PARKE BANCORP, INC. - FORM 10-K - EX-13 - EXHIBIT 13

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10-K - 10-K - PARKE BANCORP, INC.	pkbk-12312016x10k.htm
EX-32 - EXHIBIT 32 - PARKE BANCORP, INC.	pkbk-q4x12312015ex321.htm
EX-31.2 - EXHIBIT 31.2 - PARKE BANCORP, INC.	pkbk-q4x12312015ex3121.htm
EX-31.1 - EXHIBIT 31.1 - PARKE BANCORP, INC.	pkbk-q4x12312015ex3111.htm

PARKE BANCORP, INC.

2016 ANNUAL REPORT TO SHAREHOLDERS

PARKE BANCORP, INC.

2016 ANNUAL REPORT TO SHAREHOLDERS



TABLE OF CONTENTS

			Page
Section One

Letter to Shareholders................................................................................................................................			1

Selected Financial Data..............................................................................................................................			3

Management’s Discussion and Analysis of Financial Condition and Results of Operations......................			4

Market Prices and Dividends......................................................................................................................			13

Management’s Report on Internal Control Over Financial Reporting.........................................................			15

Section Two

Report of Independent Registered Public Accounting Firm........................................................................			1

Consolidated Financial Statements............................................................................................................			2

Notes to Consolidated Financial Statements..............................................................................................			7

Officers and Corporate Information............................................................................................................			41

To Our Shareholders:

2016 was a memorable year for many reasons. The Presidential election will go down as one of the most fiercely contested, verbally abusive and controversial elections in the Country’s history. The election turned politics and the media upside down. Many “experts” predicted an economic collapse if the election was won by Donald Trump, which sent many businesses into a “wait and see” position, rather than proceeding with any expansion. The uncertainty of the election affected the banking industry, with some believing there would be increased regulatory scrutiny, while others thought there may be some regulatory relief depending on who was elected. Most bank stocks remained flat due to the uncertainty in the market and the M & A industry was somewhat quiet. However, to the surprise of many, the results of the election had the opposite effect on the stock market and specifically the banking industry. The stock market reached new highs and the banking industry enjoyed the “Trump Bump”. Predictions of loosening regulations and tax reductions for businesses and banking revitalized many businesses’ strategic planning, with several major companies announcing plans to expand operations in the United States rather than building abroad. These corporate announcements promised thousands of jobs staying and expanding in the United States. The promise of the repeal or amendment of the Dodd-Frank Act generated optimism that banks would be able to better serve their communities and lessen the cost of some of the current regulatory requirements which would equate to increased profits. Time will tell if the optimism is unfounded or if there will be a new expansion of the economy and the banking industry. There have only been a few new bank charters issued since the financial crisis and reports indicate that there are currently 8 new bank charters pending with the FDIC.

We worked through the many challenges of 2016 and it became a record year for Parke Bancorp. We achieved our fourth straight year of record earnings, opened two new full service branches and we reached one billion dollars in total assets. We opened our Collingswood branch in September. It has far exceeded our expectations for growth and already has over $20mm in deposits. Our Chinatown office opened in December and is off to a great start with deposits and loans. We believe these two new branches have enhanced our franchise value as a Philadelphia area bank, and now one of the few local community banks that is over a billion dollars in assets. This growth puts us in a great position to take advantage of the continued strength of the Philadelphia area market and the very strong growth of the Asian community.

Parke Bancorp generated net income of $17.3 million, an increase of 82.3% over year ended December 31, 2015. The Company’s return on average assets was 1.97% and our return on average equity was 17.04%. Earnings per share increased to $2.53 per common share and $2.06 per diluted common share, a 69.3% increase over year ended December 31, 2015. Shareholders’ Equity increased 13.5% in 2016 to $127.1 million. There were several key factors supporting our growth in net income, including the sale of our SBA Subsidiary for a substantial profit. If you exclude the profit from the sale of this company, our Bank would still have recorded our fourth straight year of record profits, representing continued strong growth of our operating earnings. The sale of our SBA Subsidiary included the sale of our SBA loan portfolio, which was a condition of the purchase. SBA protocol requires an SBA lender to forfeit their authorization to generate SBA loans if their SBA loan portfolio was sold. In an unprecedented decision, the SBA granted Parke Bank the approval to continue generating SBA loans, which is a critical part of serving our communities with small business loans. Another important factor supporting the Bank’s profitability was our strong loan growth. Our loan portfolio grew 12.3% in 2016 and that was after selling our $42.6mm SBA loan portfolio. We continue to be one of the leaders in our peer group on managing expenses. Our cost efficiency ratio was 45.64% in 2016. These factors combined, contributed to our strong earnings in 2016.

We continue to focus on reducing our NPAs (nonperforming loans plus Other Real Estate Owned (“OREO”) properties). In 2016 our Nonperforming loans decreased 16.7% to $11.3 million as of December 31, 2016. OREO decreased 36.7% in 2016 to $10.5 million as of December 31, 2016. Although these are substantial reductions, we remain focused on continuing to reduce our NPAs. It is again important to note that we remain committed to reducing our NPAs without sacrificing shareholder value.

Only time will tell if the current regulatory and business environment will change. Hopefully, the current Administration will address the increased residential mortgage lending regulations that have eliminated so many community banks from offering residential mortgages, which has reduced the options available to consumers. There are also many

reports stating that several compliance and current reporting requirements will be addressed, specifically as they pertain to community banking. Community banking continues to be the cornerstone of small business lending. The cost of these increased regulations to the community banking industry is millions of dollars annually and has in many instances restricted community banks’ ability to provide needed capital to small businesses.

2017 will be another exciting year at Parke Bancorp. We will continue to focus our marketing efforts on growing the new Collingswood and Chinatown branches, in addition to growing our existing branch network. Our ability to offer SBA loans to the small businesses in our communities will also play a key role in our growth, in addition to expanding our Asian lending with the new Chinatown branch. The addition of two branches includes increased costs, however, we remain committed to disciplined control of the Bank’s expenses. The Bank’s record profits, control of expenses and reaching $1 billion dollars in total assets supported the Board of Directors’ decision to approve a 31% increase in our cash dividend in 2016. Parke Bancorp is well positioned in the marketplace with strong earnings, substantial capital and a growing footprint. There will be market opportunities in the future and Parke Bancorp is well positioned to take advantage of those opportunities. We appreciate the strong support of our shareholders and we will continue to work very hard to enhance your investment in our Company.



/s/ C.R. Pennoni		/s/ Vito S. Pantione
C.R. “Chuck” Pennoni		Vito S. Pantilione
Chairman		President and Chief Executive Officer



	Selected Financial Data At or for the Year Ended December, 31
	2016			2015			2014			2013			2012
Balance Sheet Data: (in thousands)
Assets	$	1,016,185		$	885,124		$	821,706		$	794,943		$	770,477
Loans, Net	$	836,373		$	742,365		$	695,018		$	635,981		$	610,776
Securities Available for Sale	$	44,854		$	42,567		$	28,208		$	35,695		$	19,340
Securities Held to Maturity	$	2,224		$	2,181		$	2,141		$	2,103		$	2,066
Cash and Cash Equivalents	$	70,720		$	27,429		$	36,238		$	45,661		$	76,866
OREO	$	10,528		$	16,629		$	20,931		$	28,910		$	26,057
Deposits	$	788,694		$	665,210		$	647,933		$	626,768		$	637,207
Borrowings	$	93,053		$	98,053		$	62,755		$	68,683		$	43,851
Shareholders' Equity	$	127,134		$	112,040		$	102,905		$	93,716		$	83,637
Operational Data: (in thousands)
Interest Income	$	42,202		$	39,410		$	38,132		$	36,784		$	37,746
Interest Expense	6,764			5,812			5,579			5,795			7,424
Net Interest Income	35,438			33,598			32,553			30,989			30,322
Provision for Loan Losses	1,462			3,040			3,250			2,700			7,300
Net Interest Income after Provision for Loan Losses	33,976			30,558			29,303			28,289			23,022
Noninterest Income	10,290			5,080			7,631			3,426			4,368
Noninterest Expense	16,628			16,852			18,911			18,852			15,079
Income Before Income Tax Expense	27,638			18,786			18,023			12,863			12,311
Income Tax Expense	8,695			6,843			5,711			3,625			4,242
Net Income Attributable to Company and Noncontrolling Interest	18,943			11,943			12,312			9,238			8,069
Net Income Attributable to Noncontrolling Interest	(433		)	(1,246		)	(1,839		)	(1,667		)	(756		)
Discount on Retirement of Preferred Shares	—			—			—			1,948			—
Preferred Stock Dividend and Discount Accretion	1,200			1,200			1,200			1,058			1,012
Net Income Available to Common Shareholders	17,310			$	9,497		$	9,273		$	8,461		$	6,301
Per Share Data: ¹
Basic Earnings per Common Share	2.53			$	1.42		$	1.41		$	1.29		$	1.06
Diluted Earnings per Common Share	2.06			$	1.22		$	1.06		$	1.29		$	1.06
Book Value per Common Share	15.87			$	12.42		$	12.29		$	11.42		$	11.36
Performance Ratios:
Return on Average Assets	1.97		%	1.25		%	1.30		%	1.01		%	0.94		%
Return on Average Common Equity	17.04		%	10.82		%	11.77		%	12.04		%	9.70		%
Net Interest Margin	3.96		%	4.14		%	4.33		%	4.36		%	4.12		%
Efficiency Ratio	45.64		%	43.57		%	47.06		%	54.78		%	43.12		%
Capital Ratios:
Equity to Assets	12.51		%	12.68		%	12.53		%	11.64		%	10.84		%
Dividend Payout	13.44		%	16.90		%	6.46		%	—			—
Tier 1 Risk-based Capital²	16.67		%	15.87		%	15.97		%	15.65		%	14.99		%
Total Risk-based Capital²	17.93		%	17.13		%	17.22		%	16.92		%	16.26		%
Asset Quality Ratios:
Nonperforming Loans/Total Loans	1.33		%	1.79		%	3.77		%	5.49		%	7.55		%
Allowance for Loan Losses/Total Loans	1.83		%	2.13		%	2.53		%	2.84		%	3.01		%
Allowance for Loan Losses/Non-performing Loans	137.90		%	119.01		%	67.09		%	51.62		%	39.82		%
¹ Per share computations give retroactive effect to stock dividends declared in each of 2012, 2013 and 2016
² Capital ratios for Parke Bank

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Forward Looking Statements

Parke Bancorp, Inc. (the “Company”) may from time to time make written or oral "forward‑looking statements", including statements contained in the Company's filings with the Securities and Exchange Commission (including the Proxy Statement and the Annual Report on Form 10‑K, including the exhibits), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company.

These forward‑looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions, which 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 Parke Bank (the “Bank”) 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 rates, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Bank 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); technological changes; changes in consumer spending and saving habits; and the success of the Bank at managing the risks resulting from these factors. The Company cautions that the listed factors are not exclusive.

Overview

The Company's results of operations are dependent primarily on the its net interest income, which is the difference between the interest income earned on its interest‑earning assets, such as loans and securities, and the interest expense paid on its interest‑bearing liabilities, such as deposits and borrowings. The Company also generates noninterest income such as service charges, Bank Owned Life Insurance (“BOLI”) income, gains on sales of loans guaranteed by the Small Business Administration (“SBA”) and other fees. The Company's noninterest expenses primarily consist of employee compensation and benefits, occupancy expenses, marketing expenses, professional services, FDIC insurance assessments, data processing costs and other operating expenses. The Company is also subject to losses from its loan portfolio if borrowers fail to meet their obligations. The Company's results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory agencies.

Results of Operation

The Company recorded net income available to common shareholders of $17.3 million, or $2.06 per diluted share, and $9.5 million, or $1.22 per diluted share, for 2016 and 2015, respectively. Pre-tax earnings amounted to $27.6 million for 2016 and $18.8 million for 2015.

On April 29, 2016, the Bank and its majority-owned subsidiary, 44 Business Capital, LLC ("44BC") completed the sale transaction of the assets of 44BC and certain related assets held by the Bank to Berkshire Bank ("Berkshire"). Under the transaction, Berkshire purchased the assets of 44BC. In addition, Berkshire purchased the Bank's SBA loan portfolio, totaling $42.6 million, and related servicing rights held by the Bank. The after-tax gain to the Bank was approximately $5.9 million.

On April 29, 2016, the Bank and its majority-owned subsidiary, 44 Business Capital, LLC ("44BC") completed the sale transaction of the assets of 44BC and certain related assets held by the Bank to Berkshire Bank ("Berkshire"). Under the transaction, Berkshire purchased the assets of 44BC. In addition, Berkshire purchased the Bank's SBA loan portfolio, totaling $42.6 million, and related servicing rights held by the Bank. The pre-tax gain to the Bank was approximately $9.3 million, which includes the $7.6 million gain on sale of SBA related assets and relief of $1.7 million of related allowance for loan losses.

Total assets of $1.0 billion at December 31, 2016 represented an increase of $131.1 million, or 14.8%, from December 31, 2015. Total gross loans amounted to $852.0 million at year end 2016 for an increase of $93.5 million, or 12.3%

from December 31, 2015. Deposits increased by $123.5 million, an increase of 18.6%. Total shareholders’ equity at December 31, 2016 amounted to $127.1 million and increased $15.1 million, or 13.5%, during the past year.

The principal objective of this financial review is to provide a discussion and an overview of our consolidated financial condition and results of operations. This discussion should be read in conjunction with the accompanying financial statements and related notes thereto.

Comparative Average Balances, Yields and Rates. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. 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. Nonaccrual 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.



	For the Years Ended December 31,
	2016							2015
	Average Balance			Interest Income/ Expense		Yield/ Cost		Average Balance			Interest Income/ Expense		Yield/ Cost
	(Amounts in thousands except Yield/ Cost data)
Assets
Loans	$	800,677		$	40,740	5.09	%	$	731,032		$	38,035	5.20	%
Investment securities	46,782			1,245		2.66	%	47,323			1,296		2.74	%
Federal funds sold and cash equivalents	46,791			217		0.46	%	33,184			79		0.24	%
Total interest-earning assets	894,250			$	42,202	4.72	%	811,539			$	39,410	4.86	%
Noninterest earning assets	61,735							59,545
Allowance for loan losses	(15,534		)					(17,243		)
Total assets	$	940,451						$	853,841
Liabilities and Equity
Interest bearing deposits
NOWs	$	32,499		$	163	0.50	%	$	31,318		$	154	0.49	%
Money markets	123,017			625		0.51	%	112,180			559		0.50	%
Savings	175,163			931		0.53	%	188,392			1,006		0.53	%
Time deposits	284,018			3,319		1.17	%	251,816			2,836		1.13	%
Brokered certificates of deposit	45,961			380		0.83	%	30,337			189		0.62	%
Total interest-bearing deposits	660,658			5,418		0.82	%	614,043			4,744		0.77	%
Borrowings	90,048			1,346		1.49	%	80,729			1,068		1.32	%
Total interest-bearing liabilities	750,706			$	6,764	0.90	%	694,772			$	5,812	0.84	%
Noninterest bearing deposits	62,483							45,656
Other liabilities	5,656							5,319
Total liabilities	818,845							745,747
Equity	121,606							108,094
Total liabilities and equity	$	940,451						$	853,841
Net interest income				$	35,438						$	33,598
Interest rate spread						3.82	%						4.02	%
Net interest margin						3.96	%						4.14	%

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



	Years ended December 31,
	2016 vs 2015									2015 vs 2014
	Variance due to change in									Variance due to change in
	Average Volume			Average Rate			Net Increase/ (Decrease)			Average Volume			Average Rate			Net Increase/ (Decrease)
	(Amounts in thousands)
Interest Income:
Loans (net of deferred costs/fees)	$	3,559		$	(854	)	$	2,705		$	3,262		$	(2,194	)	$	1,068
Investment securities	(15		)	(36		)	(51		)	306			(64		)	242
Federal funds sold	41			97			138			(32		)	—			(32		)
Total interest income	3,585			(793		)	2,792			3,536			(2,258		)	1,278
Interest Expense:
Deposits	348			326			674			101			(103		)	(2		)
Borrowed funds	130			148			278			238			(3		)	235
Total interest expense	478			474			952			339			(106		)	233
Net interest income	$	3,107		$	(1,267	)	$	1,840		$	3,197		$	(2,152	)	$	1,045

Quarterly Financial Data (unaudited)

The following represents summarized unaudited quarterly financial data of the Company which, in the opinion of management, reflects adjustments (comprised only of normal recurring accruals) necessary for fair presentation.



	Three Months Ended
	December 31,		September 30,		June 30,			March 31,
	(Amounts in thousands, except per share amounts)
2016
Interest income	$	11,017	$	10,371	$	10,471		$	10,343
Interest expense	1,762		1,697		1,714			1,591
Net interest income	9,255		8,674		8,757			8,752
Provision for loan losses	700		700		(638		)	700
Income before income tax expense	5,302		3,927		13,874			4,535
Income tax expense	1,944		51		5,154			1,546
Net income	3,377		3,876		8,648			2,609
Preferred stock dividends	300		300		300			300
Net income available to common shareholders	3,077		3,576		8,348			2,309
Net income per common share:
Basic	$	0.45	$	0.52	$	1.20		$	0.36
Diluted	$	0.38	$	0.43	$	0.95		$	0.31
2015
Interest income	$	10,159	$	9,918	$	9,933		$	9,400
Interest expense	1,493		1,501		1,474			1,344
Net interest income	8,666		8,417		8,459			8,056
Provision for loan losses	—		1,450		750			840
Income before income tax expense	5,698		4,658		4,303			4,127
Income tax expense	2,204		1,730		1,388			1,521
Net income	3,246		2,430		2,522			2,499
Net income available to common shareholders	300		300		300			300
Net income per common share:	2,946		2,130		2,222			2,199
Basic	$	0.48	$	0.35	$	0.37		$	0.37
Diluted	$	0.40	$	0.30	$	0.32		$	0.31

Critical Accounting Policies and Estimates

Allowance for Losses on Loans. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses. Loans that are determined to be uncollectible are charged against the allowance account, and subsequent recoveries, if any, are credited to the allowance. When evaluating the adequacy of the allowance, an assessment of the loan portfolio will typically include changes in the composition and volume of the loan portfolio, overall portfolio quality and past loss experience, review of specific problem loans, current economic conditions which may affect borrowers' ability to repay, and other factors which may warrant current recognition. Such periodic assessments may, in management's judgment, require the Company to recognize additions or reductions to the allowance.

Various regulatory agencies periodically review the adequacy of the Company’s allowance for loan losses as an integral part of their examination process. Such agencies may require the Company to recognize additions or reductions to the allowance based on their evaluation of information available to them at the time of their examination. It is reasonably possible that the above factors may change significantly and, therefore, affect management’s determination of the allowance for loan losses in the near term.

Valuation of Investment Securities. Available for sale securities are reported at fair market value with unrealized gains and losses reported, net of deferred taxes, as comprehensive income, a component of shareholders’ equity. The held to maturity securities portfolio, consisting of debt securities for which there is a positive intent and ability to hold to maturity, is carried at amortized cost. Management conducts a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other than temporary. If such decline is deemed other than temporary, the cost basis of the security is adjusted by writing down the security to estimated fair market value through a charge to current period earnings to the extent that such decline is credit related.

Other Real Estate Owned (“OREO”). OREO consists of real estate properties which are recorded at fair value. All properties have an independent third-party full appraisal to determine the value, less cost to sell (a range of 5% to 10%) and other costs. The appraisal is 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.

Income Taxes. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets, will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Realization of deferred tax assets is dependent on generating sufficient taxable income in the future.

When tax returns are filed, it is highly certain that some positions taken 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, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured, as described above, is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Operating Results for the Years Ended December 31, 2016 and 2015

Net Interest Income. The Company’s primary source of earnings is net interest income, which is the difference between income earned on interest-earning assets, such as loans and investment securities, and interest expense incurred on interest-bearing liabilities, such as deposits and borrowings. The level of net interest income is determined primarily

by the average level of balances (“volume”) and the market rates associated with the interest-earning assets and interest-bearing liabilities.

Net interest income increased $1.8 million, or 5.5%, to $35.4 million for 2016, from $33.6 million for 2015. We experienced a decrease in our interest rate spread of 20 basis points, to 3.82% for 2016, from 4.02% for 2015. Our net interest margin decreased 18 basis points, to 3.96% for 2016, from 4.14% for 2015. The increase in net interest income is primarily attributable to the combined effects of an increase in the average balance of loans, partially offset by lower yields on loans.

Interest income increased $2.8 million, or 7.1%, to $42.2 million for 2016, from $39.4 million for 2015. The increase is primarily attributable to higher loan volumes partially offset by lower yields on loans. Average loans for the year were $800.7 million compared to $731.0 million for 2015, while average loan yields were 5.09% for 2016 compared to 5.20% for 2015.

Interest expense increased $952,000, or 16.4%, to $6.8 million for 2016, from $5.8 million for 2015. The increase is primarily attributable to higher deposit and borrowing volumes and an increase in the cost of funds. Average deposits for 2016 were $660.7 million compared to $614.0 million for 2015, while average deposit rates were 0.82% for 2016 compared to 0.77% for 2015. Average borrowings outstanding increased $9.3 million to $90.0 million in 2016 as compared to $80.7 million in 2015. The average rate paid on these borrowings increased to 1.49% from 1.32% in 2015.

Noninterest Income. Noninterest income is principally derived from gains on the sale of SBA loans, service fees on deposit accounts, fee income from loan services and BOLI income. Noninterest income totaled $10.3 million in 2016 versus $5.1 million in 2015. Included in noninterest income is the $7.6 million gain on sale of SBA related assets discussed previously.

The Company recognized $1.8 million in gains from the sale of the guaranteed portion of SBA loans in 2016, compared to a gain of $4.1 million in 2015. The decrease is attributable to the sale of the Company’s SBA related assets in April of 2016.

Loan fees were $777,000 in 2016, a decrease from $1.4 million in 2015. Loan fees consist primarily of prepayment fees. These loan fees are variable in nature and are dependent upon the borrowers’ course of action.

The loss on the sale and write down of OREO for 2016 was $1.8 million, compared to a loss of $2.0 million in 2015.

BOLI income was $722,000 in 2016, an increase from $357,000 in 2016. The increase is attributable to an additional BOLI purchase in December of 2015.

Other noninterest income, which includes ATM fees, debit card fees, early CD withdrawal penalties, rental income and other miscellaneous income, amounted to $876,000 in 2016 and $918,000 in 2015.

Noninterest Expense. Noninterest expense for 2016 was $16.6 million, a decrease of $224,000 from 2015.

Compensation and benefits expense for 2016 was $7.3 million, a decrease of $395,000 over 2015. The decrease is attributable to the sale of the Company’s SBA related assets in April of 2016, partially offset by routine salary increases, higher benefits expense and increased staffing in other areas.

Occupancy and equipment and data processing expenses increased by $164,000 from 2015. The increase was due to the opening of two new retail branches in the second half of 2016.

OREO expenses decreased to $1.0 million in 2016, from $1.6 million in 2015. The expenses are related to the carrying costs of OREO including property taxes, insurance and maintenance. The decrease is attributable to the reduction in the balance of OREO.

Other operating expense increased to $4.1 million in 2016, from $3.4 million in 2015. Other operating expense is primarily related to nonperforming loans, including force-placed insurance and payment of real estate taxes to protect the Bank’s lien position.

Income Taxes. Income tax expense amounted to $8.7 million for 2016, compared to $6.8 million for 2015, resulting in effective tax rates of 31.5% and 36.4% for the respective years. The decrease in the effective rate in 2016 is due to the Company utilizing a $1.5 million Historic Tax Credit which reduced its income tax expense.

Financial Condition at December 31, 2016 and December 31, 2015

At December 31, 2016, the Company’s total assets increased to $1.0 billion from $885.1 million at December 31, 2015, an increase of $131.1 million or 14.8%.

Cash and cash equivalents increased $43.3 million to $70.7 million at December 31, 2016 from $27.4 million at December 31, 2015. The increase is attributable to growth in deposits and the cash generated from the sale of the Company’s SBA related assets.

Total investment securities increased to $47.1 million at December 31, 2016 ($44.9 million classified as available for sale or 95.3%) from $44.7 million at December 31, 2015, an increase of $2.3 million or 5.2%. During 2016, the Company purchased $10.0 million of mortgage-backed securities to bolster on-balance sheet liquidity to fund future growth. The purchase was funded with borrowings from the FHLB.

Total gross loans increased to $852.0 million at December 31, 2016, from $758.5 million at December 31, 2015, an increase of $93.5 million or 12.3%.

OREO at December 31, 2016 was $10.5 million, compared to $16.6 million at December 31, 2015, a decrease of $6.1 million. OREO consisted of 16 properties, the largest being a condominium development in Absecon. The decrease was primarily due to the sale of OREO property.

At December 31, 2016, the Bank’s total deposits increased to $788.7 million from $665.2 million at December 31, 2015, an increase of $123.5 million or 18.6%. Noninterest bearing deposits increased $40.0 million, or 75.3%, to $92.5 million at December 31, 2016, from $52.8 million at December 31, 2015. The increase in deposits is attributable to the opening of two retail branches in the second half of 2016 and a successful new deposit account promotion.

Borrowings decreased to $93.1 million at December 31, 2016 from $98.1 million at December 31, 2015, a decrease of $5.0 million or 5.1%.

Total shareholders’ equity increased to $127.1 million at December 31, 2016 from $112.0 million at December 31, 2015, an increase of $15.1 million or 13.5%, due to the retention of earnings.

Asset Quality

The Company attempts to manage the risk characteristics of its loan portfolio through various control processes, such as credit evaluations of borrowers, establishment of lending limits and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances. However, the Company seeks to rely primarily on the cash flow of its borrowers as the principal source of repayment. 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.

The allowance for loan losses represents a reserve for losses inherent in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on nonaccrual loans, past due and other loans that management believes require special attention.

For significant problem loans, management's review consists of an evaluation of the financial strengths of the borrower and the guarantor, the related collateral, and the effects of economic conditions. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impaired loans include loans identified as troubled debt restructurings (TDRs). Impairment is measured on a loan by loan basis for commercial loans in order to establish specific reserves by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. General reserves against the remaining loan portfolio are based on an analysis of historical loan loss ratios, changes in the composition and volume of the loan portfolio, overall portfolio quality, current

national and local economic conditions which may affect borrowers' ability to repay, and other factors which may warrant current recognition.

Delinquent loans decreased $2.2 million to $12.6 million, or 1.5% of total loans, at December 31, 2016, from $14.8 million, or 2.0% of total loans, at December 31, 2015. Delinquent loan balances by number of days delinquent at December 31, 2016 were: 31 to 89 days --- $1.3 million and 90 days and greater --- $11.3 million. Loans 90 days and more past due are no longer accruing interest. December 31, 2015 delinquent loan balances by number of days were: 31 to 89 days --- $1.2 million and 90 days and greater --- $13.6 million. The improving credit quality of the portfolio is attributable to our ability to work out troubled loans and an improving economy.

At December 31, 2016, the Company had $11.3 million in nonperforming loans, or 1.3% of total loans, a decrease from $13.6 million, or 1.8% of total loans, at December 31, 2015. The three largest relationships in nonperforming loans are a $2.1 million land development loan, a $1.9 million commercial real estate loan and a $1.9 million land development loan.

At December 31, 2016, the Company had $21.8 million in nonperforming assets, which includes $11.3 million of nonperforming loans and $10.5 million of OREO, or 2.2% of total assets, a decrease from $30.2 million, or 3.4% of total assets at December 31, 2015.

At December 31, 2016, the Company had $36.4 million in loans deemed impaired, a decrease from $42.2 million at December 31, 2015. Included in impaired loans are TDRs that were in compliance with their modified terms and therefore are accruing, totaling $25.1 million and $28.7 million at December 31, 2016 and December 31, 2015, respectively.

The provision for loan losses is a charge to earnings in the current year to maintain the allowance at a level management has determined to be adequate based upon the factors noted above. The provision for loan losses amounted to $1.5 million for 2016, compared to $3.0 million for 2015. The decline is attributable to the sale of SBA loans, relieving the allowance for loan losses by $1.7 million. Net loan charge-offs/recoveries were $2.0 million in 2016 and $4.9 million in 2015.

At December 31, 2016, the Company’s allowance for loan losses decreased to $15.6 million, from $16.1 million at December 31, 2015, a decrease of $556,000 or 3.4%. The ratio of the allowance for loan loss to total loans decreased to 1.8% of loans at December 31, 2016, from 2.1% of loans at December 31, 2015. The allowance for loan losses to nonperforming loans coverage ratio increased to 137.9% at December 31, 2016, from 119.0% at December 31, 2015.

We believe we have appropriately established adequate loss reserves on problem loans that we have identified and to cover credit risks that are inherent in the portfolio as of December 31, 2016. We continue to aggressively manage all loan relationships. Credit monitoring and tracking systems are established. Updated appraisals are being obtained, where appropriate, to ensure that collateral values are sufficient to cover outstanding loan balances. Where necessary, we will apply our loan work-out experience to protect our collateral position and actively negotiate with borrowers to resolve these nonperforming loans.

Interest Rate Sensitivity and Liquidity

Interest rate sensitivity is an important factor in the management of the composition and maturity configurations of earning assets and funding sources. The primary objective of asset/liability management is to ensure the steady growth of our primary earnings component, net interest income. Net interest income can fluctuate with significant interest rate movements. To lessen the impact of interest rate movements, management endeavors to structure the balance sheet so that repricing opportunities exist for both assets and liabilities in roughly equivalent amounts at approximately the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest rate sensitivity.

The measurement of our interest rate sensitivity, or "gap," is one of the principal techniques used in asset/liability management. Interest sensitive gap is the dollar difference between assets and liabilities that are subject to interest-rate pricing within a given time period, including both floating rate or adjustable rate instruments and instruments that are approaching maturity.

Our management and the Board of Directors oversee the asset/liability management function through the asset/liability committee of the Board that meets periodically to monitor and manage the balance sheet, control interest rate exposure, and evaluate our pricing strategies. The asset mix of the balance sheet is continually evaluated in terms of several

variables: yield, credit quality, appropriate funding sources and liquidity. Management of the liability mix of the balance sheet focuses on expanding the various funding sources.

In theory, interest rate risk can be diminished by maintaining a nominal level of interest rate sensitivity. In practice, this is made difficult by a number of factors, including cyclical variation in loan demand, different impacts on interest-sensitive assets and liabilities when interest rates change, and the availability of funding sources. Accordingly, we undertake to manage the interest-rate sensitivity gap by adjusting the maturity of and establishing rates on the earning asset portfolio and certain interest-bearing liabilities commensurate with management's expectations relative to market interest rates. Management generally attempts to maintain a balance between rate-sensitive assets and liabilities as the exposure period is lengthened to minimize our overall interest rate risk.

Rate Sensitivity Analysis. The interest rate sensitivity position as of December 31, 2016, is presented in the following table. Assets and liabilities are scheduled based on maturity or re-pricing data except for mortgage loans and mortgage-backed securities, which are based on prevailing prepayment assumptions and expected maturities and deposits which are based on recent retention experience of core deposits. The difference between rate-sensitive assets and rate-sensitive liabilities, or the interest rate sensitivity gap, is shown at the bottom of the table. As of December 31, 2016, our interest sensitive liabilities exceeded interest sensitive assets within a one year period by $100.1 million, or 57.3%, of total assets.



	As of December 31, 2016
	3 Months or Less			Over 3 Months Through 12 Months			Over 1 Year Through 3 Years			Over 3 Years Through 5 Years			Over 5 Years Through 10 Years			Total
	(Amounts in thousands)
Interest-earning assets:
Loans	$	83,460		$	139,688		$	286,083		$	201,527		$	130,451		$	841,209
Investment securities	1,958			3,907			9,691			7,553			23,969			47,078
Federal funds sold and cash equivalents	66,321			—			—			—			—			66,321
Total interest-earning assets	$	151,739		$	143,595		$	295,774		$	209,080		$	154,420		$	954,608
Interest-bearing liabilities:
Regular savings deposits	$	8,712		$	26,136		$	69,696		$	62,629		$	14,430		$	181,603
NOW and money market deposits	10,209			30,737			79,828			47,540			3,575			171,889
Retail time deposits	48,553			166,942			61,748			14,174			21			291,438
Brokered time deposits	36,228			15,001			—			—			—			51,229
Borrowed funds	40,903			12,000			34,150			6,000			—			93,053
Total interest-bearing liabilities	$	144,605		$	250,816		$	245,422		$	130,343		$	18,026		$	789,212
Interest rate sensitive gap	$	7,134		$	(107,221	)	$	50,352		$	78,737		$	136,394		$	165,396
Cumulative interest rate gap	$	7,134		$	(100,087	)	$	(49,735	)	$	29,002		$	165,396		$	—
Ratio of rate-sensitive assets to rate-sensitive liabilities	104.93		%	57.25		%	120.52		%	160.41		%	856.65		%	116.09		%

Liquidity describes our ability to meet the financial obligations that arise out of the ordinary course of business. Liquidity addresses the Company's ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund current and planned expenditures. Liquidity is derived from increased repayment and income from earning assets. Our loan to deposit ratio was 108.0% and 114.0% at December 31, 2016 and December 31, 2015, respectively. Funds received from new and existing depositors provided a large source of liquidity during 2016 and 2015. The Company seeks to rely primarily on core deposits from customers to provide stable and cost-effective sources of funding to support loan growth. The Bank also seeks to augment such deposits with longer term and higher yielding certificates of deposit.

Brokered deposits are a more volatile source of funding than core deposits and do not increase the deposit franchise of the Bank. In a rising rate environment, the Bank may be unwilling or unable to pay a competitive rate. To the extent that such deposits do not remain with the Bank, they may need to be replaced with borrowings which could increase the Bank’s cost of funds and negatively impact its interest rate spread, financial condition and results of operation. To

mitigate the potential negative impact associated with brokered deposits, the Bank 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. The Bank’s CDARS deposits included within the brokered deposit total amounted to $51.2 million and $20.9 million at December 31, 2016 and December 31, 2015, respectively. To the extent that retail deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short term funds market. Longer term funding requirements can be obtained through advances from the FHLBNY. As of December 31, 2016, the Bank maintained unused lines of credit with the FHLBNY totaling $64.5 million.

As of December 31, 2016, the Bank's investment securities portfolio included $43.7 million of mortgage-backed securities and collateralized debt securities that provide additional cash flow each month. The majority of the investment portfolio is classified as available for sale, is readily marketable, and is available to meet liquidity needs. The Bank's residential real estate portfolio includes loans, which are underwritten to secondary market criteria, and provide an additional source of liquidity. Presently the residential mortgage loan portfolio and certain qualifying commercial real estate loans are pledged under a blanket lien to the FHLBNY as collateral. Management is not aware of any known trends, demands, commitments or uncertainties that are reasonably likely to result in material changes in liquidity.

Off-Balance Sheet Arrangements

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. 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 Bank evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management's credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. As of December 31, 2016 and 2015, commitments to extend credit amounted to approximately $78.3 million and $62.7 million, respectively.

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. As of December 31, 2016 and 2015, standby letters of credit with customers were $13.1 million and $14.2 million, respectively.

Loan commitments and standby letters of credit are issued in the ordinary course of business to meet customer needs. Commitments to fund fixed-rate loans were immaterial at December 31, 2016. Variable-rate commitments are generally issued for less than one year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. Management believes that off-balance sheet risk is not material to the results of operations or financial condition.

The following table sets forth information regarding the Bank’s contractual obligations and commitments as of December 31, 2016.



	Payments Due by Period
	Less than 1 year		1-3 Years		3-5 years		More than 5 years		Total
			(Amounts in thousands)
Retail time deposits	$	215,495	$	61,748	$	14,174	$	21	$	291,438
Brokered time deposits	51,229		—		—		—		51,229
Borrowed funds	52,903		34,150		6,000		—		93,053
Operating lease obligations	293		909		268		486		1,956
Total contractual obligations	$	319,920	$	96,807	$	20,442	$	507	$	437,676

	Amount of Commitments Expiring by Period
	Less than 1 year		1-3 Years		3-5 years		More than 5 years		Total
			(Amounts in thousands)
Loan Commitments	$	57,319	$	—	$	—	$	—	$	57,319
Lines of Credit	23,904		18,105		3,292		32,991		78,292
Total Commitments	$	81,223	$	18,105	$	3,292	$	32,991	$	135,611

Impact of Inflation and Changing Prices

The consolidated financial statements and notes have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets are monetary in nature. As a result, market interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.

MARKET PRICES AND DIVIDENDS

General

The Company's common stock is listed on the Nasdaq Capital Market under the trading symbol of "PKBK". The following table reflects high and low sales prices as reported on www.nasdaq.com and cash dividends declared during each quarter of the last two fiscal years. Prices reflect a 10% stock dividend paid in May 2016.



2016	Cash Dividends Paid		High		Low
1^st Quarter	$	0.08	$	13.17	$	11.10
2^nd Quarter	$	0.08	$	13.97	$	12.76
3^rd Quarter	$	0.08	$	15.85	$	12.53
4^th Quarter	$	0.10	$	20.15	$	14.90
2015
1^st Quarter	$	0.05	$	12.13	$	10.78
2^nd Quarter	$	0.06	$	13.17	$	11.72
3^rd Quarter	$	0.06	$	12.77	$	11.68
4^th Quarter	$	0.07	$	12.70	$	11.74

The number of shareholders of record of common stock as of March 8, 2017, was approximately 291. This does not reflect the number of persons or entities who held stock in nominee or "street" name through various brokerage firms. At March 17, 2017, there were 6,880,714 shares of our common stock outstanding.

The Company paid quarterly cash dividends in 2016 and 2015 totaling $2.0 million and $1.4 million, respectively. The timing and amount of future dividends will be within the discretion of the Board of Directors and will depend on the consolidated earnings, financial condition, liquidity, and capital requirements of the Company and its subsidiaries, applicable governmental regulations and policies, and other factors deemed relevant by the Board.

The Company's ability to pay dividends is substantially dependent upon the dividends it receives from the Bank and is subject to other restrictions. Under current regulations, the Bank's ability to pay dividends is restricted as well.

Under the New Jersey Banking Act of 1948, a bank may declare and pay dividends only if after payment of the dividend the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank's surplus.

Pursuant to the terms of the Series B Preferred Stock, the Company may not pay a cash dividend on the common stock unless all dividends on the Series B Preferred Stock for the then-current dividend period have been paid or set aside.

The Federal Deposit Insurance Act generally prohibits all payments of dividends by any insured bank that is in default of any assessment to the FDIC. Additionally, because the FDIC may prohibit a bank from engaging in unsafe or unsound practices, it is possible that under certain circumstances the FDIC could claim that a dividend payment constitutes an unsafe or unsound practice. The New Jersey Department of Banking and Insurance has similar power to issue cease and desist orders to prohibit what might constitute unsafe or unsound practices. The payment of dividends may also be affected by other factors (e.g., the need to maintain adequate capital or to meet loan loss reserve requirements).

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a- 15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Under supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2016.

March 17, 2017




Vito S. Pantilione	John F. Hawkins
President and Chief Executive Officer	Senior Vice President and Chief Financial Officer

Parke Bancorp, Inc. and Subsidiaries

Consolidated Financial Report

December 31, 2016

Parke Bancorp, Inc. and Subsidiaries



Contents
	Page

Report of Independent Registered Public Accounting Firm........................................................................	1

Financial Statements
Consolidated Balance Sheets..............................................................................................................	2
Consolidated Statements of Income....................................................................................................	3
Consolidated Statements of Comprehensive Income..........................................................................	4
Consolidated Statements of Equity......................................................................................................	5
Consolidated Statements of Cash Flows.............................................................................................	6
Notes to Consolidated Financial Statements.......................................................................................	7

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Parke Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of Parke Bancorp, Inc. and Subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audits included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Parke Bancorp, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ RSM US LLP

Blue Bell, Pennsylvania

March 17, 2017

Parke Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2016 and 2015

(Amounts in thousands except share and per share data)



	December 31,			December 31,
	2016			2015
Assets
Cash and due from financial institutions	$	4,399		$	3,131
Federal funds sold and cash equivalents	66,321			24,298
Cash and cash equivalents	70,720			27,429
Investment securities available for sale, at fair value	44,854			42,567
Investment securities held to maturity (fair value of $2,411 at December 31, 2016 and $2,471 December 31, 2015)	2,224			2,181
Total investment securities	47,078			44,748
Loans held for sale	—			2,640
Loans, net of unearned income	851,953			758,501
Less: Allowance for loan losses	(15,580		)	(16,136		)
Net loans	836,373			742,365
Accrued interest receivable	3,117			3,012
Premises and equipment, net	5,197			4,591
Other real estate owned (OREO)	10,528			16,629
Restricted stock, at cost	4,658			4,789
Bank owned life insurance (BOLI)	24,544			23,822
Deferred tax asset	10,746			10,928
Other assets	3,224			4,171
Total Assets	$	1,016,185		$	885,124
Liabilities and Equity
Liabilities
Deposits
Noninterest-bearing deposits	$	92,535		$	52,773
Interest-bearing deposits	696,159			612,437
Total deposits	788,694			665,210
FHLBNY borrowings	79,650			84,650
Subordinated debentures	13,403			13,403
Accrued interest payable	655			494
Other liabilities	6,693			9,160
Total liabilities	889,095			772,917
Equity
Preferred stock, 1,000,000 shares authorized, $1,000 liquidation value Series B non-cumulative convertible; issued: 20,000 shares at December 31, 2016 and December 31, 2015	20,000			20,000
Common stock, $.10 par value; authorized 15,000,000 shares; Issued: 7,147,952 shares at December 31, 2016 and 6,501,610 shares at December 31, 2015	715			650
Additional paid-in capital	62,300			53,984
Retained earnings	47,483			40,582
Accumulated other comprehensive loss	(349		)	(165		)
Treasury stock, 284,522 shares at December 31, 2016 and 280,354 shares at December 31, 2015, at cost	(3,015		)	(3,011		)
Total shareholders’ equity	127,134			112,040
Noncontrolling interest in consolidated subsidiaries	(44		)	167
Total equity	127,090			112,207
Total liabilities and equity	$	1,016,185		$	885,124

See accompanying notes to consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

Years Ended December 31, 2016 and 2015

(Amounts in thousands except share and per share data)



	2016			2015
Interest income:
Interest and fees on loans	$	40,740		$	38,035
Interest and dividends on investments	1,245			1,296
Interest on federal funds sold and cash equivalents	217			79
Total interest income	42,202			39,410
Interest expense:
Interest on deposits	5,418			4,744
Interest on borrowings	1,346			1,068
Total interest expense	6,764			5,812
Net interest income	35,438			33,598
Provision for loan losses	1,462			3,040
Net interest income after provision for loan losses	33,976			30,558
Noninterest income
Gain on sale of SBA loans	1,819			4,147
Gain on sale of SBA related assets	7,611			—
Other Loan fees	777			1,387
Net income from BOLI	722			357
Service fees on deposit accounts	315			290
Loss on sale and write-down of real estate owned	(1,830		)	(2,019		)
Other	876			918
Total noninterest income	10,290			5,080
Noninterest expense
Compensation and benefits	7,322			7,717
Professional services	1,639			1,657
Occupancy and equipment	1,314			1,273
Data processing	633			510
FDIC insurance	584			682
OREO expense	1,040			1,642
Other operating expense	4,096			3,371
Total noninterest expense	16,628			16,852
Income before income tax expense	27,638			18,786
Income tax expense	8,695			6,843
Net income attributable to Company and noncontrolling interest	18,943			11,943
Net income attributable to noncontrolling interest	(433		)	(1,246		)
Net income attributable to Company	18,510			10,697
Preferred stock dividend and discount accretion	(1,200		)	(1,200		)
Net income available to common shareholders	$	17,310		$	9,497
Earnings per common share
Basic	$	2.53		$	1.42
Diluted	$	2.06		$	1.22
Weighted average shares outstanding
Basic	6,846,514			6,700,718
Diluted	8,964,700			8,772,127

See accompanying notes to consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2016 and 2015



	For the Year ended December 31,
	2016			2015
	(Amounts in thousands)
Net income available to common shareholders	$	17,310		$	9,497
Unrealized gains on securities:
Non-credit related unrealized gains on securities with OTTI	35			113
Unrealized losses on securities without OTTI	(344		)	(661		)
Less re-class adjustment for gains on securities included in net income	—			—
Tax Impact	124			218
Total unrealized gains on securities, net	(185		)	(330		)
Total other comprehensive income	(185		)	(330		)
Total comprehensive income	$	17,125		$	9,167

See accompanying notes to consolidated financial statements



Parke Bancorp, Inc. and Subsidiaries
Consolidated Statements of Equity
Years Ended December 31, 2016 and 2015
(Amounts in thousands except share data)
	Preferred Stock		Shares of Common Stock	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity			Non-Controlling Interest			Total Equity
Balance, December 31, 2014	$	20,000	6,208,259	$	621	$	51,316	$	32,983		$	165		$	(2,180	)	$	102,905		$	145		$	103,050
Capital withdrawals by noncontrolling interest																				(1,224		)	(1,224		)
Stock options exercised			293,351	29		2,668											2,697						2,697
Net income								10,697									10,697			1,246			11,943
Changes in other comprehensive loss											(330		)				(330		)				(330		)
Purchase of treasury stock														(831		)	(831		)				(831		)
Dividend on preferred stock								(1,200		)							(1,200		)				(1,200		)
Dividend on common stock ($.10/ share)								(1,898		)							(1,898		)				(1,898		)
Balance, December 31, 2015	$	20,000	6,501,610	$	650	$	53,984	$	40,582		$	(165	)	$	(3,011	)	$	112,040		$	167		$	112,207
Capital withdrawals by noncontrolling interest																				(644		)	(644		)
Stock options exercised			20,371	2		188											190						190
Net income								18,510									18,510			433			18,943
Changes in other comprehensive loss											(184		)				(184		)				(184		)
Purchase of treasury stock														(4		)	(4		)				(4		)
Stock compensation						66											66						66
Stock dividend 10%			625,971	63		8,062		(8,125		)							—						—
Dividend on preferred stock								(1,200		)							(1,200		)				(1,200		)
Dividend on common stock ($.34/ share)								(2,284		)							(2,284		)				(2,284		)
Balance, December 31, 2016	$	20,000	7,147,952	$	715	$	62,300	$	47,483		$	(349	)	$	(3,015	)	$	127,134		$	(44	)	$	127,090

See accompanying notes to consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2016 and 2015

(Amounts in thousands)



	2016			2015
Cash Flows from Operating Activities
Net income	$	18,943		$	11,943
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	270			251
Provision for loan losses	1,462			3,040
Bank owned life insurance income	(722		)	(357		)
Bank owned life insurance additional purchase	—			(12,000		)
Gain on sale of SBA loans	(1,819		)	(4,147		)
SBA loans originated for sale	(15,080		)	(38,244		)
Proceeds from sale of SBA loans originated for sale	16,901			42,684
Loss on sale & write down of OREO, net	1,830			2,019
Gain on sale of SBA related assets	(7,611		)	—
Net accretion of purchase premiums and discounts on securities	(44		)	(623		)
Deferred income tax benefit	305			(190		)
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable and other assets	593			(1,008		)
(Decrease) increase in accrued interest payable and other accrued liabilities	(2,306		)	1,686
Net cash provided by operating activities	12,722			5,054
Cash Flows from Investing Activities
Purchases of investment securities available for sale	(10,000		)	(20,476		)
Purchases (redemptions) of restricted stock	131			(1,637		)
Proceeds from sale of SBA related assets	50,348			—
Proceeds from loans held for sale	2,638			—
Proceeds from maturities and principal payments on mortgage backed securities	7,406			6,150
Proceeds from sale of OREO	5,222			7,576
Advances on OREO	(194		)	(139		)
Donation of OREO property	31			—
Net increase in loans	(138,996		)	(55,541		)
Purchases of bank premises and equipment	(875		)	(352		)
Net cash used in investing activities	(84,289		)	(64,419		)
Cash Flows from Financing Activities
Cash payment of dividends	(3,234		)	(2,661		)
Minority interest capital withdrawal, net	(644		)	(1,224		)
Proceeds from exercise of stock options and warrants	190			2,697
Purchase of treasury stock	(4		)	(831		)
Stock compensation	66			—
Net (decrease) increase in FHLBNY borrowings	(5,000		)	35,298
Net increase in noninterest-bearing deposits	39,762			10,219
Net increase in interest-bearing deposits	83,722			7,058
Net cash provided by financing activities	114,858			50,556
Decrease in cash and cash equivalents	43,291			(8,809		)
Cash and Cash Equivalents, January 1,	27,429			36,238
Cash and Cash Equivalents, December 31,	$	70,720		$	27,429
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest on deposits and borrowed funds	$	6,603		$	5,763
Income taxes	$	9,984		$	6,494
Supplemental Schedule of Noncash Activities:
Real estate acquired in settlement of loans	$	788		$	5,154

See accompanying notes to consolidated financial statements

PARKE BANCORP, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business: Parke Bancorp, Inc. (the “Company, we, us, our”) is a bank holding company headquartered in Sewell, New Jersey. Through subsidiaries, the Company provides individuals, corporations and other businesses, and institutions with commercial and retail banking services, principally loans and deposits. The Company was incorporated in January 2005 under 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 six additional branch office locations; 501 Tilton Road, Northfield, New Jersey, 567 Egg Harbor Road, Washington Township, New Jersey, 67 East Jimmie Leeds Road, Galloway Township, New Jersey, 1150 Haddon Avenue, Collingswood, New Jersey, 1610 Spruce Street, Philadelphia, Pennsylvania, and 1032 Arch Street, Philadelphia, Pennsylvania.

The accounting and financial reporting policies of the Company and Subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. The policies that materially affect the determination of financial position, results of operations and cash flows are summarized below.

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Parke Bank. Also included are the accounts of 44 Business Capital Partners LLC, a joint venture formed in 2009 to originate and service Small Business Administration (“SBA”) loans. Parke Bank has a 51% ownership interest in the joint venture. The assets of the joint venture were sold on April 29, 2016. Parke Capital Trust I, Parke Capital Trust II and Parke Capital Trust III are wholly-owned subsidiaries but are not consolidated because they do not meet the requirements for consolidation under applicable accounting guidance. All significant inter-company balances and transactions have been eliminated.

Investment Securities: At December 31, 2016 and 2015, the Company held investment securities that would be held for indefinite periods of time, including securities that would be used as part of the Company’s asset/liability management strategy and possibly sold in response to changes in interest rates, prepayments and similar factors. These securities are classified as “available for sale” and are carried at fair value, with any temporary unrealized gains or losses reported as other comprehensive income, net of the related income tax effect.

At December 31, 2016 and 2015, the Company also reported investments in securities that were carried at cost, adjusted for amortization of premium and accretion of discount. The Company has the intent and ability to hold these investment securities to maturity considering all reasonably foreseeable events or conditions. These securities are classified as “held to maturity.”

Declines in the fair value of individual debt securities below their cost that are deemed to be other than temporary result in write-downs of the individual securities to their fair value. Debt securities that are deemed to be other than temporarily impaired are reflected in earnings as realized losses to the extent impairment is related to credit losses. The amount of the impairment for debt securities related to other factors is recognized in other comprehensive income (loss). In evaluating other than temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than 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, and (4) for fixed maturity securities, whether the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of the cost basis, which may be maturity and such loss is taken into earnings.

The amortization of premiums and accretion of discounts over the contractual lives of the related securities are recognized in interest income using the interest method. Gains and losses on the sale of such securities are accounted for using the specific identification method.

Restricted Stock: Restricted stock includes investments in the common stock of the Federal Home Loan Bank of New York (“FHLBNY”) and the Atlantic Central Bankers Bank for which no market exists and, accordingly, is carried at cost. The stocks have no quoted market value and are subject to redemption restrictions. Management reviews these stocks for impairment based on the ultimate recoverability of the cost basis in the stock. The stocks’ value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. Management considers such criteria as the significance of the decline in net assets, if any, the length of time this situation has persisted and the financial performance of the issuers. In addition, management considers any commitments by the FHLBNY to make payments required by law or regulation, the impact of legislative and regulatory changes on the customer base of the FHLBNY and the liquidity position of the FHLBNY.

Loans: The Company makes commercial, real estate and consumer loans to customers. A substantial portion of the loan portfolio is represented by loans in the Southern New Jersey and Philadelphia, Pennsylvania markets. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal amount, adjusted for charge-offs, the allowance for loan losses and any unamortized deferred fees or costs on originated loans. Interest income on loans is recognized as earned based on contractual interest rates applied to daily principal amounts outstanding.

Loans-Nonaccrual: Loans are placed on nonaccrual status when, in management's opinion, the borrower may be unable to meet contractual payment obligations as they become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provisions. Loans may be placed on nonaccrual 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.

Troubled Debt Restructurings: Troubled debt restructuring (“TDRs”) are loans for which the Company, for legal or economic reasons related to a debtor’s financial difficulties, has granted a concession to the debtor that it otherwise would not have considered. Concessions that result in the categorization of a loan as a TDR include:


•	Reduction (absolute or contingent) of the stated interest rate;


•	Extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk;


•	Reduction (absolute or contingent) of the face amount or maturity amount of the debt as stated in the instrument or other agreement; or


•	Reduction (absolute or contingent) of accrued interest.

TDRs are reported as impaired loans. Interest income on TDR loans is recognized consistent with the Company’s nonaccrual loan policy stated above.

Concentration of Credit Risk: The Company’s loans are generally to diversified customers in Southern New Jersey and the Philadelphia area of Pennsylvania. Loans to general building contractors, general merchandise stores, restaurants, motels, warehouse space, and real estate ventures (including construction loans) constitute a majority of commercial loans. The concentrations of credit by type of loan are set forth in Note 4. Generally, loans are collateralized by assets of the borrower and are expected to be repaid from the borrower’s cash flow or proceeds from the sale of selected assets of the borrower.

Loan Fees: Loan fees and direct costs associated with loan originations are netted and deferred. The deferred amount is recognized as an adjustment to loan interest over the term of the related loans using the interest method. Loan brokerage fees represent commissions earned for facilitating loans between borrowers and other companies and is recorded as loan fee income. Loan fee income also includes prepayment penalties on loans.

Allowance for Loan Losses: 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 allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses in the balance of the loan portfolio, based on an evaluation of collectability of existing loans and prior loss experience. When evaluating the adequacy of the allowance, an assessment of the loan portfolio will typically take into consideration changes in the composition and volume of the loan portfolio, overall portfolio quality and past loss experience, review of specific problem loans,

current economic conditions which may affect borrowers’ ability to repay, changes in values of collateral and other factors which may warrant current recognition. Such periodic assessments may, in management’s judgment, require the Company to recognize additions or reductions to the allowance.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired, including TDRs. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value for collateral-dependent loans or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical charge-off experience and incurred losses given the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Factors considered by management when evaluating impaired loans include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately evaluate individual consumer loans for impairment.

Other Real Estate Owned (“OREO”): Real estate acquired through foreclosure or other proceedings is carried at fair value less estimated costs of disposal. Costs of improving OREO are capitalized to the extent that the carrying value does not exceed its fair value less estimated selling costs. Subsequent valuation adjustments, if any, are recognized as a charge against current earnings. Holding costs are charged to expense. Gains and losses on sales are recognized in noninterest income as they occur.

Interest Rate Risk: The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other borrowed and brokered funds, to make commercial, commercial mortgage, residential mortgage, and consumer loans, and to invest in overnight and term investment securities. Inherent in such activities is interest rate risk that results from differences in the maturities and repricing characteristics of these assets and liabilities. For this reason, management regularly monitors the level of interest rate risk and the potential impact on net income.

Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed and charged to expense using the straight-line method over the estimated useful lives of the assets, generally three years for computers and software, five to ten years for equipment and forty years for buildings. Leasehold improvements are amortized to expense over the shorter of the term of the respective lease or the estimated useful life of the improvements.

Income Taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Realization of deferred tax assets is dependent on generating sufficient taxable income in the future.

When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits would be recognized in income tax expense on the income statement.

The Company did not recognize any interest or penalties related to income tax during the years ended December 31, 2016 or 2015. The Company does not have an accrual for uncertain tax positions as of December 31, 2016 or 2015, as deductions taken and benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. Tax returns for all years 2013 and thereafter are subject to further examination by tax authorities, with the exception of the State of New Jersey for which tax returns for all years 2012 and thereafter are subject to further examination.

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, other than temporary impairment losses on investment securities, the valuation of deferred income taxes, and carrying value of OREO.

Segment Reporting: The Company operates one reportable segment of business, “community banking”. Through its community banking segment, the Company provides a broad range of retail and community banking services.

Reclassifications: Certain items in the 2015 financial statements have been reclassified to conform to the 2016 presentation. Such reclassifications have no impact on prior year earnings and shareholders’ equity.

Comprehensive Income: Comprehensive income consists of net income and other gains and losses affecting shareholders' equity that, under GAAP, are excluded from net income, including unrealized gains and losses on available for sale securities.

Accumulated other comprehensive loss consisted of the following at December 31, 2016 and 2015:



	2016			2015
	(Amounts in thousands)
Securities:
Non-credit unrealized losses on available for sale securities with OTTI	$	(309	)	$	(344	)
Unrealized (losses) gains on available for sale securities without OTTI	(273		)	71
Tax impact	233			108
	$	(349	)	$	(165	)

Earnings Per Common Share: Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share considers common stock equivalents (when dilutive) outstanding during the period such as options outstanding and convertible preferred stock. To the extent that stock equivalents are anti-dilutive, they have been excluded from the earnings per share calculation. Both basic and diluted earnings per share computations give retroactive effect to a stock dividend declared and paid in 2016 (Note 13). Earnings per common share have been computed based on the following for 2016 and 2015:



	2016		2015
	(dollars in thousands, except share data)
Basic earnings per common share
Net income available to common shareholders	$	17,310	$	9,497
Average common shares outstanding	6,846,514		6,700,718
Basic earnings per common share	$	2.53	$	1.42
Diluted earnings per common share
Net income available to common shareholders	$	17,310	$	9,497
Dividend on Preferred Series B	1,200		1,200
Net income available to common shareholders pre dividend on Preferred Series B	$	18,510	$	10,697
Average common shares outstanding	6,846,514		6,700,718
Dilutive potential common shares	2,118,186		2,071,409
Total diluted average common shares outstanding	8,964,700		8,772,127
Diluted earnings per common share	$	2.06	$	1.22

For 2016 and 2015, there were no options outstanding that were not included in the computation of diluted EPS because the options’ common stock equivalents and preferred stock were anti-dilutive.

Statement of Cash Flows: Cash and cash equivalents include cash and due from financial institutions and federal funds sold. For the purposes of the statement of cash flows, changes in loans and deposits are shown on a net basis.

Recently Issued Accounting Pronouncements:

During August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update ("ASU") 2016-15, which is a new guidance related to the Statement of Cash Flows. The new guidance clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, and contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows or that cannot be separated by source or use should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The adoption of this guidance is not expected to be material to the consolidated financial statements.

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 evaluating this guidance to determine the impact on its consolidated financial statements.

On January 5, 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (the ASU) which provides for changes to the current GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The more significant amendments are summarized below. ASU 2016-01 is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 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 (that is, for a calendar year-end public entity, the changes take effect beginning January 1, 2019). The Company is currently evaluating the impact of these amendments.

During March 2016, the FASB issued ASU No. 2016-09, Stock Compensation. ASU No. 2016-09(Topic 718) eliminates the concept of additional paid in capital pools for stock-based awards and requires that the related excess tax benefits and tax deficiencies be classified as an operating activity in the statement of cash flows. The new guidance also allows entities to make a one-time policy election to account for forfeitures when they occur, instead of accruing compensation cost based on the number of awards expected to vest. Additionally, the new guidance changes the requirement for an award to qualify for equity classification by permitting tax withholding up to the maximum statutory tax rate instead of the minimum statutory tax rate. Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity in the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The adoption of this guidance is not expected to be material to the consolidated financial statements.

During May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU No.2014-09 (Topic 606) supersedes the revenue recognition requirements in Accounting Standards Codification Topic 606, Revenue Recognition, and most industry-specific guidance throughout the Accounting Standards Codification. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. During August 2015, the FASB provided a one-year deferral of the effective date; therefore, the guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The FASB has also issued clarification guidance as it relates to principal versus agent considerations for revenue recognition purposes and clarification guidance on other various considerations related to the new revenue recognition guidance. Additionally, during April 2016, the FASB issued further clarification guidance related to identifying performance obligations and licensing. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.

Note 2. Cash and Due from Banks

The Company maintains various deposit accounts with other banks to meet normal funds transaction requirements, to satisfy deposit reserve requirements, and to compensate other banks for certain correspondent services. Management is responsible for assessing the credit risk of its correspondent banks. The withdrawal or usage restrictions of these balances did not have a significant impact on the operations of the Company as of December 31, 2016 or 2015, because reserve requirements were covered by vault cash.

Note 3. Investment Securities

The following is a summary of the Company's investment in available for sale and held to maturity securities as of December 31, 2016 and 2015:



As of December 31, 2016	Amortized cost		Gross unrealized gains		Gross unrealized losses		Other than temporary impairments in OCI		Fair value
	(Amounts in thousands)
Available for sale:
Corporate debt obligations	$	1,000	$	11	$	—	$	—	$	1,011
Residential mortgage-backed securities	43,530		218		508		—		43,240
Collateralized mortgage obligations	160		6		—		—		166
Collateralized debt obligations	746		—		—		309		437
Total available for sale	$	45,436	$	235	$	508	$	309	$	44,854

Held to maturity:
States and political subdivisions	$	2,224	$	187	$	—	$	—	$	2,411



As of December 31, 2015	Amortized cost		Gross unrealized gains		Gross unrealized losses		Other than temporary impairments in OCI		Fair value
	(Amounts in thousands)
Available for sale:
Corporate debt obligations	$	1,000	$	31	$	—	$	—	$	1,031
Residential mortgage-backed securities	40,788		451		418		—		40,821
Collateralized mortgage obligations	246		7		—		—		253
Collateralized debt obligations	806		—		—		344		462
Total available for sale	$	42,840	$	489	$	418	$	344	$	42,567

Held to maturity:
States and political subdivisions	$	2,181	$	290	$	—	$	—	$	2,471

The amortized cost and fair value of debt securities classified as available for sale and held to maturity, by contractual maturity, as of December 31, 2016, are as follows:



	Amortized Cost		Fair Value
	(Amounts in thousands)
Available for sale:
Due within one year	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	500		500
Due after ten years	1,246		948
Residential mortgage-backed securities and collateralized mortgage obligations	43,690		43,406
Total available for sale	$	45,436	$	44,854

Held to maturity:
Due within one year	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	1,212		1,253
Due after ten years	1,012		1,158
Total held to maturity	$	2,224	$	2,411

Expected maturities will differ from contractual maturities for mortgage related securities because the issuers of certain debt securities do have the right to call or prepay their obligations without any penalties.

During the year ending December 31, 2016 and December 31, 2015, the Company did not sell any investment securities.

Securities with a carrying value of $23.1 million and $15.6 million, respectively, were pledged to secure public deposits at December 31, 2016 and 2015.

The following tables show the gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other than temporarily impaired (“OTTI”), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2016 there were 7 securities in a less than 12 months loss position and 3 in a greater than 12 months. At December 31, 2015 there were 5 securities in a less than 12 months loss position and 3 greater than 12 months.



As of December 31, 2016	Less Than 12 Months				12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Amounts in thousands)
Available for sale:
Residential mortgage-backed securities	$	17,519	$	484	$	1,077	$	24	$	18,596	$	508
Total available for sale	$	17,519	$	484	$	1,077	$	24	$	18,596	$	508



As of December 31, 2015	Less Than 12 Months				12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Amounts in thousands)
Available for sale:
Residential mortgage-backed securities	$	19,191	$	343	$	3,221	$	75	$	22,412	$	418
Total available for sale	$	19,191	$	343	$	3,221	$	75	$	22,412	$	418

Residential Mortgage-Backed Securities

The unrealized losses on the Company’s investment in mortgage-backed securities relates to ten securities. The losses were caused by movement in interest rates. The securities were issued by FNMA, GNMA and FHLMC all government sponsored entities. Because the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of its amortized cost basis, which may be maturity, it does not consider the investment in these securities to be OTTI at December 31, 2016.

Other than Temporarily Impaired Debt Securities

The Company assesses whether we intend to sell or whether it is more likely than not that we will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. 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. The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income.

The present value of expected future cash flows is determined using the best estimate of cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best estimate of cash flows vary depending on the type of security. The asset-backed securities’ cash flow estimates are based on bond-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate bond cash flow estimates are derived from scenario-based outcomes of expected corporate re-structuring or the disposition of assets using bond specific facts and circumstances including timing, security interests and loss severity.

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. On a quarterly basis, we review all securities to determine whether an OTTI exists and whether losses should be recognized. 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 and (4) for fixed maturity securities, our intent to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, our ability and intent to hold the security for a period of time that allows for the recovery in value.

OTTI recognized in earnings for credit-impaired debt securities is presented as additions in two components based upon whether the current period is the first time the debt security was credit-impaired (initial credit impairment) or is not the first time the debt security was credit-impaired (subsequent credit impairments). The credit loss component is reduced if we sell, intend to sell or believe we will be required to sell previously credit-impaired debt securities. Additionally, the credit loss component is reduced if we receive cash flows in excess of what we expected to receive over the remaining life of the credit-impaired debt security, the security matures or is fully written down. There were no investment gains and losses recognized in income during the years ended December 31, 2016 and 2015.

Note 4. Loans

The portfolio of loans outstanding consists of:



	December 31, 2016				December 31, 2015
	Amount		Percentage of Total Loans		Amount		Percentage of Total Loans
	(Amounts in thousands)
Commercial and Industrial	$	26,774	3.1	%	$	27,140	3.6	%
Real Estate Construction:
Residential	8,825		1.0		7,750		1.0
Commercial	58,469		6.9		45,245		6.0
Real Estate Mortgage:
Commercial – Owner Occupied	123,898		14.5		172,040		22.7
Commercial – Non-owner Occupied	268,123		31.5		256,471		33.8
Residential – 1 to 4 Family	309,340		36.3		213,266		28.1
Residential – Multifamily	39,804		4.7		18,113		2.4
Consumer	16,720		2.0		18,476		2.4
Total Loans	$	851,953	100.0	%	$	758,501	100.0	%

At December 31, 2016 and 2015, approximately $193.9 million and $132.3 million, respectively, of loans were pledged to the FHLBNY on borrowings (Note 9). This pledge consists of a blanket lien on residential mortgages and certain qualifying commercial real estate loans.

Loan Origination/Risk Management: In the normal course of business the Company is exposed to a variety of operational, reputational, legal, regulatory and credit risks that could adversely affect our financial performance. Most of our asset risk is primarily tied to credit (lending) risk. The Company has lending policies, guidelines and procedures in place that are designed to maximize loan income within an acceptable level of risk. The Board of Directors reviews and approves these policies, guidelines and procedures. When we originate a loan we make certain subjective judgments about the borrower’s ability to meet the loan’s terms and conditions. We also make objective and subjective value assessments on the assets we finance. The borrower’s ability to repay can be adversely affected by economic changes. Likewise, changes in market conditions and other external factors can affect asset valuations. The Company actively monitors the quality of its loan portfolio. A reporting system supplements the credit review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit risk, loan delinquencies, troubled debt restructures, nonperforming and potential problem loans. Diversification in the loan portfolio is another means of managing risk associated with fluctuations in economic conditions.

The Company originates secured loans for business purposes. Loans are made to provide working capital to businesses in the form of lines of credit, which may be secured by accounts receivable, inventory, equipment or other assets. The financial condition and cash flow of commercial borrowers are closely monitored by means of corporate financial statements, personal financial statements and income tax returns. The frequency of submissions of required financial information depends on the size and complexity of the credit and the collateral that secures the loan. The Company’s general policy is to obtain personal guarantees from the principals of the commercial loan borrowers. Such loans are made to businesses located in the Company’s market area.

With respect to construction loans to developers and builders that are secured by non-owner occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analyses of the developers and property owners. Construction loans are generally underwritten based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Commercial real estate loans, including multi-family loans, are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. Commercial real estate loans may be riskier than those for one-to-four family residences and are typically larger in dollar size. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. The repayment of these loans is generally largely dependent on the successful operation and management of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location within our market area. This diversity helps reduce the Company's exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also monitors economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2016, approximately 55.0% of the outstanding principal balance of the Company’s commercial real estate loans were secured by non-owner occupied properties.

The Company originates adjustable and fixed-rate residential mortgage loans. Such mortgage loans are generally originated under terms, conditions and documentation acceptable to the secondary mortgage market. Although the Company has placed all of these loans into its portfolio, a substantial majority of such loans can be sold in the secondary market or pledged for potential borrowings. The source of repayment is the borrower's income and could be adversely affected by job loss or illness.

Consumer loans may carry a higher degree of repayment risk than residential mortgage loans. Repayment is typically dependent upon the borrower’s financial stability which is more likely to be adversely affected by job loss, illness, or personal bankruptcy. To monitor and manage consumer loan risk, policies and procedures are developed and modified as needed. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, trend and outlook reports are reviewed by management on a regular basis. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage of 80%, collection remedies, the number of such loans a borrower can have at one time and documentation requirements. Historically the Company’s losses on consumer loans have been negligible.

The Company 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 Company maintains a risk monitoring program through a standalone Credit Risk Management Department. The external independent loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit risk management personnel.

Concentrations of Credit: Most of the Company's lending activity occurs within the areas of southern New Jersey and southeastern Pennsylvania, as well as other markets. The majority of the Company's loan portfolio consists of commercial real estate loans. No one industry sector exceeds 10% of total loans.

Loans to Related Parties: In the normal course of business, the Company has granted loans to officers, directors and their affiliates (related parties). All loans to related parties were made in the ordinary course of business; were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable loans with persons not related to the Bank; and did not involve more than the normal risk of collectability or present other unfavorable features. The other reductions were due to a former directors loans.

An analysis of the activity of such related party loans for 2016 and 2015 is as follows:



	2016			2015
	(Amounts in thousands)
Balance, beginning of year	$	20,072		$	20,233
Advances	418			4,568
Less: repayments	(856		)	(4,729		)
Less: reduction due to death of a director	(5,662		)	—
Balance, end of year	$	13,972		$	20,072

An age analysis of past due loans by class follows:



December 31, 2016	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
	(Amounts in thousands)
Commercial and Industrial	$	—	—	159	159	26,615	$	26,774	—
Real Estate Construction:
Residential	—		—	—	—	8,825	8,825		—
Commercial	—		—	3,241	3,241	55,228	58,469		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		165	430	595	123,303	123,898		—
Commercial – Non-owner Occupied	—		—	3,958	3,958	264,165	268,123		—
Residential – 1 to 4 Family	715		361	3,095	4,171	305,169	309,340		—
Residential – Multifamily	—		—	308	308	39,496	39,804		—
Consumer	31		42	107	180	16,540	16,720		—
Total Loans	$	746	568	11,298	12,612	839,341	$	851,953	—



December 31, 2015	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
	(Amounts in thousands)
Commercial and Industrial	$	—	—	740	740	26,400	$	27,140	—
Real Estate Construction:
Residential	—		—	—	—	7,750	7,750		—
Commercial	—		—	5,204	5,204	40,041	45,245		—
Real Estate Mortgage:
Commercial – Owner Occupied	812		—	358	1,170	170,870	172,040		—
Commercial – Non-owner Occupied	—		—	4,002	4,002	252,469	256,471		—
Residential – 1 to 4 Family	—		—	3,255	3,255	210,011	213,266		—
Residential – Multifamily	357		—	—	357	17,756	18,113		—
Consumer	31		32	—	63	18,413	18,476		—
Total Loans	$	1,200	32	13,559	14,791	743,710	$	758,501	—

Impaired Loans: Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.

All impaired loans that are secured by real estate 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 costs to sell 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 generally updated every 12 months or sooner if we have identified possible further deterioration in value. Prior to receiving the updated appraisal, we will establish a specific reserve for any estimated deterioration, based upon our assessment of market conditions, adjusted for estimated costs to sell and other identified costs. If the NRV is greater than the loan amount, then no impairment loss exists. If the NRV is less than the loan amount, the shortfall is recognized by a specific reserve. If the borrower fails to pledge additional collateral within a ninety days period, a charge-off equal to the difference between the loan carrying value and NRV will occur. In certain circumstances, however, a direct charge-off may be taken at the time that the NRV calculation reveals a shortfall. All impaired loans are evaluated based on the criteria stated above on a quarterly basis and any change in the reserve requirements are recorded in the period identified. All partially charged-off loans remain on nonaccrual status until they are brought current as to both principal and interest and have at least six months of payment history and future collectability of principal and interest is assured.

Impaired loans are set forth in the following tables.



December 31, 2016	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Amounts in thousands)
With no related allowance recorded:
Commercial and Industrial	$	21	$	23	$	—
Real Estate Construction:
Residential	—		—		—
Commercial	1,161		1,161		—
Real Estate Mortgage:
Commercial – Owner Occupied	—		—		—
Commercial – Non-owner Occupied	3,494		3,739		—
Residential – 1 to 4 Family	2,384		2,434		—
Residential – Multifamily	308		354		—
Consumer	107		107		—
	7,475		7,818		—
With an allowance recorded:
Commercial and Industrial	138		1,392		138
Real Estate Construction:
Residential	—		—		—
Commercial	7,225		11,125		155
Real Estate Mortgage:
Commercial – Owner Occupied	4,380		4,409		498
Commercial – Non-owner Occupied	15,506		17,100		226
Residential – 1 to 4 Family	1,681		1,697		234
Residential – Multifamily	—		—		—
Consumer	—		—		—
	28,930		35,723		1,251
Total:
Commercial and Industrial	159		1,415		138
Real Estate Construction:
Residential	—		—		—
Commercial	8,386		12,286		155
Real Estate Mortgage:
Commercial – Owner Occupied	4,380		4,409		498
Commercial – Non-owner Occupied	19,000		20,839		226
Residential – 1 to 4 Family	4,065		4,131		234
Residential – Multifamily	308		354		—
Consumer	107		107		—
	$	36,405	$	43,541	$	1,251



December 31, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Amounts in thousands)
With no related allowance recorded:
Commercial and Industrial	$	680	$	1,934	$	—
Real Estate Construction:
Residential	—		—		—
Commercial	1,420		1,517		—
Real Estate Mortgage:
Commercial – Owner Occupied	358		358		—
Commercial – Non-owner Occupied	1,281		1,281		—
Residential – 1 to 4 Family	1,858		1,910		—
Residential – Multifamily	—		—		—
Consumer	—		—		—
	5,597		7,000		—
With an allowance recorded:
Commercial and Industrial	503		504		67
Real Estate Construction:
Residential	—		—		—
Commercial	5,696		8,420		1,149
Real Estate Mortgage:
Commercial – Owner Occupied	4,341		4,370		73
Commercial – Non-owner Occupied	23,303		24,988		486
Residential – 1 to 4 Family	2,426		3,200		709
Residential – Multifamily	356		356		5
Consumer	—		—		—
	36,625		41,838		2,489
Total:
Commercial and Industrial	1,183		2,438		67
Real Estate Construction:
Residential	—		—		—
Commercial	7,116		9,937		1,149
Real Estate Mortgage:
Commercial – Owner Occupied	4,699		4,728		73
Commercial – Non-owner Occupied	24,584		26,269		486
Residential – 1 to 4 Family	4,284		5,110		709
Residential – Multifamily	356		356		5
Consumer	—		—		—
	$	42,222	$	48,838	$	2,489

The following table presents by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2016 and 2015:



	Year Ended December 31,
	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Amounts in thousands)
Commercial and Industrial	$	333	$	1	$	3,088	$	45
Real Estate Construction:
Residential	—		—		—		—
Commercial	9,340		234		10,013		87
Real Estate Mortgage:
Commercial – Owner Occupied	4,878		176		5,548		196
Commercial – Non-owner Occupied	19,281		751		26,554		985
Residential – 1 to 4 Family	4,130		122		5,491		113
Residential – Multifamily	320		8		359		26
Consumer	108		6		—		—
Total	$	38,390	$	1,298	$	51,053	$	1,452

Troubled debt restructurings: Periodically or upon modification management evaluates our loans in order to determine the appropriate risk rating, interest accrual status and potential classification as a TDR, some of which are performing and accruing interest. A TDR is a loan on which we have granted a concession due to a borrower’s financial difficulty, that would not otherwise be considered. The terms of these modified loans may include extension of maturity, renewals, changes in interest rate, additional collateral requirements or infusion of additional capital into the project by the borrower to reduce debt or to support future debt service. On construction and land development loans we may modify the loan as a result of delays or other project issues such as slower than anticipated sell-outs, insufficient leasing activity and/or a decline in the value of the underlying collateral securing the loan. Management believes that working with a borrower to restructure a loan provides us with a better likelihood of collecting our loan. It is our policy not to renegotiate the terms of a commercial loan simply because of a delinquency status. However, we will use our Troubled Debt Restructuring Program to work with delinquent borrowers when the delinquency is temporary. We consider all loans modified in a TDR to be impaired.

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.

We also 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; current financial information of the borrower and any guarantors. The projected repayment source needs to be reliable, verifiable, quantifiable and sustainable. In addition, all TDRs are reviewed quarterly to determine the amount of any impairment.

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.

A borrower with a restructured loan must make a minimum of six consecutive monthly payments at the restructured level and be current as to both interest and principal to be placed back on accrual status.

Performing TDRs (not reported as nonaccrual loans) totaled $25.1 million and $28.7 million with related allowances of $390,000 and $530,000 as of December 31, 2016 and December 31, 2015, respectively. Non-performing TDRs totaled $3.0 million and $3.5 million with related allowances of $0 and $603,000 as of December 31, 2016 and

December 31, 2015, respectively. All TDRs are classified as impaired loans and are included in the impaired loan disclosures above.

There were no loans modified as TDRs during the years ended December 31, 2016 and 2015.

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. The level of any re-defaults will likely be affected by future economic conditions. 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.

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 Parke 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 which 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 December 31, 2016 and 2015, is as follows:



At December 31, 2016	Pass		OAEM		Substandard		Doubtful		Total
	(Amounts in thousands)
Commercial and Industrial	$	26,515	$	121	$	138	$	—	$	26,774
Real Estate Construction:
Residential	8,825		—		—		—		8,825
Commercial	35,656		12,516		10,297		—		58,469
Real Estate Mortgage:
Commercial – Owner Occupied	120,166		3,302		430		—		123,898
Commercial – Non-owner Occupied	261,181		79		6,863		—		268,123
Residential – 1 to 4 Family	304,042		1,536		3,762		—		309,340
Residential – Multifamily	39,496		—		308		—		39,804
Consumer	16,612		—		108		—		16,720
Total	$	812,493	$	17,554	$	21,906	$	—	$	851,953



At December 31, 2015	Pass		OAEM		Substandard		Doubtful		Total
	(Amounts in thousands)
Commercial and Industrial	$	25,658	$	688	$	794	$	—	$	27,140
Real Estate Construction:
Residential	7,750		—		—		—		7,750
Commercial	24,210		15,831		5,204		—		45,245
Real Estate Mortgage:
Commercial – Owner Occupied	163,765		7,225		1,050		—		172,040
Commercial – Non-owner Occupied	242,607		7,044		6,820		—		256,471
Residential – 1 to 4 Family	207,911		515		4,840		—		213,266
Residential – Multifamily	17,757		—		356		—		18,113
Consumer	18,475		—		1		—		18,476
Total	$	708,133	$	31,303	$	19,065	$	—	$	758,501

Note 5. Allowance for Loan Losses

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Company's allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310, "Receivables" and allowance allocations calculated in accordance with ASC Topic 450, "Contingencies." Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Company's process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of, and trends related to, nonaccrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The provision for possible loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools.

The level of the allowance reflects management's continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified

losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management's judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company's loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of problem loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor's ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the relationship manager level for all commercial loans. When a loan has a grade of 6 or higher, the loan is analyzed to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things.

Historical valuation allowances are calculated based on the historical loss experience of specific types of loans. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical loss ratios are periodically updated based on actual charge-off experience. A historical valuation allowance is established for each pool of similar loans based upon the product of the historical loss ratio and the total dollar amount of the loans in the pool. The Company's pools of similar loans include similarly risk-graded groups of commercial loans, commercial real estate loans, consumer real estate loans and consumer and other loans.

General valuation allowances are based on general economic conditions and other qualitative risk factors both internal and external to the Company. In general, such valuation allowances are 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; and (ix) the impact of rising interest rates on portfolio risk. 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.

An analysis of the allowance for loan losses as of and for the years ended December 31, 2016 and 2015, is as follows:



Allowance for Loan Losses:	For the year ended December 31, 2016
	Beginning Balance		Charge-offs			Recoveries		Provisions			Ending Balance
	(Amounts in thousands)
Commercial and Industrial	$	952	$	(76	)	$	8	$	304		$	1,188
Real Estate Construction:
Residential	247		—			—		21			268
Commercial	2,501		(1,081		)	—		1,076			2,496
Real Estate Mortgage:
Commercial – Owner Occupied	3,267		—			1		(1,186		)	2,082
Commercial – Non-owner Occupied	3,838		(154		)	—		205			3,889
Residential – 1 to 4 Family	4,802		(704		)	39		779			4,916
Residential – Multifamily	254		(45		)	—		296			505
Consumer	275		(6		)	—		(33		)	236
Unallocated	—		—			—		—			—
Total	$	16,136	$	(2,066	)	$	48	$	1,462		$	15,580



Allowance for Loan Losses:	For the year ended December 31, 2015
	Beginning Balance		Charge-offs			Recoveries		Provisions			Ending Balance
	(Amounts in thousands)
Commercial and Industrial	$	1,679	$	(1,554	)	$	121	$	706		$	952
Real Estate Construction:
Residential	316		(238		)	—		169			247
Commercial	3,015		(2,745		)	—		2,231			2,501
Real Estate Mortgage:
Commercial – Owner Occupied	3,296		—			66		(95		)	3,267
Commercial – Non-owner Occupied	4,962		(638		)	398		(884		)	3,838
Residential – 1 to 4 Family	4,156		(504		)	148		1,002			4,802
Residential – Multifamily	357		—			—		(103		)	254
Consumer	262		(1		)	—		14			275
Unallocated	—		—			—		—			—
Total	$	18,043	$	(5,680	)	$	733	$	3,040		$	16,136



Allowance for Loan Losses, at December 31, 2016	Individually evaluated for impairment		Collectively evaluated for impairment		Total
	(Amounts in thousands)
Commercial and Industrial	$	138	$	1,050	$	1,188
Real Estate Construction:
Residential	—		268		268
Commercial	155		2,341		2,496
Real Estate Mortgage:
Commercial – Owner Occupied	498		1,584		2,082
Commercial – Non-owner Occupied	226		3,663		3,889
Residential – 1 to 4 Family	234		4,682		4,916
Residential – Multifamily	—		505		505
Consumer	—		236		236
Total	$	1,251	$	14,329	$	15,580



Allowance for Loan Losses, at December 31, 2015	Individually evaluated for impairment		Collectively evaluated for impairment		Total
	(Amounts in thousands)
Commercial and Industrial	$	67	$	885	$	952
Real Estate Construction:
Residential	—		247		247
Commercial	1,149		1,352		2,501
Real Estate Mortgage:
Commercial – Owner Occupied	73		3,194		3,267
Commercial – Non-owner Occupied	486		3,352		3,838
Residential – 1 to 4 Family	709		4,093		4,802
Residential – Multifamily	5		249		254
Consumer	—		275		275
Total	$	2,489	$	13,647	$	16,136



Loans, at December 31, 2016:	Individually evaluated for impairment		Collectively evaluated for impairment		Total
	(Amounts in thousands)
Commercial and Industrial	$	159	$	26,615	$	26,774
Real Estate Construction:
Residential	—		8,825		8,825
Commercial	8,386		50,083		58,469
Real Estate Mortgage:
Commercial – Owner Occupied	4,380		119,518		123,898
Commercial – Non-owner Occupied	19,000		249,123		268,123
Residential – 1 to 4 Family	4,065		305,275		309,340
Residential – Multifamily	308		39,496		39,804
Consumer	107		16,613		16,720
Total	$	36,405	$	815,548	$	851,953



Loans, at December 31, 2015:	Individually evaluated for impairment		Collectively evaluated for impairment		Total
	(Amounts in thousands)
Commercial and Industrial	$	1,183	$	25,957	$	27,140
Real Estate Construction:
Residential	—		7,750		7,750
Commercial	7,117		38,128		45,245
Real Estate Mortgage:
Commercial – Owner Occupied	4,698		167,342		172,040
Commercial – Non-owner Occupied	24,584		231,887		256,471
Residential – 1 to 4 Family	4,284		208,982		213,266
Residential – Multifamily	356		17,757		18,113
Consumer	—		18,476		18,476
Total	$	42,222	$	716,279	$	758,501

Note 6. Company Premises and Equipment

A summary of the cost and accumulated depreciation and amortization of Company premises and equipment as of December 31, 2016 and 2015 is as follows:



	Estimated Useful lives	2016			2015
		(Amounts in thousands)
Land		$	820		$	820
Building and improvements	12 years	5,352			4,973
Furniture and equipment	9.6 years	2,854			2,357
Total premises and equipment		9,026			8,150
Less: accumulated depreciation and amortization		(3,829		)	(3,559		)
Premises and equipment, net		$	5,197		$	4,591

Depreciation and amortization expense was $270,000 and $251,000 in 2016 and 2015, respectively.

The Company has non-cancelable operating lease agreements related to its Northfield and Philadelphia branch offices. The term of the Northfield lease is for 5 years and runs through May 2017 with one 5-year renewal option. The term

of the Philadelphia lease is for 10 years and runs through June 2016 was renewed with two 5-year renewal options. The Company entered into a land lease for its branch in Collingswood. The term of the lease is for 99 years of which 88 years remain. The Company is responsible for its pro-rata share of real estate taxes, and all insurance, utilities, maintenance and repair costs for the benefit of the branch offices. On June 1, 2016, the Company entered into a 10 year lease for its Arch Street Branch, located in Philadelphia. The Branch opened in December 2016. On July 1, 2016, the Company entered into a 1 year lease agreement for a Commercial Loan office in Hamilton N.J. At December 31, 2016, the required future minimum rental payments under these leases and other equipment operating leases are as follows:



Years Ending December 31,	(Amounts in thousands)

2017	293
2018	303
2019	303
2020	303
2021	268
Total minimum lease payments	$	1,470

Rent expense was approximately $220,000 in 2016 and $214,000 in 2015.

Note 7. OREO

Other Real Estate Owned (OREO) at December 31, 2016 was $10.5 million, compared to $16.6 million at December 31, 2015, a decrease of $6.1 million. The real estate owned at, December 31, 2016, consisted of 16 properties, the largest being a condominium development at $3.3 million. During 2016, the Company disposed of $5.2 million of OREO, recognizing a gain of $206,000, compared to $7.6 million of OREO sold in 2015, recognizing a loss of $1,076,000. Also during 2016, the Company wrote down OREO property by $2,036,000, compared to $943,000 of write-downs in 2015, based on a decline in appraised values. Operating expenses related to OREO, net of related income, for 2016 and 2015, were $935,000 and $1.5 million, respectively.

An analysis of OREO activity for the years ended December 31, 2016 and 2015 is as follows:



	For the Year Ended December 31,
	2016			2015
	(Amounts in thousands)
Balance at beginning of period	$	16,629		$	20,931
Real estate acquired in settlement of loans	788			5,154
Sales of real estate	(5,222		)	(7,576		)
Gain (loss) on sale of real estate	206			(1,076		)
Write-down of real estate carrying values	(2,036		)	(943		)
Donated property	(31		)	—
Capitalized improvements to real estate	194			139
Balance at end of period	$	10,528		$	16,629

Note 8. Deposits

Deposits at December 31, 2016 and 2015, consisted of the following:



	2016		2015
	(Amounts in thousands)
Demand deposits, noninterest-bearing	$	92,535	$	52,773
Demand deposits, interest-bearing	37,456		33,407
Money market deposits	134,433		122,264
Savings deposits	181,603		176,282
Time deposits of $250,000 or more	36,643		33,709
Other time deposits	254,795		225,876
Brokered time deposits	51,229		20,899
Total deposits	$	788,694	$	665,210

Scheduled maturities of certificates of deposit at December 31, 2016 are as follows:



Years Ending December 31,	(Amounts in thousands)

2017	$	266,724
2018	46,231
2019	15,517
2020	6,706
2021	7,469
Thereafter	20
Total	$	342,667

Deposits from related parties totaled approximately $4,767,000 and $4,980,000 at December 31, 2016 and 2015, respectively.

Note 9. Borrowings

An analysis of borrowings as of December 31, 2016 and 2015 is as follows:



		2016				2015
	Maturity Date or Range	Amount		Weighted Average Rate		Amount		Weighted Average Rate
		(Amounts in thousands, except rates)
Borrowed funds:
Federal Home Loan Bank advances	Less than one year	$	39,500	1.13	%	$	24,150	0.73	%
	One to three years	34,150		1.57	%	54,500		1.44	%
	Three to five years	6,000		1.85	%	6,000		1.85	%
	Five to ten years	—		—		—		—
	Total	$	79,650			$	84,650
Subordinated debentures, capital trusts	November 2035	$	5,155	2.58	%	$	5,155	2.04	%
	November 2035	5,155		2.58	%	5,155		2.04	%
	September 2037	3,093		2.46	%	3,093		2.01	%
	Total	$	13,403			$	13,403

At December 31, 2016, the Company had a $144.2 million line of credit from the FHLBNY, of which $79.7 million, as detailed above, was outstanding.

Certain investment securities (Note 3), loans (Note 4), and FHLBNY stock are pledged as collateral for borrowings.

Subordinated Debentures – Capital Trusts: On August 23, 2005, Parke Capital Trust I, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $5,000,000 of variable rate capital trust pass-through securities to investors. The variable interest rate re-prices quarterly at the three-month LIBOR plus 1.66% and was 2.58% at December 31, 2016. Parke Capital Trust I purchased $5,155,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after November 23, 2010, at par, or earlier if the deduction of related interest for federal income taxes is prohibited, classification as Tier 1 Capital is no longer allowed, or certain other contingencies arise. The capital securities must be redeemed upon final maturity of the subordinated debentures on November 23, 2035. Proceeds of approximately $4.2 million were contributed to paid-in capital at the Bank. The remaining $955 thousand was retained at the Company for future use.

On August 23, 2005, Parke Capital Trust II, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $5,000,000 of fixed/variable rate capital trust pass-through securities to investors. Currently, the interest rate is variable at 2.58%. The variable interest rate re-prices quarterly at the three-month LIBOR plus 1.66% beginning November 23, 2010. Parke Capital Trust II purchased $5,155,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after November 23, 2010, at par, or earlier if the deduction of related interest for federal income taxes is prohibited, classification as Tier 1 Capital is no longer allowed, or certain other contingencies arise. The capital securities must be redeemed upon final maturity of the subordinated debentures on November 23, 2035. Proceeds of approximately $4.2 million were contributed to paid-in capital at the Bank. The remaining $955 thousand was retained at the Company for future use.

On June 21, 2007, Parke Capital Trust III, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $3,000,000 of variable rate capital trust pass-through securities to investors. The variable interest rate re-prices quarterly at the three-month LIBOR plus 1.50% and was 2.46% at December 31, 2016. Parke Capital Trust III purchased $3,093,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after December 15, 2012, at par, or earlier if the deduction of related interest for federal income taxes is prohibited, classification as Tier 1 Capital is no longer allowed, or certain other contingencies arise. The capital securities must be redeemed upon final maturity of the subordinated debentures on September 15, 2037. The proceeds were contributed to paid-in capital at the Bank.

Note 10. Income Taxes

Income tax expense for 2016 and 2015 consisted of the following:



	2016		2015
	(Amounts in thousands)
Current tax expense:
Federal	$	6,826	$	6,007
State	1,564		1,026
	8,390		7,033
Deferred tax expense (benefit)	305		(190		)
Income tax expense	$	8,695	$	6,843

The components of the net deferred tax asset at December 31, 2016 and 2015 were as follows:



	2016			2015
	(Amounts in thousands)
Deferred tax assets:
Allowance for loan losses	$	5,845		$	6,068
Depreciation	268			280
Supplemental Executive Retirement Plan ("SERP")	1,511			1,343
OREO writedowns	1,839			1,894
OTTI write down on securities	65			65
Nonaccrued interest	1,806			2,048
Partnership Income	76			71
Non-qualified stock options	25			—
Write-down on partnership investment	181			—
Unrealized gain	233			110
	11,849			11,879
Valuation allowance	(181		)	—
Deferred tax Liabilities:
Deferred loan costs	(922		)	(951		)
Net deferred tax asset	$	10,746		$	10,928

A reconciliation of the Company’s effective income tax rate with the statutory federal rate for 2016 and 2015 is as follows:



	2016			2015
	(Amounts in thousands)
At Federal statutory rate	$	9,397		$	6,387
Adjustments resulting from:
State income taxes, net of Federal tax benefit	1,009			854
Noncontrolling interest	(147		)	(423		)
Tax exempt income	(32		)	(31		)
BOLI	(246		)	(121		)
Nondeductible expenses	1			4
Tax credit	(1,532		)	—
Increase in Valuation reserve	164			—
Other	81			173
	$	8,695		$	6,843

Management has evaluated the Company’s tax positions and concluded that the Company has taken no uncertain tax positions that require adjustments to the financial statements. With few exceptions, the Company is no longer subject to income tax examinations by the U.S. federal or local tax authorities for years before 2013, and by the State of New Jersey for years before 2012. The Company recorded a valuation allowance relating to the write down of a partnership investment. Management has concluded that these capital losses will not be realizable once incurred.

The Company recorded income tax expense of $8.7 million on income before taxes of $27.6 million for the year ended December 31, 2016, resulting in an effective tax rate of 31.5%, compared to income tax expense of $6.8 million on income before taxes of $18.8 million for the same period of 2015, resulting in an effective tax rate of 36.4%. The decrease in the effective rate is due to using an annualized tax rate versus using a monthly tax rate. The increase in our tax expense is due to the gain on sale of our SBA business of $7.6 million. The decrease in the effective rate is due to the Bank utilizing a $1.5 million Historic Tax Credit ("HTC") offset by a $482,000 write down (included in non-interest expense) of the HTC partnership investment. This resulted in a net benefit to the Company of $1.0 million, which reduced the Bank's income tax expense.

Note 11. Retirement Plans

The Company has a Supplemental Executive Retirement Plan (“SERP”) covering certain members of management. The net periodic SERP pension cost was approximately $458,000 in 2016 and $221,000 in 2015. The unfunded benefit obligation, which was included in other liabilities, was approximately $4,029,000 at December 31, 2016 and $3,571,000 at December 31, 2015.

The benefit obligation at December 31, 2016 and December 31, 2015 was calculated as follows:



	2016			2015
	(Amounts in thousands)
Benefit obligation, January 1	$	3,571		$	3,350
Service cost	(216		)	(86		)
Interest cost	199			214
Loss	475			93
Benefit obligation, December 31	$	4,029		$	3,571

The net periodic pension cost for 2016 and 2015 was calculated as follows:



	2016			2015
	(Amounts in thousands)
Service cost	$	(216	)	$	(86	)
Interest cost	199			214
Loss	475			93
	$	458		$	221

The discount rate used in determining the actuarial present value of the projected benefit obligation was 5.5% for both 2016 and 2015. Annual benefit payments are estimated at $0 for 2016, $136,149 for 2017, $336,437 for 2018, $368,506 for 2019, and $5,821,440 from 2020 through 2031.

The Company has a 401(k) Plan covering substantially all employees. Under the Plan, the Company is required to contribute 3% of all qualifying employees’ eligible salary to the Plan. The Plan expense in 2016 was $132,000 and $138,000 in 2015.

Note 12. 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 2016 was 0.625%. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of December 31, 2016, the Company and Bank met all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2016 and 2015, 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, and Tier 1 leverage ratios as set forth in the following tables.



	Actual				For Capital Adequacy Purposes				To be Well- Capitalized Under Prompt Corrective Action Provisions
Parke Bancorp, Inc.	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2016	(Amounts in thousands except ratios)
Total Risk Based Capital	$	154,018	18.33	%	$	72,470	8.625	%	N/A		N/A
(to Risk Weighted Assets)
Tier 1 Capital	$	143,453	17.07	%	$	55,666	6.625	%	N/A		N/A
(to Risk Weighted Assets)
Tier 1 Capital Common Equity	$	110,453	13.15	%	$	43,062	5.125	%	N/A		N/A
(to Risk Weighted Assets)
Tier 1 Capital	$	143,453	15.25	%	$	37,618	4.000	%	N/A		N/A
(to Average Assets)
As of December 31, 2015
Total Risk Based Capital	$	135,258	17.24	%	$	62,777	8.0	%	N/A		N/A
(to Risk Weighted Assets)
Tier 1 Capital	$	125,371	15.98	%	$	31,389	6.0	%	N/A		N/A
(to Risk Weighted Assets)
Tier 1 Capital Common Equity	$	92,371	11.77	%	$	31,389	4.5	%	N/A		N/A
(to Risk Weighted Assets)
Tier 1 Capital	$	125,371	14.69	%	$	34,133	4.0	%	N/A		N/A
(to Average Assets)
Parke Bank
As of December 31, 2016
Total Risk Based Capital	$	150,636	17.93	%	$	72,470	8.625	%	$	84,023	10.0	%
(to Risk Weighted Assets)
Tier 1 Capital	$	140,070	16.67	%	$	55,665	6.625	%	$	67,218	8.0	%
(to Risk Weighted Assets)
Tier 1 Capital Common Equity	$	140,070	16.67	%	$	43,062	5.125	%	$	54,615	6.5	%
(to Risk Weighted Assets)
Tier 1 Capital	$	140,070	15.29	%	$	36,654	4.000	%	$	45,818	5.0	%
(to Average Assets)
As of December 31, 2015
Total Risk Based Capital	$	134,415	17.13	%	$	62,777	8.0	%	$	78,471	10.0	%
(to Risk Weighted Assets)
Tier 1 Capital	$	124,528	15.87	%	$	31,388	4.0	%	$	62,777	8.0	%
(to Risk Weighted Assets)
Tier 1 Capital Common Equity	$	124,528	15.87	%	$	31,388	4.5	%	$	51,006	6.5	%
(to Risk Weighted Assets)
Tier 1 Capital	$	124,528	14.59	%	$	34,133	4.0	%	$	42,666	5.0	%
(to Average Assets)

Note 13. Shareholders’ Equity

Common Stock Dividend: The Company paid a quarterly cash dividend each quarter of 2016. The first three quarters of 2016 the dividend was $0.08 per share. The dividend was increased to $0.10 per share in December of 2016 for payment on January. During 2016 the Company paid $2.0 million in dividends. The timing and amount of future dividends

will be within the discretion of the Board of Directors and will depend on the consolidated earnings, financial condition, liquidity, and capital requirements of the Company and its subsidiaries, applicable governmental regulations and policies, and other factors deemed relevant by the Board. In May 2016 the Company paid a 10% common stock dividend to shareholders (625,971 shares). All share and per share information have been retroactively adjusted to give effect to this stock dividend for the periods presented.

Treasury Stock: The Company, in 2015, announced plans to purchase up to 500,000 shares of its own stock. During the year ending December 31, 2016, the Company purchased 294 shares at an average cost of $12.54 per share, compared to the year ending December 31, 2015, when the Company purchased 69,454 shares at an average cost of $11.98 per share.

Stock Options: In 2015, the shareholders approved the 2015 Equity Incentive Plan (the "Plan"). The Plan is a "non-qualified" stock option plan. All directors and certain officers and employees of the Company have been granted options under the Plan. Option awards are granted with an exercise price equal to the market price of the Company's stock on the date of the grant. All options issued have a 10 year contractual term and vest over five years. All stock option amounts and prices included in the following discussions have been adjusted for stock dividends.

The method of determining pro-forma compensation expense for 2016 was based on certain assumptions, including the past trading ranges of the Company's stock, volatility of 29%, expected option lives of 5 years, risk free interest rate of 2.38%, and a dividend rate of 2.03%. Net compensation expense recognized during 2016 amounted to $65,500. The remaining unrecognized compensation expense at December 31, 2016 is $292,000 at $2.55 price per share.

The following table summarizes stock option activity for the year ended December 31, 2016.



Options	Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1, 2016	20,371		$9.33
Granted	159,830		$10.39
Exercised	(20,371	)	$9.33
Expired/terminated	(2,970	)	$10.39
Outstanding at December 31, 2016:	156,860		$10.39	9.8	$	1,531,000
Exercisable at December 31, 2016:	—		$—	0.0	$	—

All outstanding options have an exercise price of $10.39. There were no outstanding exercisable options at December 31, 2016.

Preferred Stock: In December of 2013, the Company completed a private placement of newly designated 6.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series B, with a liquidation preference of $1,000 per share. The Company sold 20,000 shares in the placement for gross proceeds of $20.0 million. Each share of Series B Preferred Stock is convertible, at the option of the holder into 103.3446 shares of Common Stock. Upon full conversion of the Series B Preferred Stock, the Company will issue up to 2,066,891 shares of Common Stock assuming that the Conversion Rate does not change. The Conversion Rate and the total number of shares to be issued would be adjusted for stock dividends, stock splits and other corporate actions. The Conversion Rate was set using a conversion price for the common stock of $10.64, which was approximately 20% over the closing price of the Common Stock on October 10, 2013, the day the Series B Preferred Stock was priced.

The Company has recorded dividends on preferred stock in the approximate amount of $1.2 million for the years ended December 31, 2016 and 2015 respectively. All dividend amounts through December 31, 2016 have been paid. The preferred stock qualifies for and is accounted for as equity securities and is included in the Company’s Tier I capital on the date of receipt.

Note 14. Other Related Party Transactions

A member of the Board of Directors is a principal of an employee benefits insurance agency that provides all the medical, life and disability insurance coverage for the Company. The cost of these employee benefits totaled $634,000 in 2016 and $562,000 in 2015.

Note 15. Commitments and Contingencies

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

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. 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 Company evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment and income-producing commercial properties. As of December 31, 2016 and 2015, commitments to extend credit amounted to approximately $76.7 million and $66.1 million, respectively.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of December 31, 2016 and 2015, standby letters of credit with customers were $13.1 million and $14.2 million, respectively.

Loan commitments and standby letters of credit are issued in the ordinary course of business to meet customer needs. Commitments to fund fixed-rate loans were immaterial at December 31, 2016. Variable-rate commitments are generally issued for less than 1 year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. Management believes that off-balance sheet risk is not material to the results of operations or financial condition.

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

Note 16. 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 ("ASC"), 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.

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. 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.

Investment Securities Available for Sale:

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

Securities in Level 3 include thinly-traded and collateralized debt obligations (TruPS). With the assistance of competent third-party valuation specialists, the Company utilized the following methodology to determine the fair value:

Cash flows were developed based on the estimated speeds at which the TruPS are expected to prepay (a range of 1% to 2%), the estimated rates at which the TruPS are expected to defer payments, the estimated rates at which the TruPS are expected to default (a range of 0.57% to 0.66%), and the severity of the losses on securities which default 95%. TruPS generally allow for prepayment by the issuer without a prepayment penalty any time after five years. Due to the lack of new TruPS issuances and the relatively poor conditions of the financial institution industry, a relatively modest rate of prepayment was assumed going forward. Estimates for CDRs are based on the payment characteristics of the TruPS themselves (e.g. current, deferred, or defaulted) as well as the financial condition of the TruPS issuers in the pool. Estimates for the near-term rates of deferral and CDR are based on key financial ratios relating to the financial institutions’ capitalization, asset quality, profitability and liquidity. Finally, we consider whether or not the

financial institution has received TARP funding, and if it has, the amount. Longer-term rates of deferral and defaults are based on historical averages. The fair value of each bond was assessed by discounting its projected cash flows by a discount rate. The discount rates were based on the yields of publicly traded TruPS and preferred stock issued by comparably rated banks (3 month LIBOR plus a spread of 400 to 959 basis points).

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis at December 31, 2016 and 2015.



Financial Assets	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Securities Available for Sale
As of December 31, 2016
Corporate debt obligations	—		1,011		—		1,011
Residential mortgage-backed securities	—		43,240		—		43,240
Collateralized mortgage-backed securities	—		166		—		166
Collateralized debt obligations	—		—		437		437
Total	$	—	$	44,417	$	437	$	44,854
As of December 31, 2015
Corporate debt obligations	—		1,031		—		1,031
Residential mortgage-backed securities	—		40,821		—		40,821
Collateralized mortgage-backed securities	—		253		—		253
Collateralized debt obligations	—		—		462		462
Total	$	—	$	42,105	$	462	$	42,567

For the year ended December 31, 2016, there were no transfers between the levels within the fair value hierarchy.

The changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows for the years ended December 31:



	Securities Available for Sale
	2016			2015
	(Amounts in thousands)
Beginning balance at January 1,	$	462		$	349
Net losses included in:
Other comprehensive gain – CDO’s	—			113
Settlements	(25		)	—
Ending balance December 31,	$	437		$	462

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
	(Amounts in thousands)
As of December 31, 2016
Collateral dependent impaired loans	$	—	$	—	$	16,070	$	16,070
OREO	$	—	$	—	$	10,528	$	10,528
As of December 31, 2015
Collateral dependent impaired loans	$	—	$	—	$	20,066	$	20,066
OREO	$	—	$	—	$	16,629	$	16,629

Collateral dependent impaired loans, which are measured in accordance with FASB ASC Topic 310 Receivables, for impairment, had a carrying amount of $36.4 million and $42.2 million at December 31, 2016 and December 31, 2015, respectively, with a valuation allowance of $1.3 million and $2.5 million at December 31, 2016 and December 31, 2015, respectively. The valuation allowance for collateral dependent impaired loans is included in the allowance for loan losses on the balance sheet. 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 which are recorded at fair value. All properties have an independent third-party full appraisal to determine the fair value, less cost to sell (a range of 5% to 10%) and other costs, such as unpaid real estate taxes, that have been identified. The appraisal will be based on an "as-is" valuation and will follow a reasonable valuation method that addresses the direct sales comparison, income, and cost approaches to market value, reconciles those approaches, and explains the elimination of each approach not used. Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value.

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, restricted stock, 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 (Level 2 inputs).

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

Loans (other than impaired): Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, residential mortgage and other consumer. Each loan category is further segmented into groups by fixed and adjustable rate interest terms and by performing and non-performing categories. The fair value of performing loans is calculated by discounting scheduled cash flows through their estimated maturity, using estimated market discount rates that reflect the credit and interest rate risk inherent in each group of loans (Level 2 inputs). The estimate of maturity is based on contractual maturities for loans within each group, or on the Company’s historical experience with repayments for each loan classification, modified as required by an estimate of the effect of current economic conditions.

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 (Level 2 inputs).

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 similar advances or borrowings (Level 2 inputs).

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 December 31, 2016 and December 31, 2015:



	Level in Fair Value Hierarchy	December 31, 2016			December 31, 2015
	Level in Fair Value Hierarchy	Carrying Value		Fair Value	Carrying Value		Fair Value
		(Amounts in thousands)
Financial Assets:
Cash and cash equivalents	Level 1	$	70,720	70,720	$	27,429	$	27,429
Investment securities AFS	(1)	44,854		44,854	42,567		42,567
Investment securities HTM	Level 2	2,224		2,411	2,181		2,471
Restricted stock	Level 2	4,658		4,658	4,789		4,789
Loans held for sale	Level 2	—		—	2,640		2,640
Loans, net	(2)	836,373		844,290	742,365		743,604
Accrued interest receivable	Level 2	3,117		3,117	3,012		3,012
Financial Liabilities:
Demand and savings deposits	Level 2	$	446,026	446,027	$	384,726	$	384,726
Time deposits	Level 2	342,668		344,300	280,484		282,080
Borrowings	Level 2	93,053		90,362	98,053		95,492
Accrued interest payable	Level 2	655		655	494		494

⁽¹⁾See the recurring fair value table above.

⁽²⁾For non-impaired loans, Level 2; for impaired loans, Level 3.

Note 17. Parent Company Only Financial Statements

Condensed financial information of the parent company only is presented in the following two tables:



Balance Sheets	December 31,
	2016			2015
	(Amounts in thousands)
Assets:
Cash	$	1,317		$	1,540
Investments in subsidiaries	140,103			124,599
Other assets	5			5
Total assets	$	141,425		$	126,144
Liabilities and Equity:
Subordinated debentures	$	13,403		$	13,403
Other liabilities	954			700
Equity	127,068			112,041
Total liabilities and equity	$	141,425		$	126,144

Statements of Income	Years ended December 31,
	2016			2015
	(Amounts in thousands)
Income:
Dividends from bank subsidiary	$	3,400		$	2,657
Other income	—			—
Total income	3,400			2,657
Expense:
Interest on subordinated debentures	311			259
Salary	160			160
Other expenses	118			101
Total expenses	589			520
Net Income	2,811			2,137
Equity in undistributed income of subsidiaries	15,698			8,560
Net income	18,509			10,697
Preferred stock dividend and discount accretion	(1,200		)	(1,200		)
Net income available to common shareholders	$	17,309		$	9,497



Statements of Cash Flows
	Years ended December 31,
	2016			2015
	(Amounts in thousands)
Cash Flows from Operating Activities
Net income	$	18,509		$	10,697
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries	(15,698		)	(8,560		)
Changes in operating assets and liabilities:
Decrease in other assets	—			(51		)
Increase in accrued interest payable and other accrued liabilities	254			436
Net cash provided by operating activities	3,065			2,522
Cash Flows from Financing Activities
Purchase of treasury stock	(4		)	(831		)
Proceeds from exercise of stock options	—			2,749
Payment of dividend on preferred stock and common stock	(3,264		)	(2,661		)
Other, net	(20		)	(377		)
Net cash used in financing activities	(3,288		)	(1,120		)
Increase in cash and cash equivalents	(223		)	1,402
Cash and Cash Equivalents, January 1,	1,540			138
Cash and Cash Equivalents, December 31,	$	1,317		$	1,540

Note 18. Subsequent Events

Management has evaluated subsequent events through the date of issuance of the financial statements and does not believe any such events warrant recording or disclosure in these financial statements.



PARKE BANCORP, INC.	PARKE BANK	ASSISTANT VICE PRESIDENTS
PARKE BANK	EXECUTIVE OFFICERS
		Jennifer Chen
BOARD OF DIRECTORS	Vito S. Pantilione	Renee D’Orazio
	President	Patricia Dilks
Celestino R. (“Chuck”) Pennoni	Chief Executive Officer	Annice Fanelli
Chairman of the Board		Roxanne Melfe
Founder and Chairman of	Elizabeth A. Milavsky	Marysharon Mitchell
Pennoni Associates	Executive Vice President	Joan Santo
	Chief Operating Officer	Maryann Seal
Daniel J. Dalton		Bart Seaman
Vice Chairman of the Board	John F. Hawkins
Retired	Senior Vice President	BANKING OFFICES
Brown & Brown of New Jersey	Chief Financial Officer	www.parkebank.com

Vito S. Pantilione	Linda Kaiser	WASHINGTON TOWNSHIP, NJ
President	Corporate Secretary	Main Office
Chief Executive Officer		601 Delsea Drive
	SENIOR VICE PRESIDENTS	(856) 256-2500
Fred G. Choate	David O. Middlebrook	Roxanne Melfe, Manager
President of Greater Philadelphia	Chief Credit Officer
Venture Capital Corporation		567 Egg Harbor Road
	Daniel Sulpizio	(856) 582-6900
Arret F. Dobson	Director of Retail Banking	Brian Mickle, Manager
Real Estate Developer
	Paul E. Palmieri	COLLINGSWOOD, NJ
Dr. Edward Infantolino	Senior Loan Officer	1150 Haddon Avenue
President of Ocean Internal		(856) 858-0825
Medicine Associates, P.A.	Ralph Gallo	Jaime Brooks, Manager
	Chief Workout Officer
Anthony J. Jannetti		GALLOWAY TOWNSHIP, NJ
President of Anthony J. Jannetti, Inc.	Dolores M. Calvello	67 East Jimmie Leeds Road
	Loan Portfolio Manager	(609) 748-9700
Jeffrey H. Kripitz		Juan Taboada, Manager
Owner of Jeff Kripitz Agency	VICE PRESIDENTS
	Jaime Brooks	NORTHFIELD, NJ
Jack C. Sheppard, Jr.	Branch Manager	501 Tilton Road
Senior Vice President with Arthur J.		(609) 646-6677
Gallagher & Company	Kathleen Conover	Kathleen Conover, Manager
	Branch Manager
In Memoriam		PHILADELPHIA, PA
Ray H. Tresch	Gil Eubank	1610 Spruce Street
Founding Director 1999 - 2016	Loan Administration	(215) 772-1113
		Elvira Maxwell, Asst. Manager
PARKE BANCORP, INC.	Anthony Lombardo
	Controller	1032 Arch Street
CORPORATE OFFICERS		(215) 982-1975
	Nicholas Pantilione	Jennifer Chen, Manager
Vito S. Pantilione	Commercial Lending
President
Chief Executive Officer	Lisa Perkins
	Information Technology
Elizabeth A. Milavsky
Executive Vice President	Yogendrakumar Shukla
	Commercial Lending
John F. Hawkins
Senior Vice President	Marlon Soriano
Chief Financial Officer	Commercial Lending

Linda Kaiser	James Talarico
Corporate Secretary	Loan Workout

	Frank Zangari
	Compliance



SHAREHOLDER INFORMATION

ADMINISTRATIVE OFFICES		STOCK TRANSFER AND REGISTRAR
601 Delsea Drive		Shareholders wishing to change the name, address or
Washington Township, NJ 08080		ownership of stock, to report lost certificates or to
(856) 256-2500		consolidate accounts are asked to contact the Company's
www.parkebank.com		stock registrar and transfer agent directly:

ANNUAL MEETING OF SHAREHOLDERS		Computershare
The Annual Meeting of Shareholders will be held on		Investor Services
April 18, 2017 at 10:00 a.m. at Terra Nova Restaurant,		P.O. Box 43078
590 Delsea Drive, Sewell, New Jersey.		Providence, RI 02940-3078
		1-800-942-5909
INVESTOR RELATIONS		www.computershare.com
Copies of the Company’s earnings releases and
financial publications, including the annual report on		INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Form 10-K (without exhibits) filed with the Securities		RSM US LLP
and Exchange Commission are available without		751 Arbor Way, Suite 200
charge by contacting:		Blue Bell, PA 19422

Annice Fanelli, Assistant Vice President		SPECIAL COUNSEL
(856) 256-2500 or		Jones Walker LLP
investorsrelations@parkebank.com		1227 25th Street, NW
		Suite 200
		Washington, DC 20037

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