PARKE BANCORP, INC. (PKBK)

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

Forward-Looking Statements

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

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

Financial institutions can be affected by changing conditions in the real estate and financial markets. The effects of geopolitical instability, including the conflicts between the U.S./Israel and Iran, Russia and Ukraine, and Israel and Hezbollah/Hamas, foreign currency exchange volatility, volatility in global capital markets, inflationary pressures, higher tariffs, and higher interest rates may meaningfully impact loan production, income levels, and the measurement of certain significant estimates such as the allowance for credit losses. Moreover, in a period of economic contraction, we may experience elevated levels of credit losses, reduced interest income, impairment of financial assets, diminished access to capital markets and other funding sources, and reduced demand for our products and services. Volatility in the housing markets, real estate values and unemployment levels results in significant write-downs of asset values by financial institutions. Our lending relationships are primarily with small to mid-sized businesses and individual consumers residing in and around 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. As a result of this geographic concentration, a significant broad-based deterioration in economic conditions in these areas could have a material adverse impact on the quality of our loan portfolio, results of operations and future growth potential.

Our operations are subject to risks and uncertainties surrounding our exposure to changes in the interest rate environment. Earnings and liquidity depend to a great extent on our interest rates. Interest rates are highly sensitive to many factors beyond our control, including competition, general economic conditions, geopolitical tensions and monetary, trade, tariff, and fiscal policies of various governmental and regulatory authorities, including the Federal Reserve. Conditions such as inflation, deflation, recession, unemployment and other factors beyond our control may also affect interest rates. The nature and timing of any changes in interest rates or general economic conditions and their effect on us cannot be controlled and are difficult to predict. If the rate of interest we pay on our interest-bearing liabilities increases more than the rate of interest we receive on our interest-earning assets, our net interest income, and therefore our earnings, could contract and be materially adversely affected. Our earnings could also be materially adversely affected if the rates on interest-earning assets fall more quickly than those on our interest-bearing liabilities. Changes in interest rates could also create competitive pressures, which could impact our liquidity position.

Changes in interest rates also can affect our ability to originate loans, our ability to obtain and retain deposits, and the value of interest-earning assets, and the ability to realize gains from the sale of such assets, which could all negatively impact shareholder's equity and regulatory capital.

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

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Overview

The following discussion provides information about our results of operations, financial condition, liquidity and asset quality. We intend that this information facilitates your understanding and assessment of significant changes and trends related to our financial condition and results of operations. You should read this section in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

We are a bank holding company and are headquartered in Washington Township, New Jersey. Through the Bank, we provide personal and business financial services to individuals and small to mid-sized businesses primarily in New Jersey and Pennsylvania. The Bank has branches in Galloway Township, Northfield, Washington Township, Collingswood, New Jersey and Philadelphia, Pennsylvania, and a loan office in Philadelphia, Pennsylvania. The vast majority of our revenue and income is currently generated through the Bank.

We manage our Company for the long term. We are focused on the fundamentals of growing customers, loans, deposits and revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our commitments to our customers, shareholders, employees and the communities where we do business. Our approach is concentrated on organically growing and deepening client relationships across our businesses that meet our risk/return measures.

We focus on small to mid-sized business and retail customers and offer a range of loan products, deposits services, and other financial products through our retail branches and other channels. The Company's results of operations are dependent primarily on its net interest income, which is the difference between the interest income earned on its interest earning-assets and the interest expense paid on its interest-bearing liabilities. In our operations, we have three major lines of lending: residential real estate mortgage, commercial real estate mortgage, and construction lending. Our interest income is primarily generated from our lending and investment activities. Our deposit products include checking, savings, money market accounts, and certificates of deposit. 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.

At June 30, 2026, we had total assets of $2.30 billion, and total equity of $346.1 million. Net income available to common shareholders for the three and six months ended June 30, 2026 was $12.2 million, and $24.1 million, respectively.

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Results of Operations

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Net Income: Our net income available to common shareholders for the three months ended June 30, 2026 increased $4.0 million, or 47.8%, to $12.2 million, compared to $8.3 million for the three months ended June 30, 2025.  Earnings per share were $1.04 per basic common share and $1.03 per diluted common share for the three months ended June 30, 2026, compared to $0.70 per basic common share and $0.69 per diluted common share for the same period last year. The increase was primarily due to an increase in net interest income and a decrease in the provision for credit losses, partially offset by an increase in non-interest expense.

Net Interest Income: Our net interest income was $23.0 million for the second quarter of 2026 compared to $17.9 million for the second quarter of 2025, an increase of $5.1 million, or 28.8%. Net interest income increased during the three months ended June 30, 2026, primarily due to an increase in interest and fees on loans, and a decrease in interest expense on deposits and borrowings, partially offset by a decrease in interest on deposits with banks.  Interest income increased $3.4 million, or 9.8%, during the three months ended June 30, 2026 as compared to the same period in the prior year. The increase in interest income was primarily due to an increase of $4.2 million in interest and fees on loans, due to higher loan balances and market interest rates.  Interest from deposits with banks decreased $0.8 million during the three months ended June 30, 2026 as compared to the same period in the prior year, primarily due to lower average cash balances held at the Federal Reserve Bank ("FRB") and lower interest earning rates. The increase in net interest income was also due to a decrease in interest expense on deposits during the three months ended June 30, 2026 of $1.4 million, or 9.3%, primarily due to a decrease in interest rates, partially offset by an increase in balances outstanding.  Interest expense on borrowings decreased during the three months ended June 30, 2026, by $0.3 million, or 31.3%, as compared to the same period in the prior year, due to a decrease in interest rates paid on borrowings, partially offset by an increase in balances outstanding.

Provision for credit losses: For the three months ended June 30, 2026, the provision for credit losses was $0.7 million, compared to a provision for credit losses of $1.0 million for the three months ended June 30, 2025, a decrease of $0.3 million. The decrease in the provision for credit losses for the three months ended June 30, 2026, was due to a decrease in loan balance during the three months ended June 30, 2026, as compared to an increase in loan balances during the same period in 2025, partially offset by an increase in charge-offs during the three months ended June 30, 2026.  The increase in charge-offs was primarily due to one Commercial Non-owner Occupied, distressed office building, which was repossessed and t

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We are a bank holding company and are headquartered in Washington Township, New Jersey. Through the Bank, we provide personal and business financial services to individuals and small to mid-sized businesses primarily in New Jersey, Pennsylvania, and New York. The Bank has branches in Galloway Township, Northfield, Washington Township, and Collingswood, New Jersey and Philadelphia, Pennsylvania. The vast majority of our revenue and income is currently generated through the Bank.

We manage our Company for the long term. We are focused on the fundamentals of growing customers, loans, deposits and revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our commitments to our customers, shareholders, employees and the communities where we do business. Our approach is concentrated on organically growing and deepening client relationships across our businesses that meet our risk/return measures.

We focus on small to mid - sized business and retail customers and offer a range of loan products, deposit services, and other financial products through our retail branches and other channels. The Company's results of operations are dependent primarily on its net interest income, which is the difference between the interest income earned on its interest earning-assets and the interest expense paid on its interest-bearing liabilities. In our operations, we have three major lines of lending: residential real estate mortgage, commercial real estate mortgage, and construction lending. Our interest income is primarily generated from our lending and investment activities. Our deposit products include checking, savings, money market accounts, and certificates of deposit. The majority of our deposit accounts are obtained through our retail banking business, which provides us with low cost funding to grow our lending efforts. The Company also generates income from loan and deposit fees and other non-interest related activities. The Company's non-interest expense primarily consists of employee compensation, administration, and other operating expenses.

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As of December 31, 2025, we had total assets of $2.25 billion, total liabilities of $1.92 billion, and total shareholders' equity of $324.5 million. Net income available to common shareholders for the year ended December 31, 2025 was $37.8 million. In 2025, net income available to common shareholders increased 37.3% over the previous year primarily due to an increase in net interest income, partially offset by an increase in the provision for credit losses, a decrease in non-interest income, and an increase in non-interest expense.  At December 31, 2025, total assets increased 5.0% and total equity increased 8.1%, compared to December 31, 2024.  Our risk based tier 1 capital ratio was 20.5% at December 31, 2025. In addition, during the fiscal year ended December 31, 2025 we returned $8.4 million of capital to our common shareholders through cash dividends, and we repurchased 300,000 common stock shares at a total cost of $6.5 million.

Our business operations are subject to risks and uncertainties that could materially affect our operating results. The extent of such impact will depend on future developments, which are highly uncertain. There continues to be various other risks and uncertainties that could impact the Company’s businesses and future results, such as changes to the economic conditions in the United States, market interest rates, the Federal Reserve's monetary policy, other government policies, and actions of regulatory agencies.  Please refer to "Forward-Looking Statements" above for further information about risks and uncertainties that could affect our operating results.

Results of Operations

Net Income

We recorded net income available to common shareholders of $37.8 million or $3.20 per basic common share and $3.16 per diluted common share, for the year ended December 31, 2025, compared to $27.5 million, or $2.30 per basic common share and $2.27 per diluted common share, for the year ended December 31, 2024, an increase of $10.3 million or 37.3%.

Net Interest Income

Net interest income increased $17.8 million, or 30.2%, to $76.5 million for the year ended December 31, 2025 compared to $58.7 million for the year ended December 31, 2024. The increase in net interest income was primarily due to an increase in interest income of $17.6 million, and a decrease in interest expense of $0.2 million.  Interest income for 2025 increased to $142.7 million, an increase of $17.6 million, or 14.0%, from $125.1 million for 2024, primarily due to an increase in interest and fees on loans of $17.4 million, or 14.7%.  Interest and fees on loans increased during the year ended December 31, 2025, due to higher average outstanding loan balances and higher market interest rates. Interest expense decreased to $66.2 million for 2025, from $66.4 million for 2024, a decrease of $0.2 million, or 0.3%. The decrease in interest expense was primarily due to a decrease interest on borrowings, a decrease in borrowing levels and a decrease in market interest rates.  The decrease was partially offset by an increase in interest expense on deposits during the year ended December 31, 2025, due to a change in the deposit mix.

Comparative Average Balances, Yields and Rates

The following table presents the average daily balances of assets, liabilities and equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the years ended December 31, 2025 and 2024. Interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is net interest income divided by average earning assets. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances and have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

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(1) Interest income includes $4.4 million and $3.6 million of net fee income for the years ended December 31, 2025 and 2024, respectively.

(2) Average balances are net of unearned income and include nonperforming loans.

(3) Includes restricted stock and related dividend income.

Net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.

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Rate/Volume Analysis

For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by the previous rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

Provision for credit losses

Our provision for credi

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