Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

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

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

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

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

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

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

Overview

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

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

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

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

At March 31, 2026, we had total assets of $2.21 billion, and total equity of $335.6 million. Net income available to common shareholders for the three months ended March 31, 2026 was $11.8 million.

Results of Operations

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Net Income: Our net income available to common shareholders for the three months ended March 31, 2026 increased $4.1 million, or 52.3%, to $11.8 million, compared to $7.8 million for the three months ended March 31, 2025. Earnings per share were $1.01 per basic common share and $0.99 per diluted common share for the three months ended March 31, 2026, compared to $0.66 per basic common share and $0.65 per diluted common share for the same period last year. The increase was primarily due to an increase in net interest income and a decrease in provision for credit losses, partially offset by an increase in non-interest expense.

Net Interest Income: Our net interest income was $22.1 million for the first quarter of 2026 compared to $16.6 million for the first quarter of 2025, an increase of $5.5 million, or 33.3%. Net interest income increased during the three months ended March 31, 2026, primarily due to an increase in interest and fees on loans, and a decrease in interest expense on deposits and borrowings, partially offset by a decrease in interest on deposits with banks. Interest income increased $3.1 million, or 9.1%, during the three months ended March 31, 2026 as compared to the same period in the prior year. The increase in interest income was primarily due to an increase of $4.4 million in interest and fees on loans, due to higher loan balances and market interest rates. Interest from deposits with banks decreased $1.3 million during the three months ended March 31, 2026 as compared to the same period in the prior year, primarily due to lower average cash balances held at the Federal Reserve Bank ("FRB") and lower interest earning rates. The increase in net interest income was also due to a decrease in interest expense on deposits during the three months ended March 31, 2026 of $1.7 million, or 11.5%, primarily due to a decrease in interest rates. Interest expense on borrowings decreased during the three months ended March 31, 2026, by $0.7 million, or 33.3%, as compared to the same period in the prior year, due to a decrease in average balances outstanding and a decrease in interest rates paid on borrowings.

Provision for credit losses: For the three months ended March 31, 2026, the provision for credit losses was $0.2 million, compared to a provision for credit losses of $0.6 million for the three months ended March 31, 2025, a decrease of $0.4 million. The decrease in the provision for credit losses for the three months ended March 31, 2026, was primarily due to lower growth in loans during the three months ended March 31, 2026, compared to the same period in 2025.

Non-interest Income: Our non-interest income was $0.9 million for the three months ended March 31, 2026, an increase of $32.0 thousand, compared to $0.8 million for the three months ended March 31, 2025. The increase is primarily attributable to an increase in bank owned life insurance ("BOLI") income, compared to the same period in 2025.

Non-interest Expense: Our non-interest expense increased $0.7 million, or 10.4%, for the three months ended March 31, 2026, from the three months ended March 31, 2025, to $7.2 million. The increase was primarily driven by an increase in compensation and benefits of $0.4 million, and an increase in other operating expense of $0.4 million, partially offset by a decrease in professional services of $0.1 million, for the three months ended March 31, 2026, compared to the same period in 2025.

Income Tax: Income tax expense was $3.7 million on income before taxes of $15.6 million for the three months ended March 31, 2026, resulting in an effective tax rate of 23.9%, compared to income tax expense of $2.5 million on income before taxes of $10.3 million for the same period of 2025, resulting in an effective tax rate of 24.5%.

Net Interest Income

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

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

		For the Three Months Ended March 31,
		2026												2025
						Interest												Interest
		Average				Income/				Yield/				Average				Income/				Yield/
		Balance				Expense				Cost				Balance				Expense				Cost
		(Dollars in thousands)
Assets
Loans*		$	2,035,169			$	35,891				7.15	%		$	1,878,594			$	31,476				6.80	%
Investment securities**			21,337				222				4.22	%			22,346				288				5.23	%
Interest bearing deposits			94,508				827				3.55	%			194,165				2,082				4.35	%
Total interest-earning assets			2,151,014				36,940				6.96	%			2,095,105				33,846				6.55	%
Other assets			74,465												63,834
Allowance for credit losses			(34,818	)											(32,680	)
Total assets		$	2,190,661											$	2,126,259
Liabilities and Shareholders' Equity
Interest bearing deposits:
Checking		$	92,697			$	385				1.69	%		$	66,001			$	170				1.04	%
Money markets			758,906				6,939				3.71	%			693,236				7,644				4.47	%
Savings			44,450				119				1.08	%			54,700				147				1.09	%
Time deposits			475,952				4,540				3.87	%			485,326				5,420				4.53	%
Brokered certificates of deposit			150,065				1,445				3.91	%			162,486				1,788				4.46	%
Total interest-bearing deposits			1,522,070				13,428				3.58	%			1,461,749				15,169				4.21	%
Borrowings			135,292				1,380				4.14	%			159,873				2,070				5.25	%
Total interest-bearing liabilities			1,657,362				14,808				3.62	%			1,621,622				17,239				4.31	%
Non-interest bearing deposits			179,692												181,055
Other liabilities			21,434												18,922
Total non-interest bearing liabilities			201,126												199,977
Equity			332,173												304,660
Total liabilities and shareholders' equity		$	2,190,661											$	2,126,259
Net interest income						$	22,132											$	16,607
Interest rate spread											3.34	%											2.24	%
Net interest margin											4.17	%											3.21	%

*

The average balance of loans includes loans on nonaccrual.

**

Includes balances of FHLBNY and ACBB stock.

Financial Condition

General

At March 31, 2026, the Company's total assets were $2.21 billion, a decrease of $36.5 million, or 1.60%, from December 31, 2025. The decrease in total assets was primarily attributable to a decrease in cash and cash equivalents of $46.0 million, partially offset by an increase in net loans of $7.8 million. Cash and cash equivalents decreased $46.0 million, or 29.3%, primarily due to a decrease in deposits of $59.9 million, and the increase in loans of $7.8 million, partially offset by an increase in FHLBNY borrowings of $10.0 million.

Total liabilities were $1.88 billion at March 31, 2026. This represented a $47.5 million, or 2.5%, decrease, from $1.92 billion at December 31, 2025. The decrease in total liabilities was primarily due to a decrease in total deposits of $59.9 million, or 3.4%, to $1.70 billion at March 31, 2026, partially offset by an increase in FHLBNY borrowings of $10.0 million, or 7.7%, to $140.0 million. The decrease in deposits was primarily driven by a decrease in non-interestbearing deposits of $32.4 million, time deposits of $24.0 million, brokered time deposits of $14.0 million, and interest-bearing demand deposits of $12.6 million, partially offset by an increase in money market deposits of $22.6 million.

Total equity was $335.6 million and $324.5 million at March 31, 2026 and December 31, 2025, respectively, an increase of $11.1 million from December 31, 2025. The increase was primarily due to the retention of earnings, partially offset by the payment of $2.1 million of cash dividends.

The following table presents certain key condensed balance sheet data as of March 31, 2026 and December 31, 2025:

		March 31,				December 31,
		2026				2025				Change				% Change
		(Dollars in thousands)
Cash and cash equivalents		$	110,874			$	156,863			$	(45,989	)			(29.3	)%
Investment securities			13,126				13,523				(397	)			(2.9	)%
Loans, net of unearned income			2,043,296				2,035,227				8,069				0.4	%
Allowance for credit losses			(34,921	)			(34,649	)			(272	)			0.8	%
Total assets			2,212,935				2,249,436				(36,501	)			(1.6	)%
Total deposits			1,698,744				1,758,669				(59,925	)			(3.4	)%
FHLBNY borrowings			140,000				130,000				10,000				7.7	%
Subordinated debt			13,403				13,403				-				0.0	%
Total liabilities			1,877,372				1,924,918				(47,546	)			(2.5	)%
Total equity			335,563				324,518				11,045				3.4	%
Total liabilities and equity			2,212,935				2,249,436				(36,501	)			(1.6	)%

Cash and cash equivalents

Cash and cash equivalents decreased $46.0 million to $110.9 million at March 31, 2026 from $156.9 million at December 31, 2025, a decrease of 29.3%. The decrease was primarily due to an increase in loans, and a decrease in primarily non-interest bearing and brokered deposit balances, partially offset by an increase in FHLBNY borrowings.

Investment securities

Total investment securities decreased to $13.1 million at March 31, 2026, from $13.5 million at December 31, 2025, a decrease of $0.4 million or 2.9%. The decrease was attributed to normal pay downs of securities. For detailed information on the composition and maturity distribution of our investment portfolio, see NOTE 3 - Investment Securities in the notes to the unaudited consolidated financial statements.

Loans

Our lending relationships are primarily with small to mid-sized businesses and individual consumers residing in and around Southern New Jersey and Philadelphia, Pennsylvania. We have also expanded our lending footprint in other areas, including New York and most recently South Carolina. We focus our lending efforts primarily in three lending areas: residential mortgage loans, commercial mortgage loans, and construction loans.

We originate residential mortgage loans with adjustable and fixed-rates that are secured by 1- 4 family and multifamily residential properties. These loans are generally underwritten under terms, conditions and documentation acceptable to the secondary mortgage market. A substantial majority of such loans can be pledged for potential borrowings.

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

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

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

Loans receivable: Loans receivable increased to $2.04 billion at March 31, 2026, from $2.04 billion at December 31, 2025, an increase of $8.1 million, or 0.4%. The increase was primarily due to increases in the residential - multifamily and construction loan portfolios, partially offset by a decrease in the residential - 1 to 4 family and residential - 1 to 4 family investment loan portfolios. Loans receivable as of March 31, 2026 and December 31, 2025, consisted of the following:

		March 31, 2026								December 31, 2025
						Percentage of								Percentage of
						Loans to total								Loans to total
		Amount				Loans				Amount				Loans				$ Change				% Change
		(Dollars in thousands)
Commercial and Industrial		$	39,817				1.9	%		$	38,672				1.9	%		$	1,145				3.0	%
Construction			217,805				10.7	%			212,307				10.4	%			5,498				2.6	%
Real Estate Mortgage:
Commercial - Owner Occupied			184,691				9.0	%			182,529				9.0	%			2,162				1.2	%
Commercial - Non-owner Occupied			476,983				23.3	%			478,295				23.5	%			(1,312	)			(0.3	)%
Residential - 1 to 4 Family			430,464				21.1	%			451,463				22.2	%			(20,999	)			(4.7	)%
Residential - 1 to 4 Family Investment			479,098				23.4	%			494,228				24.3	%			(15,130	)			(3.1	)%
Residential - Multifamily			210,577				10.3	%			173,611				8.5	%			36,966				21.3	%
Consumer			3,861				0.2	%			4,122				0.2	%			(261	)			(6.3	)%
Total Loans		$	2,043,296				100.0	%		$	2,035,227				100.0	%		$	8,069				0.4	%

Deposits

At March 31, 2026, total deposits decreased to $1.70 billion from $1.76 billion at December 31, 2025, a decrease of $59.9 million, or 3.4%. The decrease in deposits was primarily due to a decrease in time deposits of $38.0 million, of which $14.0 million were brokered deposits, $32.4 million of noninterest-bearing deposits, and $12.6 million in checking deposits, of which $12.5 million were brokered deposits. The decrease was partially offset by a $22.6 million increase in money market deposits, resulting from an increase of $21.7 million in municipal deposits.

		March 31,				December 31,
		2026				2025				$ Change				% Change
		(Dollars in thousands)
Noninterest-bearing		$	164,105			$	196,506			$	(32,401	)			(16.5	)%
Interest-bearing
Checking			97,217				109,861				(12,644	)			(11.5	)%
Savings			45,019				44,551				468				1.1	%
Money market			768,559				745,918				22,641				3.0	%
Time deposits			623,844				661,833				(37,989	)			(5.7	)%
Total deposits		$	1,698,744			$	1,758,669			$	(59,925	)			(3.4	)%
Estimated uninsured deposits		$	714,141			$	728,398			$	(14,257	)			(2.0	)%
Total brokered deposits		$	191,664			$	215,329			$	(23,665	)			(11.0	)%

Borrowings

Total borrowings were $153.4 million at March 31, 2026 and $143.4 million at December 31, 2025. The increase in borrowings during the first quarter of 2026 is due to an increase of $10.0 million in FHLBNY advances. At March 31, 2026, all of the outstanding FHLBNY advances had short-term maturities.

Equity

Total equity increased to $335.6 million at March 31, 2026 from $324.5 million at December 31, 2025, an increase of $11.0 million, or 3.4%, primarily due to the retention of earnings from the period, partially offset by the payment of $2.1 million of cash dividends.

Liquidity and Capital Resources

Liquidity is a measure of our ability to generate cash to support asset growth, meet deposit withdrawals, satisfy other contractual obligations, and otherwise operate on an ongoing basis. At March 31, 2026, our cash position was $110.9 million. We invest cash that is in excess of our immediate operating needs primarily in our interest-bearing account at the Federal Reserve.

Our primary source of funding has been deposits. Funds from other operations, financing arrangements, investment securities available-for-sale also provide significant sources of funding. The Company seeks to rely primarily on core deposits from customers to provide stable and cost-effective sources of funding to support loan growth. We focus on customer service which we believe has resulted in a history of customer loyalty. Stability, low cost and customer loyalty comprise key characteristics of core deposits.

We also use brokered deposits as a funding source. The Bank primarily utilizes brokered relationships with Wells Fargo, Piper Sandler, and Stonecastle. As of March 31, 2026, the Company had $156.6 million of brokered deposits resulting from these relationships. For an additional source of brokered liquidity, the Bank joined the IntraFi Financial Network. IntraFi provides the Bank an additional source of external funds through their weekly CDARS^® settlement process, as well as their ICS^® money market product. As of March 31, 2026, the Company had $35.0 million sourced from IntraFi. While deposit accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLBNY and the Federal Reserve Bank ("FRB"). As of March 31, 2026, the Company had lines of credit with the FHLBNY of $651.6 million, of which $140.0 million was outstanding, and an additional $100.0 million from a letter of credit for securing public funds, of which zero was outstanding as of March 31, 2026. The remaining borrowing capacity was $411.6 million at March 31, 2026. As of March 31, 2026, the Company had a borrowing capacity through the FRB discount window of $400.0 million. There were no borrowings outstanding from the FRB as of March 31, 2026. Our diversity of funding capacity results in the Bank's ability to cover 138.7% of estimated uninsured deposits at March 31, 2026.

We had outstanding loan commitments of $143.2 million at March 31, 2026. Our loan commitments are normally originated with the full amount of collateral. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth.

The following is a discussion of our cash flows for the three months ended March 31, 2026 and 2025.

Cash provided by operating activities was $13.0 million during the three months ended March 31, 2026, compared to $7.0 million for the same period in the prior year. The increase in operating cash flow was primarily due to the increase in net income, and the increase in accrued interest payable and other accrued liabilities, partially offset by the increase in accrued interest receivable and other assets.

Cash used in investing activities was $8.2 million during the three months ended March 31, 2026, compared to cash used in investing activities of $13.1 million in the same period last year. The decrease in cash used in the investing activities during the three months ended March 31, 2026, was primarily due to the decrease in cash outflow from the origination of loans, and the decrease in the net purchase of FHLBNY restricted stock.

Cash used in financing activities was $50.8 million during the three months ended March 31, 2026, compared to cash used in financing activities of $6.4 million in the same period last year. The increase in cash used in financing activities during the three months ended March 31, 2026, was primarily due to a decrease in noninterest-bearing deposits, and a decrease in interest-bearing deposits, partially offset by an increase in FHLBNY borrowings.

Capital Adequacy

We utilize a comprehensive process for assessing the Company's overall capital adequacy. We actively review our capital strategies in light of current and anticipated business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, earnings stability, competitive forces, economic conditions, and strength of management. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily manage our capital through the retention of earnings. We also use other means to manage our capital. Total equity increased $11.0 million at March 31, 2026, from December 31, 2025, primarily from the Company's net income of $11.8 million for the period, net of common and preferred stock dividends of $2.1 million.

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

Under the capital rules issued by the Federal banking agencies, the Company and the Bank elected to exclude the effects of certain Accumulated Other Comprehensive Income ("AOCI") items from its regulatory capital calculation. At March 31, 2026, the Bank and the Company were both considered "well capitalized".

The following table presents the tier 1 regulatory capital leverage ratios of the Company and the Bank at March 31, 2026:

		Amount				Ratio				Amount				Ratio
		(Dollars in thousands except ratios)
		Company								Parke Bank
Tier 1 leverage		$	348,844				15.92	%		$	348,164				15.90	%

Critical Accounting Policies

The Company's accounting policies are more fully described in Note 1 of the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025. As disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results of operations and require management's most difficult, subjective and complex judgments.

Allowance for Credit Losses: Our allowances for credit losses represents management's best estimate of probable losses inherent in our investment and loan portfolios, excluding those loans accounted for under fair value. Our process for determining the allowance for credit losses is discussed in Note 1 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Our determination of the allowance for credit losses is based on periodic evaluations of the loan and lease portfolios and other relevant factors, broken down into vintage based on year of origination. These critical estimates include significant use of our own historical data and other qualitative, and quantitative data. These evaluations are inherently subjective, as they require material estimates and may be susceptible to significant change. Our allowance for credit losses is comprised of two components, a specific allowance and a general calculation. A specific allowance is calculated for loans and leases that do not share similar risk characteristics with other financial assets, and include collateral dependent loans. A loan is considered to be collateral dependent when foreclosure of the underlying collateral is probable. Parke has elected to apply the practical expedient to measure expected credit losses of a collateral dependent asset using the fair value of the collateral, less any estimated costs to sell, when foreclosure is not probable but repayment of the loan is expected to be provided substantially through the operation or sale of the collateral, and the borrower is experiencing financial difficulty. The general based component covers loans and leases on which there are expected credit losses that are not yet individually identifiable. The allowance calculation and determination process is dependent on the use of key assumptions. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower, projected industry outlook, and economic conditions.

The process of determining the level of the allowance for credit losses requires a high degree of judgment. To the extent actual outcomes differ from our estimates, additional provision for loan and lease losses may be required that would reduce future earnings.