	(3,015		)	(3,015		)
Total shareholders’ equity	159,562			153,557
Noncontrolling interest in consolidated subsidiaries	1,553			1,439
Total equity	161,115			154,996
Total liabilities and equity	$	1,558,165		$	1,467,398

See accompanying notes to consolidated financial statements

Parke Bancorp Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)



	For the Three Months Ended March 31,
	2019			2018
	(Dollars in thousands except share data)
Interest income:
Interest and fees on loans	$	17,441		$	13,013
Interest and dividends on investments	315			349
Interests on federal funds sold and deposits with banks	601			146
Total interest income	18,357			13,508
Interest expense:
Interest on deposits	3,963			1,953
Interest on borrowings	962			531
Total interest expense	4,925			2,484
Net interest income	13,432			11,024
Provision for loan losses	700			400
Net interest income after provision for loan losses	12,732			10,624
Noninterest income:
Gain on sale of SBA loans	40			178
Loan fees	191			151
Bank owned life insurance income	147			150
Service fees on deposit accounts	381			286
Other	160			101
Total noninterest income	919			866
Noninterest expense:
Compensation and benefits	2,141			1,954
Professional services	391			374
Occupancy and equipment	471			421
Data processing	218			197
FDIC insurance and other assessments	27			77
OREO expense	75			169
Other operating expense	837			703
Total noninterest expense	4,160			3,895
Income before income tax expense	9,491			7,595
Income tax expense	2,316			1,835
Net income attributable to Company and noncontrolling interest	7,175			5,760
Net (income) loss attributable to noncontrolling interest	(114		)	—
Net income attributable to Company	7,061			5,760
Preferred stock dividend and discount accretion	1			239
Net income available to common shareholders	$	7,060		$	5,521
Earnings per common share:
Basic	$	0.66		$	0.63
Diluted	$	0.65		$	0.53
Weighted average shares outstanding:
Basic	10,744,896			8,822,255
Diluted	10,912,164			10,908,148

All share and per share information as of March 31, 2018 has been adjusted for the stock dividend effective on May 18, 2018.

See accompanying notes to consolidated financial statements

Parke Bancorp Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)



	For the Three Months Ended March 31,
	2019			2018
	( Dollars in thousands)
Net income	$	7,175		$	5,760
Unrealized gains on investment securities, net of reclassification into income:
Unrealized (losses) gains on non-OTTI securities	480			(650		)
Tax impact on unrealized gain (loss)	(119		)	157
Total unrealized (losses) gains on investment securities	361			(493		)
Comprehensive income	$	7,536		$	5,267
Less: Comprehensive income (loss) attributable to noncontrolling interests	114			—
Comprehensive income attributable to the Company	$	7,422		$	5,267

See accompanying notes to consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)



	Preferred Stock			Shares of Common Stock	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Total Shareholders' Equity			Non-Controlling Interest		Total Equity
	(Dollars in thousands except share data)
Balance, December 31, 2017	$	15,971		8,301,497	$	830	$	81,940	$	39,184		$	(130	)	$	(3,015	)	$	134,780		$	—	$	134,780
Net income	—			—	—		—		5,760			—			—			5,760			—		5,760
Common stock options exercised	—			4,586	1		46		—			—			—			47			—		47
Preferred stock shares conversion	(25		)	2,841	—		25		—			—			—			—			—		—
Other comprehensive income	—			—	—		—		—			(493		)	—			(493		)	—		(493		)
Stock compensation expense	—			—	—		18		—			—			—			18			—		18
Dividend on preferred stock	—			—	—		—		(239		)	—			—			(239		)	—		(239		)
Dividend on common stock	—			—	—		—		(962		)	—			—			(962		)	—		(962		)
Balance, March 31, 2018	$	15,946		8,308,924	$	831	$	82,029	$	43,743		$	(623	)	$	(3,015	)	$	138,911		$	—	$	138,911

Balance, December 31, 2018	$	1,224		10,953,081	$	1,095	$	112,807	$	42,079		$	(633	)	$	(3,015	)	$	153,557		$	1,439	$	154,996
Net income	—			—	—		—		7,061			—			—			7,061			114		7,175
Common stock options exercised				8,374	1		47		—			—			—			48			—		48
Preferred stock shares conversion	(664		)	83,030	8		655		—			—			—			(1		)	—		(1		)
Other comprehensive income	—			—	—		—		—			361			—			361			—		361
Stock compensation expense							52								—			52			—		52
Dividend on preferred stock	—			—	—		—		(1		)	—			—			(1		)	—		(1		)
Dividend on common stock	—			—	—		—		(1,515		)	—			—			(1,515		)	—		(1,515		)
Balance, March 31, 2019	$	560		11,044,485	$	1,104	$	113,561	$	47,624		$	(272	)	$	(3,015	)	$	159,562		$	1,553	$	161,115

See accompanying notes to consolidated financial statements

Parke Bancorp Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



	For the Three Months Ended March 31,
	2019			2018
	(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	7,175		$	5,760
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	98			91
Provision for loan losses	700			400
Increase in value of bank-owned life insurance	(147		)	(150		)
Gain on sale of SBA loans	(40		)	(178		)
SBA loans originated for sale	—			(2,548		)
Proceeds from sale of SBA loans originated for sale	459			2,564
Net accretion of purchase premiums and discounts on securities	5			18
Stock based compensation	52			13
Net changes in:
Decrease in accrued interest receivable and other assets	1,153			1,042
Increase in accrued interest payable and other accrued liabilities	1,179			(415		)
Net cash provided by operating activities	10,634			6,597
Cash Flows from Investing Activities:
Repayments and maturities of investment securities available for sale	1,173			1,412
Repayments and maturities of investment securities held to maturity	—			1,205
Net increase in loans	(57,550		)	(30,365		)
Purchases of bank premises and equipment	(180		)	(74		)
Proceeds from sale of OREO, net	13			700
Redemptions of restricted stock	—			450
Net cash used in investing activities	(56,544		)	(26,672		)
Cash Flows from Financing Activities:
Cash dividends	(1,514		)	(1,201		)
Proceeds from exercise of stock options	48			47
Net decrease in FHLBNY and short-term borrowings	—			(10,000		)
Net increase in noninterest-bearing deposits	14,997			1,215
Net increase in interest-bearing deposits	66,438			34,606
Other	(12		)	—
Net cash provided by financing activities	79,957			24,667
Net increase (decrease) in cash and cash equivalents	34,047			4,592
Cash and Cash Equivalents, January 1,	154,471			42,113
Cash and Cash Equivalents, March 31,	$	188,518		$	46,705

Supplemental Disclosure of Cash Flow Information:
Interest paid	$	4,529		$	2,472
Income taxes paid	$	—		$	—

Non-cash Investing and Financing Items
Loans transferred to OREO	$	45		$	290
Establishment of lease liability and right-of-use asset	$	2,043		$	—

See accompanying notes to consolidated financial statements

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

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

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation: We prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary the Bank (including certain partnership interests). Also included are the accounts of Parke Direct Lending LLC ("PDL"), a joint venture formed in 2018 to originate short-term alternative real estate loan products. Parke Bank has a 51% ownership interest in the joint venture. 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. We have eliminated inter-company balances and transactions. We have also reclassified certain prior year amounts to conform to the current year presentation, which did not have a material impact on our consolidated financial condition or results of operations.

The accompanying interim financial statements should be read in conjunction with the annual financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The accompanying interim financial statements for the three months ended March 31, 2019 and 2018 are unaudited. The balance sheet as of December 31, 2018, was derived from the audited financial statements. In the opinion of management, these financial statements include all normal and recurring adjustments necessary for a fair statement of the results for such interim periods. Results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results for the full year.

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

Recently Issued Accounting Pronouncements:

During June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. ASU 2016-13 (Topic 326), replaces the incurred loss impairment methodology in current GAAP with an expected credit loss 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. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently in the process of gathering historical loan data required for the credit loss methodology and is reviewing a model from a third-party vendor. While we expect this standard will have an impact on the Company’s financial statements, we are still in process of conducting our evaluation.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 includes a lessee accounting model that recognizes two types of leases - finance leases and operating leases. The standard requires that a lessee recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. Leases with terms of less than 12 months are exempt from the new standard. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as finance or operating lease. New disclosures to help investors and other financial statement users

better understand the amount, timing, and uncertainty of cash flows arising from leases are also required. These disclosures include qualitative and quantitative requirements, providing information about the amounts recorded in the financial statements. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have adopted the guidance in the first quarter of 2019 under the modified retrospective transition approach. The Company initially recognized right-of-use assets of $1.3 million and lease liabilities of $1.3 million under the operating leases for the lease contracts of its three retail branch locations and initially recognized a right-of-use asset of $750,000 and a lease liability of $750,000 under the finance lease for its 99-year land lease contract of a retail branch location.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU is effective for public business entities for fiscal years beginning after December 15, 2018. The Company adopted the guidance in the first quarter of 2019. The adoption of the guidance did not have a material impact on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities, which requires that entities shorten the amortization period for certain callable debt securities held at a premium and amortize the premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for public business entities for fiscal years beginning after December 15, 2018. The Company adopted the guidance in the first quarter of 2019. The adoption of the guidance did not have any material impact on our consolidated financial statements.

NOTE 3. INVESTMENT SECURITIES

The following is a summary of the Company's investments in available for sale and held to maturity securities as of March 31, 2019 and December 31, 2018:



As of March 31, 2019	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	30,365		107		459		30,013
Collateralized mortgage obligations	53		1		—		54
Total available for sale	$	30,918	$	108	$	459	$	30,567

Held to maturity:
States and political subdivisions	$	1,126	$	220	$	—	$	1,346



As of December 31, 2018	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	31,553		74		906		30,721
Collateralized mortgage obligations	56		1		—		57
Total available for sale	$	32,109	$	75	$	906	$	31,278

Held to maturity:
States and political subdivisions	$	1,113	$	179	$	—	$	1,292

The amortized cost and fair value of debt securities classified as available for sale and held to maturity, by contractual maturity as of March 31, 2019 are as follows:



	Amortized Cost		Fair Value
	(Dollars in thousands)
Available for sale:
Due within one year	$	—	$	—
Due after one year through five years	241		231
Due after five years through ten years	13,711		13,588
Due after ten years	16,966		16,748
Total available for sale	$	30,918	$	30,567

Held to maturity:
Due within one year	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	1,126		1,346
Due after ten years	—		—
Total held to maturity	$	1,126	$	1,346

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

The Company did not sell any securities during the three months ended March 31, 2019. The following tables show the gross unrealized losses and fair value of the Company's investments which are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2019 and December 31, 2018:



As of March 31, 2019	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 thousand)
Available for sale:
Residential mortgage-backed securities	$	—	$	—	$	22,416	$	459	$	22,416	$	459
Total available for sale	$	—	$	—	$	22,416	$	459	$	22,416	$	459



As of December 31, 2018	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	$	12,665	$	257	$	14,527	$	649	$	27,192	$	906
Total available for sale	$	12,665	$	257	$	14,527	$	649	$	27,192	$	906

Other Than Temporarily Impaired Debt Securities (OTTI)

On at least a quarterly basis, we review all debt securities that are in an unrealized loss position for OTTI. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. Amortized cost includes adjustments (if any) made to the cost basis of an investment for accretion, amortization, and previous other-than-temporary impairments. After an investment security is determined to be impaired, we evaluate whether the decline in value is other-than-temporary. Estimating recovery of the amortized cost basis of a debt security is based upon an assessment of the cash flows expected to be collected. If the present value of the cash flows expected to be collected, discounted at the security’s effective yield, is less than the security’s amortized cost, OTTI is considered to have occurred.

For a debt security for which there has been a decline in the fair value below the amortized cost basis, if we intend to sell the security, or if it is more likely than not we will be required to sell the security before recovery of the amortized cost basis, an OTTI write-down is recognized in earnings equal to the entire difference between the amortized cost basis and fair value of the security. For debt securities that are considered OTTI and that we do not intend to sell and will not be required to sell prior to recovery of our amortized cost basis, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows discounted at the security’s effective yield. The remaining difference between the security’s fair value and the present value of expected future cash flows is due to factors that are not credit-related and, therefore, is recognized in other comprehensive income.

We have a process in place to identify debt securities that could potentially have a credit impairment that is other than temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. We consider relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events; (4) any change in rating agencies’ credit ratings at evaluation date from acquisition date and any likely imminent action; (5) for asset-backed securities, the credit performance of the underlying collateral, including delinquency rates, level of non-performing assets, cumulative losses to date, collateral value and the remaining credit enhancement compared with expected credit losses.

The Company’s unrealized loss for the debt securities is comprised of 10 securities in the 12 months or greater loss position at March 31, 2019, and 5 securities in the less than 12 months loss position and 9 securities in the 12 months or greater loss position at December 31, 2018. The mortgage-backed securities that had unrealized losses were issued or guaranteed by the US government or US government sponsored entities. The unrealized losses associated with those mortgage-backed securities are generally driven by changes in interest rates and are not due to credit losses given the explicit or implicit guarantees provided by the U.S. government.

Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, the Company does not consider the unrealized loss in these securities to be OTTI at March 31, 2019.

NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES

As of March 31, 2019, the Company had $1.30 billion in loans receivable outstanding. Outstanding balances include a total net reduction of $96,000 and $105,000 at March 31, 2019 and December 31, 2018, respectively, for unearned income, net deferred loan fees, and unamortized discounts and premiums. We did not have loans held for sale at March 31, 2019 and had $419,000 loans available for sale at December 31, 2018. The portfolios of loans receivable at March 31, 2019 and December 31, 2018, consist of the following:



	March 31, 2019		December 31, 2018
	Amount		Amount
	(Dollars in thousands)
Commercial and Industrial	$	35,089	$	34,640
Construction	145,054		139,877
Real Estate Mortgage:
Commercial – Owner Occupied	141,046		135,617
Commercial – Non-owner Occupied	339,848		321,580
Residential – 1 to 4 Family	564,238		545,391
Residential – Multifamily	59,506		49,628
Consumer	13,916		14,424
Total Loans	$	1,298,697	$	1,241,157

An age analysis of past due loans by class at March 31, 2019 and December 31, 2018 is as follows:



March 31, 2019	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Not Accruing		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
	(Dollars in Thousands)
Commercial and Industrial	$	—	$	—	$	13	$	13	$	35,076	$	35,089	$	—
Construction	—		—		1,365		1,365		143,689		145,054		—
Real Estate Mortgage:
Commercial – Owner Occupied	2,996		—		—		2,996		138,050		141,046		—
Commercial – Non-owner Occupied	1,936		—		—		1,936		337,912		339,848		—
Residential – 1 to 4 Family	—		—		2,062		2,062		562,176		564,238		—
Residential – Multifamily	—		—		—		—		59,506		59,506		—
Consumer	—		—		—		—		13,916		13,916		—
Total Loans	$	4,932	$	—	$	3,440	$	8,372	$	1,290,325	$	1,298,697	$	—



December 31, 2018	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Not Accruing		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
	(Dollars in thousands)
Commercial and Industrial	$	—	$	—	$	14	$	14	$	34,626	$	34,640	$	—
Construction	—		—		1,365		1,365		138,512		139,877		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—		—		—		135,617		135,617		—
Commercial – Non-owner Occupied	—		—		—		—		321,580		321,580		—
Residential – 1 to 4 Family	81		154		1,686		1,921		543,470		545,391		—
Residential – Multifamily	—		—		—		—		49,628		49,628		—
Consumer	62		—		—		62		14,362		14,424		—
Total Loans	$	143	$	154	$	3,065	$	3,362	$	1,237,795	$	1,241,157	$	—

Allowance For Loan and Lease Losses (ALLL)

We maintain the ALLL at a level that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan portfolios as of the balance sheet date. We established our allowance in accordance with guidance provided in Accounting Standard Codification ("ASC") - Contingencies (ASC 450) and Receivables (ASC 310).

The allowance for loan and lease losses represents management’s estimate of probable losses inherent in the Company’s lending activities excluding loans accounted for under fair value. The allowance for loan losses is maintained through charges to the provision for loan losses in the Consolidated Statements of Income as losses are estimated to have occurred. Loans or portions thereof that are determined to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.

The Company performs periodic reviews of its loan and lease portfolios to identify credit risks and to assess the overall collectability of those portfolios. The Company's allowance for loan losses includes a formula-based component and an asset-specific component. The asset-specific component of the allowance relates to loans considered to be impaired, which includes performing troubled debt restructurings (“TDRs”) as well as nonperforming loans. To determine the asset-specific component of the allowance, the loans are evaluated individually based on the borrower's ability to repay amounts owed, collateral, relative risk grade of the loans, and other factors given current events and conditions. The Company generally measures the asset-specific allowance as the difference between the fair value (net realizable value) and the recorded investment of a loan.

The formula-based component of the allowance evaluates the impairments of pools of the loan and lease portfolio collectively. It incorporates a historical valuation allowance and general valuation allowance. The historical loss experience is measured by type of credit and internal risk grade, loss severity, specific homogeneous risk pools. A historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events. The general valuation allowance is based on general economic conditions and other qualitative risk factors both internal and external to the Company. It 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 loan policies, procedures and internal controls; (iii) changes in asset quality; (iv) changes in loan portfolio volume; (v) the composition and concentrations of credit; (vi) the impact of competition on loan structuring and pricing; (vii) the effectiveness of the internal loan review function; (viii) the impact of environmental risks on portfolio risks; (ix) the impact of rising interest rates on portfolio risk; and (x) 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 process of determining the level of the allowance for loan and lease losses requires a high degree of estimate and judgment. It is reasonably possible that actual outcomes may differ from our estimates.

The following tables present the information regarding the allowance for loan and lease losses and associated loan data:



						Real Estate Mortgage
	Commercial and Industrial			Construction		Commercial Owner Occupied			Commercial Non-owner Occupied		Residential 1 to 4 Family		Residential Multifamily		Consumer			Total
Allowance for loan losses	(Dollars in thousands)
Three months ended March 31, 2019
December 31, 2018	$	718		$	1,694	$	2,062		$	5,853	$	7,917	$	621	$	210		19,075
Charge-offs	—			—		—			—		—		—		—			—
Recoveries	6			—		6			21		2		—		—			35
Provisions	(36		)	102		(184		)	524		179		122		(7		)	700
Ending Balance at March 31, 2019	$	688		$	1,796	$	1,884		$	6,398	$	8,098	$	743	$	203		$	19,810

Allowance for loan losses
Individually evaluated for impairment	$	13		$	80	$	34		$	190	$	294	$	—	$	—		$	611
Collectively evaluated for impairment	675			1,716		1,850			6,208		7,804		743		203			19,199
Ending Balance at March 31, 2019	$	688		$	1,796	$	1,884		$	6,398	$	8,098	$	743	$	203		$	19,810

Loans
Individually evaluated for impairment	$	13		$	5,470	$	2,338		$	11,167	$	2,884	$	—	$	—		$	21,872
Collectively evaluated for impairment	35,076			139,584		138,708			328,681		561,354		59,506		13,916			1,276,825
Ending Balance at March 31, 2019	$	35,089		$	145,054	$	141,046		$	339,848	$	564,238	$	59,506	$	13,916		$	1,298,697



						Real Estate Mortgage
	Commercial and Industrial			Construction		Commercial Owner Occupied			Commercial Non-owner Occupied		Residential 1 to 4 Family		Residential Multifamily		Consumer			Total
Allowance for loan losses	(Dollars in thousands)
Three months ended March 31, 2018
December 31, 2017	$	684		$	2,068	$	2,017		$	4,630	$	6,277	$	627	$	230		16,533
Charge-offs	—			—		—			—		—		—		(17		)	(17		)
Recoveries	20			—		136			5		4		—		—			165
Provisions	(149		)	159		(162		)	146		363		21		22			400
Ending Balance at March 31, 2018	$	555		$	2,227	$	1,991		$	4,781	$	6,644	$	648	$	235		$	17,081

Allowance for loan losses
Individually evaluated for impairment	$	16		$	132	$	55		$	248	$	15	$	—	$	—		$	466
Collectively evaluated for impairment	539			2,095		1,936			4,533		6,629		648		235			16,615
Ending Balance at March 31, 2018	$	555		$	2,227	$	1,991		$	4,781	$	6,644	$	648	$	235		$	17,081

Loans
Individually evaluated for impairment	$	16		$	5,897	$	3,699		$	12,004	$	3,189	$	—	$	—		$	24,805
Collectively evaluated for impairment	30,184			96,459		124,079			261,285		439,616		49,612		15,900			1,017,135
Ending Balance at March 31, 2018	$	30,200		$	102,356	$	127,778		$	273,289	$	442,805	$	49,612	$	15,900		$	1,041,940

Impaired Loans

A loan is considered impaired when, based on the current information and events, it is probable that the Company will be unable to collect the payments of principal and interest as of the date such payments were due. Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet payment obligations as they become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provisions. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

All our impaired loans are assessed for recoverability based on an independent third-party full appraisal to determine the net realizable value (“NRV”) based on the fair value of the underlying collateral, less cost to sell and other costs or the present value of discounted cash flows in the case of certain impaired loans that are not collateral dependent.

The following tables provide further detail on impaired loans and the associated ALLL at March 31, 2019 and December 31, 2018:



March 31, 2019	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded:
Commercial and Industrial	$	—	$	—	$	—
Construction	—		—		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—		—
Commercial – Non-owner Occupied	—		—		—
Residential – 1 to 4 Family	1,507		1,507		—
Residential – Multifamily	—		—		—
Consumer	—		—		—
	1,507		1,507		—
With an allowance recorded:
Commercial and Industrial	13		19		13
Construction	5,470		9,960		80
Real Estate Mortgage:
Commercial – Owner Occupied	2,338		2,338		34
Commercial – Non-owner Occupied	11,167		11,167		190
Residential – 1 to 4 Family	1,377		1,377		294
Residential – Multifamily	—		—		—
Consumer	—		—		—
	20,365		24,861		611
Total:
Commercial and Industrial	13		19		13
Construction	5,470		9,960		80
Real Estate Mortgage:
Commercial – Owner Occupied	2,338		2,338		34
Commercial – Non-owner Occupied	11,167		11,167		190
Residential – 1 to 4 Family	2,884		2,884		294
Residential – Multifamily	—		—		—
Consumer	—		—		—
	$	21,872	$	26,368	$	611



December 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded:
Commercial and Industrial	$	—	$	—	$	—
Construction	—		—		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—		—
Commercial – Non-owner Occupied	—		—		—
Residential – 1 to 4 Family	1,131		1,131		—
Residential – Multifamily	—		—		—
Consumer	—		—		—
	1,131		1,131		—
With an allowance recorded:
Commercial and Industrial	14		19		14
Construction	5,589		10,080		69
Real Estate Mortgage:
Commercial – Owner Occupied	2,441		2,441		36
Commercial – Non-owner Occupied	11,299		11,299		192
Residential – 1 to 4 Family	1,383		1,383		299
Residential – Multifamily	—		—		—
Consumer	—		—		—
	20,726		25,222		610
Total:
Commercial and Industrial	14		19		14
Construction	5,589		10,080		69
Real Estate Mortgage:
Commercial – Owner Occupied	2,441		2,441		36
Commercial – Non-owner Occupied	11,299		11,299		192
Residential – 1 to 4 Family	2,514		2,514		299
Residential – Multifamily	—		—		—
Consumer	—		—		—
	$	21,857	$	26,353	$	610

The following table presents by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2019 and 2018:



	Three Months Ended March 31,
	2019				2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Commercial and Industrial	$	14	$	—	$	21	$	—
Construction	5,530		45		10,512		48
Real Estate Mortgage:
Commercial – Owner Occupied	2,390		43		3,774		48
Commercial – Non-owner Occupied	11,233		152		12,081		148
Residential – 1 to 4 Family	2,699		10		3,241		14
Residential – Multifamily	—		—		—		—
Consumer	—		—		—		—
Total	$	21,866	$	250	$	29,629	$	258

Troubled debt restructuring (TDRs)

We did not have any nonperforming TDR loans at March 31, 2019 and December 31, 2018. We reported performing TDR loans (not reported as non-accrual loans) of $18.4 million and $18.8 million, respectively, at March 31, 2019 and December 31, 2018. There were no new loans modified as a TDR and no additional commitments to lend additional funds to debtors whose loans have been modified in TDRs for the three months ended March 31, 2019 and the year ended December 31, 2018, respectively.

A TDR is a loan the terms of which have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. TDRs result from our loss mitigation activities that include rate reductions, extension of maturity, or a combination of both, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. TDRs are classified as impaired loans and are included in the impaired loan disclosures. TDRs are also evaluated to determine whether they should be placed on non-accrual status. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is repaid in full, foreclosed, sold or it meets the criteria to be removed from TDR status.

At the time a loan is modified in a TDR, we consider the following factors to determine whether the loan should accrue interest:


•	Whether there is a period of current payment history under the current terms, typically 6 months;


•	Whether the loan is current at the time of restructuring; and


•	Whether we expect the loan to continue to perform under the restructured terms with a debt coverage ratio that complies with the Bank’s credit underwriting policy of 1.25 times debt service.

TDRs are generally included in nonaccrual loans and may return to performing status after a minimum of six consecutive monthly payments under restructured terms and also meeting other performance indicators. We review the financial performance of the borrower over the past year to be reasonably assured of repayment and performance according to the modified terms. This review consists of an analysis of the borrower’s historical results; the borrower’s projected results over the next four quarters; and current financial information of the borrower and any guarantors. The projected repayment source needs to be reliable, verifiable, quantifiable and sustainable. At the time of restructuring, the amount of the loan principal for which we are not reasonably assured of repayment is charged-off, but not forgiven.

All TDRs are also reviewed quarterly to determine the amount of any impairment. The nature and extent of impairment of TDRs, including those that have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses. For the TDR loans, we had specific reserves of $300,000 and $306,000 in the allowance at March 31, 2019 and December 31, 2018, respectively. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and result in potential incremental losses. These potential incremental losses have been factored into our overall allowance for loan losses estimate.

Credit Quality Indicators: 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.

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 impaired. 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.

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.

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.

An analysis of the credit risk profile by internally assigned grades as of March 31, 2019 and December 31, 2018 is as follows:



At March 31, 2019	Pass		OAEM		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial and Industrial	$	35,076	$	—	$	13	$	—	$	35,089
Construction	133,114		4,249		7,691		—		145,054
Real Estate Mortgage:
Commercial – Owner Occupied	141,046		—		—		—		141,046
Commercial – Non-owner Occupied	339,715		—		133		—		339,848
Residential – 1 to 4 Family	561,344		714		2,180		—		564,238
Residential – Multifamily	59,506		—		—		—		59,506
Consumer	13,916		—		—		—		13,916
Total	$	1,283,717	$	4,963	$	10,017	$	—	$	1,298,697



At December 31, 2018	Pass		OAEM		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial and Industrial	$	34,626	$	—	$	14	$	—	$	34,640
Construction	127,523		4,503		7,851		—		139,877
Real Estate Mortgage:
Commercial – Owner Occupied	135,617		—		—		—		135,617
Commercial – Non-owner Occupied	321,446		—		134		—		321,580
Residential – 1 to 4 Family	542,865		719		1,807		—		545,391
Residential – Multifamily	49,628		—		—		—		49,628
Consumer	14,424		—		—		—		14,424
Total	$	1,226,129	$	5,222	$	9,806	$	—	$	1,241,157

NOTE 5. TIME DEPOSITS

The Company’s total deposits were $1.27 billion and $1.18 billion at March 31, 2019 and December 31, 2018. The time deposits greater than $250,000 were $71.5 million and $59.5 million at March 31, 2019 and December 31, 2018, respectively.

NOTE 6. EQUITY AND CHANGES IN OTHER COMPREHENSIVE INCOME (LOSS)

The Company's total equity was $161.1 million and $155.0 million at March 31, 2019 and December 31, 2018, respectively.

Common stock dividend: On March 19, 2019, the Company declared a quarterly cash dividend of $0.14 per share to the common shareholders of record as of April 11, 2019 and paid the dividend on April 25, 2019.

Preferred stock dividend: The Company paid cash dividend $10,850 to preferred stock holders during the three months ended March 31, 2019.

Conversion of preferred stock: During the three months ended March 31, 2019, preferred stock holders converted 664 shares of preferred shares into 83,030 shares of common shares.

Non-controlling interests: The Company has a joint venture with Bridgestone Capital LLC in PDL LLC, a joint venture formed in 2018 to originate short-term alternative real estate loan products. The Company has a 51% ownership interest in the joint venture.

The changes in accumulated other comprehensive income (loss) consisted of the following for the three months ended March 31, 2019 and 2018:



	For the Three Months Ended March 31,
	2019			2018
	(Dollars in thousands)
Investment securities:
Net unrealized gains (losses) arising during the period	$	480		$	(650	)
Less: Amounts reclassified from accumulated other comprehensive income	—			—
Tax effect related to the unrealized loss during the periods	(119		)	157
Change in other comprehensive income	$	361		$	(493	)

NOTE 7. EARNINGS PER SHARE (“EPS”)

The following tables set forth the calculation of basic and diluted EPS for the three-month periods ended March 31, 2019 and 2018.



	Three months ended March 31,
	2019		2018
	(Dollars in thousands except share and per share data)
Basic earnings per common share
Net income availiable to the Company	$	7,061	$	5,760
Less: Dividend on series B preferred stock	1		239
Net income available to common shareholders	7,060		5,521
Basic weighted-average common shares outstanding	10,744,896		8,822,255
Basic earnings per common share	$	0.66	$	0.63
Diluted earnings per common share
Net income available to common shares	$	7,060	$	5,521
Add: Dividend on series B preferred stock	1		239
Net income available to diluted common shares	7,061		5,760
Basic weighted-average common shares outstanding	10,744,896		8,822,255
Dilutive potential common shares	167,268		2,085,893
Diluted weighted-average common shares outstanding	10,912,164		10,908,148
Diluted earnings per common share	$	0.65	$	0.53

All share and per share information as of March 31, 2018 has been adjusted for the 10% stock dividend effective on May 18, 2018.

NOTE 8. 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 and Loans Held for Sale:

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

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



Financial Assets	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Available for Sale Securities and Loans Held for Sale
As of March 31, 2019
Corporate debt obligations	$	—	$	500	$	—	$	500
Residential mortgage-backed securities	—		30,013		—		30,013
Collateralized mortgage-backed securities	—		54		—		54
Total	$	—	$	30,567	$	—	$	30,567
As of December 31, 2018
Corporate debt obligations	$	—	$	500	$	—	$	500
Residential mortgage-backed securities	—		30,721		—		30,721
Collateralized mortgage-backed securities	—		57		—		57
Loans held for sale			419				419
Total	$	—	$	31,697	$	—	$	31,697

For the three months ended March 31, 2019, there were no transfers between the levels within the fair value hierarchy. There were no level 3 assets or liabilities held during three months ended March 31, 2019 and 2018.

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).



Financial Assets	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
As of March 31, 2019
Collateral-dependent impaired loans	$	—	$	—	$	7,171	$	7,171
OREO	—		—		5,156		5,156
As of December 31, 2018
Collateral-dependent impaired loans	$	—	$	—	$	6,921	$	6,921
OREO	—		—		5,124		5,124

All collateral-dependent impaired 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, or the present value of discounted cash flows in the case of certain impaired loans that are not collateral dependent. 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 that are recorded at fair value based upon current appraised value, or agreements of sale, less estimated disposition costs using level 3 inputs. Properties are reappraised annually.

Fair Value of Financial Instruments

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

For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include cash and cash equivalents, accrued interest receivable, demand and other non-maturity deposits and accrued interest payable.

The Company used the following methods and assumptions in estimating the fair value of the following financial instruments:

Investment Securities: Fair value of securities available for sale is described above. Fair value of held to maturity securities is based upon quoted market prices for identical or similar assets.

Loans Held for Sale: Fair value represents the face value of the guaranteed portion of SBA loans pending settlement.

Loans Receivable: For residential mortgages loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the risk adjusting current interest rates at which similar loans would be made to borrowers with similar credit ratings and same remaining maturities, adjusted for the liquidity discount and underwriting uncertainty.

Restricted stock: Carrying value of Federal Home Loan Bank of New York (“FHLBNY”) and the Atlantic Central Bankers Bank stocks represent the par values of the stocks and is adjusted for impairments if any. The carrying value approximated fair value.

Time deposits: The fair value of time deposits is based on the discounted value of contractual cash flows, where the discount rate is estimated using the market rates currently offered for deposits of similar remaining maturities.

Borrowings: The fair values of FHLBNY borrowings, other borrowed funds and subordinated debt are based on the discounted value of estimated cash flows. The discounted rate is estimated using market rates currently offered for debts with similar credit rating, terms and remaining maturities.

For a further discussion of the Company’s valuation methodologies for financial instruments measured at fair value, see the descriptions in the Company's 2018 Annual Report included in its Annual Report on Form 10-K.

Bank premises and equipment, customer relationships, deposit base and other information required to compute the Company’s aggregate fair value are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of the Company.

The following table summarizes the carrying amounts and fair values for financial instruments at March 31, 2019 and December 31, 2018:



March 31, 2019	Carrying Amount		Fair Value
March 31, 2019	Carrying Amount		Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	188,518	$	188,518	188,518		$	—	$	—
Investment securities AFS	30,567		30,567		—		30,567		—
Investment securities HTM	1,126		1,346		—		1,346		—
Restricted stock	5,858		5,858		—		—		5,858
Loans, net	1,278,887		1,269,821		—		1,248,560		21,261
Accrued interest receivable	5,760		5,760		—		5,760		—

Financial Liabilities:
Non-time deposits	$	751,246	$	751,246	$	—	$	751,246	$	—
Time deposits	514,062		517,560		—		517,560		—
Borrowings	118,053		115,135		—		115,135		—
Accrued interest payable	1,786		1,786		—		1,786		—



December 31, 2018	Carrying Amount		Fair Value
December 31, 2018	Carrying Amount		Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	154,471	$	154,471	$	154,471	$	—	$	—
Investment securities AFS	31,278		31,278		—		31,278		—
Investment securities HTM	1,113		1,292		—		1,292		—
Restricted stock	5,858		5,858		—		—		5,858
Loans held for sale	419		419		—		419		—
Loans, net	1,222,082		1,209,223		—		1,187,975		21,248
Accrued interest receivable	5,191		5,191		—		5,191		—

Financial Liabilities:
Non-time deposits	$	752,512	$	752,512	$	—	$	752,512	$	—
Time deposits	431,361		433,575		—		433,575		$	—
Borrowings	118,053		118,965		—		118,965		—
Accrued interest payable	1,390		1,390		—		1,390		$	—

NOTE 9. COMMITMENTS AND CONTINGENCIES

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. On March 4, 2019, the Bank entered into an agreement with the FHLBNY, for a Municipal Letter of Credit ("MLOC"), of $40.0 million. The MLOC is used to pledge against public deposits and expires on March 3, 2020. There were no outstanding borrowings on the letter of credit as of March 31, 2019.

We provide banking services to customers that are licensed by the States of New Jersey, Pennsylvania, Maryland or New York to do business in the medical-use cannabis industry as growers, processors and dispensaries. Medical-use cannabis businesses are legal in the States of New Jersey, Pennsylvania, Maryland and New York 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 on-boarding of such businesses and to the monitoring and maintenance of such business accounts. We do a deep upfront due diligence review of the cannabis business before the business is on-boarded, including confirmation that the business is properly licensed by the applicable state. Throughout the relationship, we continue monitoring the business, including site visits, to ensure that the business continues to meet our stringent requirements, including maintenance of required licenses and periodic financial reviews of the business.

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

At March 31, 2019 and December 31, 2018, deposit balances from medical-use cannabis customers were approximately $274.2 million and $253.8 million, or 17.6% and 21.4% of total deposits, respectively, with two customers accounting for 40.9% and 65.9% of the total at March 31, 2019 and December 31, 2018. At March 31, 2019 and December 31, 2018, there were cannabis-related loans in the amounts of $2.9 million and $970,000, respectively. We recorded approximately $30,500 and $12,000 of interest income in the three months ended March 31, 2019 and 2018, respectively, related to these loans.

NOTE 10. 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. The final rules implementing Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. 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 being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2019 is 2.5%. The Bank made one-time election to opt-out the net unrealized gain or loss on available for sale securities in computing regulatory capital. At March 31, 2019 and December 31, 2018, the Company and Bank were both considered “well capitalized"

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, under capitalized, significantly under capitalized, and critically under-capitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If under capitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of March 31, 2019 and December 31, 2018, 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. To be categorized as well capitalized, the Bank must maintain minimum total risk based, Tier 1 risk based, Tier 1 common equity, and Tier 1 leverage ratios as set forth in the following tables:



Regulatory Capital Compliance
As of March 31, 2019	Actual				For Capital Adequacy Purposes				For Capital Adequacy Purposes With Capital Conservation Buffer*				To be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands except ratios)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Company:
Total risk-based capital	$	188,542	16.41	%	$	91,896	8.00	%	$	120,614	10.50	%	$	114,871	10.00	%
Tier 1 risk-based capital	174,116		15.16	%	68,922		6.00	%	97,640		8.50	%	91,896		8.00	%
Tier 1 leverage	174,116		12.01	%	58,006		4.00	%	58,006		4.00	%	72,508		5.00	%
Tier 1 common equity	159,027		13.84	%	51,692		4.50	%	80,409		7.00	%	74,666		6.50	%
Parke Bank:
Total risk-based capital	$	188,231	16.39	%	$	91,864	8.00	%	$	120,571	10.50	%	$	114,830	10.00	%
Tier 1 risk-based capital	173,810		15.14	%	68,898		6.00	%	97,605		8.50	%	91,864		8.00	%
Tier 1 leverage	173,810		11.99	%	57,990		4.00	%	57,990		4.00	%	72,488		5.00	%
Tier 1 common equity	172,257		15.00	%	51,673		4.50	%	80,381		7.00	%	74,639		6.50	%



As of December 31, 2018	Actual				For Capital Adequacy Purposes				For Capital Adequacy Purposes With Capital Conservation Buffer*				To be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands except ratios)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Company:
Total risk-based capital	$	182,316	16.73	%	$	87,164	8.00	%	$	107,592	9.88	%	$	108,954	10.00	%
Tier 1 risk-based capital	168,629		15.48	%	65,373		6.00	%	85,802		7.88	%	87,164		8.00	%
Tier 1 leverage	168,629		12.15	%	55,503		4.00	%	55,503		4.00	%	69,378		5.00	%
Tier 1 common equity	153,020		14.04	%	49,029		4.50	%	69,458		6.38	%	70,820		6.50	%
Parke Bank:
Total risk-based capital	$	181,760	16.69	%	$	87,131	8.00	%	$	107,552	9.88	%	$	108,913	10.00	%
Tier 1 risk-based capital	168,078		15.43	%	65,348		6.00	%	85,769		7.88	%	87,131		8.00	%
Tier 1 leverage	168,078		12.10	%	55,569		4.00	%	55,569		4.00	%	69,461		5.00	%
Tier 1 common equity	166,639		15.30	%	49,011		4.50	%	69,432		6.38	%	70,794		6.50	%

*The minimums under Basel III increase by .625% (the capital conservation buffer) annually until 2019. The fully phased-in minimums are 10.5% (Total risk-based capital), 8.5% (Tier 1 risk-based capital), and 7.0% (Tier 1 common equity).

NOTE 11. SUBSEQUENT EVENTS

On April 16, 2019, the Company announced that it will increase its quarterly cash dividend to its common shareholders from $0.14 per share to $0.16 per share. The increase will be effective with the July 2019 dividend payment.

Management has evaluated subsequent events after March 31, 2019 through the date the financial statements were issued or are available to be issued and determined that no other subsequent events than the one disclosed above warranted recognition in or disclosure in the interim financial statements.

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

Forward-Looking Statements

The Company may from time to time make written or oral "forward-looking statements" including statements contained in this Report and in other communications by the Company which are made in good faith pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, such as statements of the Company's plans, objectives, expectations, estimates and intentions, involve risks and uncertainties and are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; the timely development of, and acceptance of, new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); the effect of any change in federal government enforcement of federal laws affecting the medical-use cannabis industry; technological changes; acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive. The Company also cautions readers not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date on which they are given. The Company is not obligated to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after any such date.

Throughout this report, “Parke Bancorp” and “the Company” refer to Parke Bancorp Inc. and its consolidated subsidiaries. The Company is collectively referred to as “we,” “us” or “our.” Parke Bank is referred to as the “Bank.”

In the following discussion we provide information about our results of operations, financial condition, liquidity and asset quality. We intend that this information facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. You should read this section in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2018.

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 in New Jersey and Pennsylvania. The Bank has branches in Galloway Township, Northfield, Washington Township, 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, deposits services, and other financial products through our retail branches and other channels. The Company's results of operations are dependent primarily on its net interest income, which is the difference between the interest income earned on its interest earning-assets and the interest expense paid on its interest-bearing liabilities. In our operations, we have three major lines of lending: residential real estate mortgage, commercial real estate mortgage, and construction lending. Our interest income is primarily generated from our lending and investment activities. Our deposit products include checking, savings, money market accounts, and certificates of deposit. 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.

Our business operations are subject to risks and uncertainties that could materially affect our operating results. While economic growth has continued and the macroeconomic environment remains positive, there continues to be various economic, political and other risks and uncertainties that could impact the Company’s businesses and future results, particularly changes in the U.S. economic condition, market interest rates, the Federal Reserve monetary policy, and other government policies and actions of regulatory agencies.

At March 31, 2019, we had total assets of $1.56 billion, and total equity of $161.1 million. Net income available to common shareholders for three months ended March 31, 2019 was $7.1 million.

Results of Operations

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

Net Income: Our net income available to common shareholders for the first quarter of 2019 increased $1.5 million, or 27.9%, to $7.1 million compared to $5.5 million for the same period last year. Earnings per share were $0.66 per basic common share and $0.65 per diluted common share for the first quarter of 2019 compared to $0.63 per basic common share and $0.53 per diluted common share for the same period last year. The increase in net income available to common shareholders primarily resulted from a $4.8 million increase in interest income, partially offset by a $2.4 million increase in interest expense, a $300,000 increase in the provision for loan and lease losses and a $265,000 increase in non-interest expense.

Net Interest Income: Our net interest income increased $2.4 million, or 21.8%, to $13.4 million for the first quarter of 2019 compared to $11.0 million for the first quarter of 2018. Interest income for the first quarter of 2019 increased to $18.4 million, an increase of $4.8 million, or 35.9%, from $13.5 million for the first quarter of 2018. The increase in interest income resulted from the combined effects of higher average loan balances and higher yields. Interest expense increased to $4.9 million for the three months ended March 31, 2019, from $2.5 million for the three months ended March 31, 2018. The increase was attributable to an increase in average interest bearing deposits and an increase in the average rates paid on deposits and borrowings.

Provision for loan losses: The provision for loan losses increased $300,000 for the three months ended March 31, 2019 to $700,000 compared to $400,000 for the same period last year. The increase was due primarily to higher average loan volume. For more information about our provision and allowance for loan and lease losses and our loss experience, see “Financial Condition-Allowance for Loan and Lease Losses” below and Note 4 - Loans And Allowance For Loan Losses to the unaudited consolidated financial statements.

Non-interest Income: Our non-interest income was $919,000 for the three months ended March 31, 2019, an increase of $53,000 compared to $866,000 for the same period last year. The increase was primarily attributable to an increase in fee income related to the loan and deposit accounts, partially offset by a decrease in gains on the sale of SBA loans. The fee income for the three months ended March 31, 2019 from the commercial deposit accounts of depositors who do business in the medical-use cannabis industry totaled $312,000 and is included in service fees on deposit accounts in the accompanying consolidated statements of income. We did not record deposit fee income from customers in the medical-use cannabis industry during the three months ended March 31, 2018. Please refer to Note 9. Commitments And Contingencies in the notes to the unaudited consolidated financial statements for our banking services to customers who do business in the medical-use cannabis industry.

Non-interest Expense: Our non-interest expense increased $265,000 to $4.2 million for the three months ended March 31, 2019, from $3.9 million for the three months ended March 31, 2018. The increase was primarily due to a $187,000 increase in compensation and benefits and a $50,000 increase in occupancy expense.

Income Tax: Income tax expense was $2.3 million on income before taxes of $9.5 million for the three months ended March 31, 2019, resulting in an effective tax rate of 24.4%, compared to income tax expense of $1.8 million on income before taxes of $7.6 million for the same period of 2018, resulting in an effective tax rate of 24.2%. The increase in income tax expense primarily reflected increased pre-tax income in the first quarter of 2019.

Net Interest Income

Net interest income is the interest earned on debt securities, loans and other interest-earning assets minus the interest paid on deposits, short-term borrowings and long-term debt. The net interest margin is the average yield of net interest income on average earning assets. Net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets.

The following tables presents the average daily balances of assets, liabilities and equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the periods indicated.



	For the Three Months Ended March 31,
	2019							2018
	Average Balance			Interest Income/ Expense		Yield/ Cost		Average Balance			Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands, except percentages)
Assets
Loans	$	1,268,225		$	17,441	5.58	%	$	1,023,851		$	13,013	5.15	%
Investment securities	38,564			315		3.31	%	45,132			349		3.14	%
Federal funds sold and interest bearing deposits	104,720			601		2.33	%	41,736			146		1.42	%
Total interest-earning assets	1,411,509			18,357		5.27	%	1,110,719			13,508		4.93	%
Other assets	57,474							56,299
Allowance for loan losses	(19,402		)					(16,861		)
Total assets	$	1,449,581						$	1,150,157
Liabilities and Shareholders’ Equity
Interest bearing deposits:
NOWs	53,608			$	76	0.57	%	53,912			60		0.45	%
Money markets	205,090			1,096		2.17	%	152,192			431		1.15	%
Savings	125,495			162		0.52	%	172,088			226		0.53	%
Time deposits	370,733			1,930		2.11	%	281,645			872		1.26	%
Brokered certificates of deposit	105,984			699		2.67	%	90,558			364		1.63	%
Total interest-bearing deposits	860,910			3,963		1.87	%	750,395			1,953		1.06	%
Borrowings	118,475			962		3.29	%	118,775			531		1.81	%
Total interest-bearing liabilities	979,385			4,925		2.04	%	869,170			2,484		1.16	%
Non-interest bearing deposits	301,048							136,405
Other liabilities	10,086							6,977
Total non-interest bearing liabilities	311,134							143,382
Equity	159,062							137,605
Total liabilities and shareholders’ equity	$	1,449,581						$	1,150,157
Net interest income				$	13,432						$	11,024
Interest rate spread						3.23	%						3.77	%
Net interest margin						3.86	%						4.03	%

Financial Condition

General

At March 31, 2019, the Company’s total assets were $1.56 billion, an increase of $90.8 million, or 6.2%, from December 31, 2018. The increase in total assets was primarily attributable to the increase in total loans outstanding, primarily one-to-four-family residential loans and commercial non-owner occupied loans, which increased $18.8 million and $18.3 million to $564.2 million and $339.8 million at March 31, 2019, respectively, compared to the balances at December 31, 2018. Cash and cash equivalents increased $34.0 million compared to the cash balance at December 31, 2018.

Total liabilities were $1.40 billion at March 31, 2019. This represented a $84.6 million, or 6.4%, increase from $1.31 billion at December 31, 2018. The increase in total liabilities was primarily due to an increase in total deposits, which increased $81.4 million, or 6.9%, to $1.27 billion at March 31, 2019 from $1.18 billion at December 31, 2018.

Total equity was $161.1 million and $155.0 million at March 31, 2019 and December 31, 2018, respectively, for an increase of $6.1 million from December 31, 2018.

The following table presents certain key condensed balance sheet data as of March 31, 2019 and December 31, 2018:



	March 31, 2019		December 31, 2018
	(Dollars in thousands)
Cash and cash equivalents	188,518		154,471
Investment securities	31,693		32,391
Loans held for sale	—		419
Loans, net of unearned income	1,298,697		1,241,157
Allowance for loan losses	(19,810	)	(19,075	)
Total assets	1,558,165		1,467,398
Total deposits	1,265,308		1,183,873
FHLBNY borrowings	104,650		104,650
Subordinated debt	13,403		13,403
Total liabilities	1,397,050		1,312,402
Total equity	161,115		154,996
Total liabilities and equity	1,558,165		1,467,398

Cash and cash equivalents

Cash and cash equivalents increased $34.0 million to $188.5 million at March 31, 2019 from $154.5 million at December 31, 2018, an increase of 22.0%. The increase was primarily due to the cash received from the increase of deposits.

Investment securities

Total investment securities decreased to $31.7 million at March 31, 2019, from $32.4 million at December 31, 2018, a decrease of $698,000 or 2.2%. The decrease was due to the normal pay downs of mortgage-backed securities. For detailed information on the composition and maturity distribution of our investment portfolio, see NOTE 3 - Investment Securities in the notes to the unaudited consolidated financial statements.

Loans

Our lending relationships are primarily with small to mid-sized businesses and individual consumers residing in and around Southern New Jersey and Philadelphia, Pennsylvania. We focus our lending efforts primarily in three lending areas: residential mortgage loans, commercial mortgage loans, and construction loans.

We originate residential mortgage loans with adjustable and fixed-rates that are secured by1- 4 family and multifamily residential properties. These loans are generally underwritten under terms, conditions and documentation acceptable to the secondary mortgage market. A substantial majority of such loans can be pledged for potential borrowings.

We originate commercial real estate loans that are secured by commercial real estate properties that are owner and non-owner occupied real estate properties. These loans are typically larger in dollar size and are primarily secured by office buildings, retail buildings, warehouses and general purpose business space. The commercial mortgage loans generally have maturities of twenty years, but re-price within five years.

The construction loans we originate provide real estate acquisition, development and construction funds to individuals and real estate developers. The loans are secured by the properties under development. The construction loan funds are disbursed periodically at pre-specified stages of completion.

We also originate commercial and industrial loans, which provide liquidity to businesses in the form of lines of credit and may be secured by accounts receivable, inventory, equipment or other assets. In addition, we have a small consumer loan portfolio providing funds to individual borrowers.

At March 31, 2019, total loan balances net of unearned income, were $1.30 billion, a $57.1 million increase compared to December 31, 2018.

Loans held for sale (HFS): Loans held for sale are comprised of SBA loans originated for sale. We did not have loans held for sale at March 31, 2019 and had loans available for sale of $419,000 at December 31, 2018.

Loans receivable: Loans receivable increased to $1.30 billion at March 31, 2019 from $1.24 billion at December 31, 2018. The increase was primarily due to loan growth from the residential 1 - 4 family mortgage and commercial non-owner occupied loan portfolios. Loans receivable, excluding loans held for sale, as of March 31, 2019 and December 31, 2018, consisted of the following:



	March 31, 2019				December 31, 2018
	Amount		Percentage of Loans to total Loans		Amount		Percentage of Loans to total Loans
	(Dollars in thousands)
Commercial and Industrial	$	35,089	2.7	%	$	34,640	2.8	%
Construction	145,054		11.2	%	139,877		11.3	%
Real Estate Mortgage:
Commercial – Owner Occupied	141,046		10.8	%	135,617		10.9	%
Commercial – Non-owner Occupied	339,848		26.2	%	321,580		25.9	%
Residential – 1 to 4 Family	564,238		43.4	%	545,391		43.9	%
Residential – Multifamily	59,506		4.6	%	49,628		4.0	%
Consumer	13,916		1.1	%	14,424		1.2	%
Total Loans	$	1,298,697	100.00	%	$	1,241,157	100.00	%

Deposits

At March 31, 2019, the Bank’s total deposits increased to $1.27 billion from $1.18 billion at December 31, 2018, an increase of $81.4 million, or 6.9%. The increase in deposits was primarily related to the increase in non-interest bearing deposits and the time deposits.



	March 31,		December 31,
	2019		2018
	(Dollars in thousands)
Noninterest-bearing	$	375,326	$	360,329
Interest-bearing
Checking	58,279		52,721
Savings	121,665		131,127
Money market	195,976		208,335
Time deposits	514,062		431,361

Total deposits	$	1,265,308	$	1,183,873

Borrowings

Total borrowings were $118.1 million at March 31, 2019, unchanged from December 31, 2018.

Equity

Total equity increased to $161.1 million at March 31, 2019 from $155.0 million at December 31, 2018, an increase of $6.1 million, or 3.9%, primarily due to the retention of earnings from the period.

Risk Management and Asset Quality

In the normal course of business the Company is exposed to a variety of operational, reputational, legal, regulatory, market, liquidity, and credit risks that could adversely affect our financial performance and financial position. Sound risk management enables us to serve our customers and deliver for our shareholders.

Our asset risk is primarily tied to credit risk. We define credit risk as the risk of loss associated with a borrower or counterparty default. Credit risk exists with many of our assets and exposures including loans, deposit overdrafts, and assets held-for-sale. The discussion below focuses on our loan portfolios, which represent the largest component of assets on our balance sheet for which we have credit risk.

We manage our credit risk by establishing what we believe are sound credit policies for underwriting new loans, while monitoring and reviewing the performance of our existing loan portfolios. We employ various credit risk management and monitoring activities to mitigate risks associated with loans we hold or originate. In making credit decisions, we consider loan concentrations and related credit quality, economic and market conditions, regulatory mandates, and changes in interest rates.

A key to our credit risk management is adherence to a well-controlled underwriting process. When we originate a loan, we assess the borrower’s ability to meet the loan’s terms and conditions based on the risk profile of the borrower, repayment sources, the nature of underlying collateral, and other support given current events, conditions and expectations. We actively monitor and review our loan portfolio throughout a borrower’s credit cycle. A borrower’s ability to repay can be adversely affected by economic and personal financial changes as well as other factors. Likewise, changes in market conditions and other external factors can affect collateral valuations. We adjust our financial assessments to reflect changes in the financial condition, cash flow, risk profile or outlook of a borrower.

We have established credit monitoring and tracking system and closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. The system supplements the credit review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit risk, loan delinquencies, TDR, nonperforming loans and potential problems loans.

The Company also maintains an outsourced independent loan review program that reviews and validates the credit risk assessment program on a periodic basis. Results of these external independent reviews are presented to management. The external independent loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit risk management personnel.

Although credit policies are designed to minimize risk, management recognizes that loan losses will occur and the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio as well as general and regional economic conditions.

Allowance for Loan and Lease Losses:

We maintain the allowance for loan and lease losses at levels that we believe to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. Refer to the Note 4 - Loans and Allowance for Loan and Lease Losses in the notes to the unaudited consolidated financial statements for further discussion on management's methodology for estimating the allowance for loan losses.

At March 31, 2019, the allowance for loan losses was $19.8 million, as compared to $19.1 million at December 31, 2018. The ratio of the allowance for loan losses to total loans was 1.53% and 1.54% at March 31, 2019 and December 31, 2018, respectively. The ratio of the allowance for loan losses to non-performing assets decreased to 230.5% at March 31, 2019, compared to 232.9% at December 31, 2018. During the three-month period ended March 31, 2019, the Company did not charge off any loans, and recovered $35,000, compared to $17,000 charged off in the three months ended March 31, 2018, and $165,000 in recoveries. Specific allowances for loan losses have been established in the amount of $611,000 at March 31, 2019, as compared to $610,000 on impaired loans at December 31, 2018. We have established reserves for all losses that we believe are both probable and reasonably estimable at March 31, 2019 and December 31, 2018. There can be no assurance, however, that further additions to the allowance will not be required in future periods.

The table below presents changes in the Company’s allowance for loan losses for the periods indicated.



	Three Months Ended March 31,
	2019		2018
	(Dollars in thousands)
Balance at the beginning of the period	$	19,075	$	16,533
Charge-offs:
Commercial and Industrial	—		—
Construction:	—		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—
Commercial – Non-owner Occupied	—		—
Residential – 1 to 4 Family	—		—
Residential – Multifamily	—		—
Consumer	—		(17		)
Total charge - offs	—		(17		)

Recoveries:
Commercial and Industrial	6		20
Construction:	—		—
Real Estate Mortgage:
Commercial – Owner Occupied	6		136
Commercial – Non-owner Occupied	21		5
Residential – 1 to 4 Family	2		4
Residential – Multifamily	—		—
Consumer	—		—
Total recoveries	35		165

Net recoveries (charge-offs)	35		148
Provisions for loan and lease losses	700		400
Balance at the end of the period	$	19,810	$	17,081

Loan Delinquencies and Nonperforming Assets:

We have established credit monitoring and tracking systems and closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency rates may be a key indicator, among other considerations, of credit risk within the loan portfolios.

The measurement of delinquency status is based on the contractual terms of each loan. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans that are 30 days or more past due in terms of principal and interest payments are considered delinquent. Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet payment obligations as they become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provisions. 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. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Delinquent loans totaled $8.4 million, or 0.6% of total loans at March 31, 2019, an increase of $5.0 million from December 31, 2018. At March 31, 2019, loans 30 to 89 days delinquent totaled $4.9 million, an increase of $4.6 million from December 31, 2018. The increase in loans 30 to 89 days delinquent was primarily related to loan relationships with two customers. The owner and non-owner occupied commercial real estate loans of 30 to 89 days delinquent increased $3.0 million and $1.9 million, respectively. Loans delinquent 90 days or more and not accruing interest totaled $3.4 million or 0.3% of total loans at March 31, 2019, an increase of $375,000 from $3.1 million, or 0.2% of total loans at December 31, 2018. The two largest nonperforming loan relationships as of March 31, 2019 were a $1.4 million construction loan and a $427,000 residential one-to-four-family loan.

The table below presents an age analysis of past due loans by loan class and the percentage of the nonperforming loans to total loans at March 31, 2019



March 31, 2019	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Not Accruing (NPL)		Greater than 90 Days and Accruing		Current		Total Loans		NPL to Loan Type %
	(Dollars in thousands except ratios)
Commercial and Industrial	$	—	$	—	$	13	$	—	35,076		$	35,089	0.04	%
Construction	—		—		1,365		—		143,689		145,054		0.94	%
Real Estate Mortgage:
Commercial – Owner Occupied	2,996		—		—		—		138,050		141,046		—	%
Commercial – Non-owner Occupied	1,936		—		—		—		337,912		339,848		—	%
Residential – 1 to 4 Family			—		2,062		—		562,176		564,238		0.37	%
Residential – Multifamily	—		—		—		—		59,506		59,506		—	%
Consumer	—		—		—		—		13,916		13,916		—	%
Total Loans	$	4,932	$	—	$	3,440	$	—	$	1,290,325	$	1,298,697	0.26	%

Impaired Loans

Impaired loans include nonperforming loans and TDRs, regardless of nonperforming status. At March 31, 2019 and December 31, 2018, we had $21.9 million of loans deemed impaired. Impaired loans at March 31, 2019 included $18.4 million of TDR loans.

Troubled Debt Restructurings (TDRs)

We did not have any nonperforming TDR loans at March 31, 2019 and December 31, 2018. We reported performing TDR loans (not reported as non-accrual loans) of $18.4 million and $18.8 million, respectively, at March 31, 2019 and December 31, 2018. 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 March 31, 2019 and the year ended December 31, 2018, respectively.

Other Real Estate Owned (OREO)

OREO at March 31, 2019 was $5.2 million, compared to $6.8 million at March 31, 2018 with the largest property being a condominium development valued at $1.5 million.

An analysis of OREO activity is as follows:



	For the three months ended
	March 31,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	5,124		$	7,248
Real estate acquired in settlement of loans	45			290
Sales of OREO, net	(13		)	(700		)
Balance at end of period	$	5,156		$	6,838

Liquidity and Capital Resources

Liquidity is a measure of our ability to generate cash to support asset growth, meet deposit withdrawals, satisfy other contractual obligations, and otherwise operate on an ongoing basis. At March 31, 2019, our cash position was $188.5 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, which is more volatile than core deposits. The Bank also joined Promontory Inter Financial Network to secure an additional alternative funding source. Promontory provides the Bank an additional source of external funds through their weekly CDARS® settlement process. The rates are comparable to brokered deposits and can be obtained within a shorter period time than brokered deposits. While deposit accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLBNY. As of March 31, 2019, the Company had lines of credit with the FHLBNY of $335.1 million, of which $104.7 million was outstanding at March 31, 2019. We also have an unsecured short term borrowing facility with the Atlantic Community Bankers Bank ("ACBB") for the purchase of federal funds for an amount $10.0 million. At March 31, 2019, there was no outstanding balances under the borrowing facility.

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 March 31, 2019, the Company's investment securities portfolio classified as available for sale was $30.6 million.

We had outstanding loan commitments of $164.5 million at March 31, 2019. Our loan commitments are normally originated with the full amount of collateral. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth.

The following is a discussion of our cash flows for the three months ended March 31, 2019 and 2018.

Operating cash flows were $10.6 million in the three month ended March 31, 2019, compared to $6.6 million for the same period in the prior year. The increase in operating cash flow was primarily due to higher net income and increase in accounts payable.

Cash used for investing was $56.5 million in the three months ended March 31, 2019, compared to $26.7 million in the prior year period. The cash used in the investing activities was primarily due to the cash outflow required for net loan growth during the period.

Cash from financing was $80.0 million in the three months ended March 31, 2019, compared to cash from financing of $24.7 million in the same period of last year. The current year included $81.4 million of cash inflows from deposits partially offset by $1.5 million of dividend payments.

Capital Adequacy

We utilize a comprehensive process for assessing the Company’s overall capital adequacy. We actively review our capital strategies in light of current and anticipated business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, earnings stability, competitive forces, economic conditions, and strength of management. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily manage our capital through the retention of earnings. We also use other meanings to manage our capital. Total equity increased $6.1 million from December 31, 2018, predominantly from the Company’s net income of $7.1 million from the period, net of common and preferred stock dividends of $1.5 million.

Banks and bank holding companies are subject to various regulatory capital requirements administered by federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Company must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Failure to meet minimum capital requirements can result in regulatory actions.

Under the capital rules issued by the Federal Banking agencies, which became effective in January 2015, the Company and the Bank elected to exclude the effects of certain Accumulated Other Comprehensive Income (“AOCI”) items from its regulatory capital calculation. At March 31, 2019, the Bank and the Company were both considered “well capitalized,”

The following table presents the regulatory capital and ratios of the Company and the Bank at March 31, 2019:



	Amount		Ratio		Amount		Ratio
	(Dollars in thousands except ratios)
	Company				Parke Bank
Total risk-based capital	$	188,542	16.41	%	$	188,231	16.39	%
Tier 1 risk-based capital	174,116		15.16	%	173,810		15.14	%
Tier 1 leverage	174,116		12.01	%	173,810		11.99	%
Tier 1 common equity	159,027		13.84	%	172,257		15.00	%

Off-Balance Sheet Arrangement and Contractual Obligations

In the ordinary course of business, we engage in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements include commitments to extend credit, standby letters of credit and other commitments. These transactions are primarily designed to meet the financial needs of our customers.

We enter into commitments to lend funds to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we make commitments, we are exposed to credit risk. However, the maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments 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 March 31, 2019 and December 31, 2018, used commitments to extend credit amounted to approximately $201.4 million and $180.0 million, respectively. Management believes that off-balance sheet risk is not material to the results of operations or financial condition.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At the March 31, 2019 and December 31, 2018, standby letters of credit with customers were $20.0 million and $19.3 million, respectively.

We also have an unsecured short term borrowing facility with the ACBB for the purchase of federal funds for an amount $10.0 million. At March 31, 2019, there was no outstanding balances under the borrowing facility.

We have adequate resources to fund all unfunded commitments to the extent required and meet all contractual obligations as they come due. At March 31, 2019, such contractual obligations were primarily comprised of deposits, secured and unsecured borrowings, interest payments, operating leases and commitments to originating loans.

Critical Accounting Policies

The Company’s accounting policies are more fully described in Note 1 of the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. As disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical

accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Allowance for Loan and Lease Losses: The Company’s accounting policies are more fully described in Note 1 - Description of Business and Summary of Significant Accounting Policies in the Company's 2018 Annual Report. As disclosed in the Note 1, the preparation of financial statements in conformity with 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.

Fair Value Estimates: ASC 820 - Fair Value Measurements defines fair value as a market-based measurement and is the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. We classify fair value measurements of financial instruments based on the three-level fair value hierarchy in the accounting standards. We are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. The fair values of assets may include using estimates, assumptions, and judgments. Valuations of assets or liabilities using techniques non quoted market price are sensitive to assumptions used for the significant inputs. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Changes in underlying factors, assumptions, or estimates used for estimating fair values could materially impact our future financial condition and results of operations.

The majority of our assets recorded at fair value are included in the securities available for sale portfolio. The fair values of our available for sale securities are provided by independent third-party valuation services. We also have a small portfolio of SBA loans recorded at fair value which represents the face value of the guaranteed portion of the SBA loans pending settlement. Other real estate owned (OREO) is recorded at fair value on a non-recurring basis and is based on the values of independent third-party full appraisals, less costs to sell (a range of 5% to 10%). Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value. Refer to Note 8. Fair Value in the Notes to the unaudited consolidated financial statements for further information.

Income Taxes: In the normal course of business, we and our subsidiaries enter into transactions for which the tax treatment is unclear or subject to varying interpretations. We evaluate and assess the relative risks and merits of the tax treatment of transactions, filing positions, filing methods and taxable income calculations after considering statutes, regulations, and other information, and maintain tax accruals consistent with our evaluation of these relative risks and merits. The result of our evaluation and assessment is by its nature an estimate.

When tax returns are filed, it is highly likely that some positions taken would 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. 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.

Current Expected Credit Losses: In June 2016, the Financial Accounting Standards Board adopted a new accounting standard that will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, for public business entities. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which would likely require us to increase our allowance for loan losses, and to greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Evaluation of 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 Quarterly Report on Form 10-Q, such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms.

Internal Controls

Changes in internal control over financial reporting. During the last quarter, there were no changes 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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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”), filed suit in the U.S. District Court for the Eastern District of Pennsylvania, against Parke Bancorp, Inc., Parke Bank 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. Following extensive motion practice over the course of several years, the Court dismissed all of the Plaintiffs’ claims against the Parke Parties, and each of them, with prejudice. Plaintiffs have now appealed the case to the United States Circuit Court of Appeals for the Third Circuit. The matter has been briefed and is now sub judice.

ITEM 1A. RISK FACTORS

Not applicable

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

There were no repurchase of our common stocks during the three months ended March 31, 2019.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



31.1	Certification of CEO required by Rule 13a-14(a).

31.2	Certification of CFO required by Rule 13a-14(a).

32	Certification required by 18 U.S.C. §1350.

101.INS	XBRL Instance Document *

101.SCH	XBRL Schema Document *

101.CAL	XBRL Calculation Linkbase Document *

101.LAB	XBRL Labels Linkbase Document *

101.PRE	XBRL Presentation Linkbase Document *

101.DEF	XBRL Definition Linkbase Document *

* Submitted as Exhibits 101 to this Form 10-Q are documents formatted in XBRL (Extensible Business Reporting Language).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PARKE BANCORP, INC.

Date:	May 9, 2019	/s/ Vito S. Pantilione
		Vito S. Pantilione
		President and Chief Executive Officer (Principal Executive Officer)

Date:	May 9, 2019	/s/ John F. Hawkins
		John F. Hawkins
		Senior Vice President and Chief Financial Officer (Principal Accounting Officer)

Parke Bancorp - 10-Q quarterly report FY2019 Q1

What is the market capitalization of a company?

DISCLAIMER

Contact

Links