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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2021
or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File No. 000-51338

PARKE BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey65-1241959
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
601 Delsea Drive, Washington Township, New Jersey
08080
(Address of principal executive offices)(Zip Code)

856-256-2500
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes []                No []

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes []                No []

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer”, “accelerated filer", “smaller reporting company” and “emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):

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

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

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

Yes [ ]                No []




Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of Each Exchange on Which Registered
Common Stock, par value $0.10 per sharePKBKThe Nasdaq Stock Market, LLC

As of May 3, 2021, there were 11,890,363 shares of the registrant's common stock ($0.10 par value) outstanding.





INDEX
  Page
Part IFINANCIAL INFORMATION 
   
Item 1.Financial Statements
Item 2.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
   
Part IIOTHER INFORMATION 
   
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
   
SIGNATURES
   
EXHIBITS and CERTIFICATIONS 




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Parke Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
(Dollars in thousands except share and per share data)
 March 31,
2021
December 31,
2020
Assets  
Cash and due from banks$18,990 $20,571 
Interest bearing deposits with banks485,367 438,030 
Cash and cash equivalents
504,357 458,601 
Investment securities available for sale, at fair value17,868 19,882 
Investment securities held to maturity (fair value of $1,504 at March 31,
2021 and $1,530 at December 31, 2020)
1,238 1,224 
Total investment securities19,106 21,106 
Loans held for sale544 200 
Loans, net of unearned income1,547,739 1,565,807 
Less: Allowance for loan losses
(30,210)(29,698)
Net loans
1,517,529 1,536,109 
Accrued interest receivable8,700 8,772 
Premises and equipment, net6,597 6,698 
Restricted stock6,107 7,542 
Bank owned life insurance (BOLI)27,142 27,002 
Deferred tax asset8,640 8,611 
Other 4,420 3,681 
Total assets$2,103,142 $2,078,322 
Liabilities and Equity  
Liabilities  
Deposits
  
Noninterest-bearing deposits
$530,233 $428,860 
Interest-bearing deposits
1,200,532 1,163,583 
Total deposits
1,730,765 1,592,443 
FHLBNY borrowings
101,650 134,650 
FRB advances 90,026 
Subordinated debentures
42,589 42,542 
Accrued interest payable
1,428 2,338 
Other
16,766 13,726 
Total liabilities
1,893,198 1,875,725 
Equity  
Preferred stock, 1,000,000 shares authorized, $1,000 liquidation value Series B non-cumulative convertible; 470 shares and 480 shares outstanding at March 31, 2021 and December 31, 2020, respectively
470 480 
Common stock, $0.10 par value; authorized 15,000,000 shares; Issued: 12,167,887 shares and 12,136,567 shares at March 31, 2021 and Dec. 31, 2020, respectively
1,217 1,214 
  Additional paid-in capital135,246 134,989 
  Retained earnings74,324 66,794 
  Accumulated other comprehensive income380 463 
  Treasury stock, 284,522 shares at March 31, 2021 and Dec. 31, 2020, at cost
(3,015)(3,015)
   Total shareholders’ equity208,622 200,925 
  Noncontrolling interest in consolidated subsidiaries1,322 1,672 
   Total equity209,944 202,597 
   Total liabilities and equity$2,103,142 $2,078,322 

See accompanying notes to consolidated financial statements
1


Parke Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 For the Three Months Ended
March 31,
 20212020
 (Dollars in thousands except share data)
Interest income:
Interest and fees on loans$20,238 $20,328 
Interest and dividends on investments200 278 
Interest on federal funds sold and deposits with banks123 951 
Total interest income20,561 21,557 
Interest expense:
Interest on deposits2,827 5,451 
Interest on borrowings928 907 
Total interest expense3,755 6,358 
Net interest income16,806 15,199 
Provision for loan losses500 1,396 
Net interest income after provision for loan losses16,306 13,803 
Non-interest income  
Gain on sale of SBA loans45  
Other loan fees265 241 
Bank owned life insurance income140 146 
Service fees on deposit accounts1,612 568 
Net loss on sale and valuation adjustment of OREO(21)(132)
Other196 165 
Total non-interest income2,237 988 
Non-interest expense  
Compensation and benefits2,625 2,545 
Professional services853 355 
Occupancy and equipment544 480 
Data processing345 317 
FDIC insurance and other assessments261 141 
OREO expense15 111 
Other operating expense1,127 920 
Total non-interest expense5,770 4,869 
Income before income tax expense12,773 9,922 
Income tax expense3,247 2,554 
Net income attributable to Company and noncontrolling interest9,526 7,368 
Less: Net income attributable to noncontrolling interest(97)(156)
Net income attributable to Company9,429 7,212 
Less: Preferred stock dividend (7)(8)
Net income available to common shareholders$9,422 $7,204 
Earnings per common share  
Basic$0.79 $0.61 
Diluted$0.78 $0.60 
Weighted average common shares outstanding  
Basic11,872,246 11,848,964 
Diluted12,108,846 12,008,200 

See accompanying notes to consolidated financial statements
2


Parke Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 For the Three Months Ended
March 31,
 20212020
 (Dollars in thousands)
Net income $9,526 $7,368 
Unrealized gains on investment securities, net of reclassification into income: 
Unrealized (losses) gains on non-OTTI securities(112)683 
Tax impact on unrealized gain (loss)29 (168)
Total unrealized (losses) gains on investment securities(83)515 
Comprehensive income9,443 7,883 
Less: Comprehensive loss attributable to noncontrolling interests(97)(156)
Comprehensive income attributable to the Company$9,346 $7,727 

See accompanying notes to consolidated financial statements

3


Parke Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)

 Preferred
Stock
Shares of Common
Stock issued
Common
Stock
Additional
Paid-In
Capital
 
Retained
Earnings
Accumulated
Other Comprehensive Income
Treasury
Stock
Total Shareholders' EquityNon-Controlling InterestTotal Equity
(Dollars in thousands except share data)
Balance, December 31, 2019$500 12,132,855 $1,213 $134,706 $44,143 $58 $(3,015)$177,605 $1,819 $179,424 
Net income — — — — 7,212 — — 7,212 156 7,368 
Earnings distribution to non-controlling interest— — — — — — — — (594)(594)
Common stock options exercised— 845 — — — — — — —  
Other comprehensive income— — — — — 515 — 515 — 515 
Stock compensation expense— — — 64 — — — 64 — 64 
Stock dividend— (60)— (1)(2)— — (3)— (3)
Dividend on preferred stock — — — — (8)— — (8)— (8)
Dividend on common stock — — — — (1,896)— — (1,896)— (1,896)
Balance, March 31, 2020$500 12,133,640 $1,213 $134,769 $49,449 $573 $(3,015)$183,489 $1,381 $184,870 
Balance, December 31, 2020$480 12,136,567 $1,214 $134,989 $66,794 $463 $(3,015)$200,925 $1,672 $202,597 
Net income — — — — 9,429 — — 9,429 97 9,526 
Earnings distribution to non-controlling interest— — — — — — — — (447)(447)
Common stock options exercised — 29,945 3 197 — — — 200 — 200 
Preferred stock shares conversion(10)1,375 — 10 — — — — —  
Other comprehensive loss — — — — — (83)— (83)— (83)
Stock compensation expense— — — 50 — — — 50 — 50 
Dividend on preferred stock — — — —  — —  —  
Dividend on common stock — — — — (1,899)— — (1,899)— (1,899)
Balance, March 31, 2021$470 12,167,887 $1,217 $135,246 $74,324 $380 $(3,015)$208,622 $1,322 $209,944 

See accompanying notes to consolidated financial statements

4


Parke Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 For the Three Months Ended
March 31,
 20212020
 (Dollars in thousands)
Cash Flows from Operating Activities:  
Net income$9,526 $7,368 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization173 119 
Provision for loan losses500 1,396 
Increase in value of bank-owned life insurance(140)(146)
Gain on sale of SBA loans(45) 
SBA loans originated for sale(903) 
Proceeds from sale of SBA loans originated for sale402  
Net loss on sale of OREO and valuation adjustments21 132 
Net accretion of purchase premiums and discounts on securities18 7 
Stock based compensation50 65 
Net changes in:  
Increase (decrease) in accrued interest receivable and other assets(682)1,754 
Increase (decrease) in accrued interest payable and other accrued liabilities2,131 (1,274)
Net cash provided by operating activities11,051 9,421 
Cash Flows from Investing Activities:  
Repayments and maturities of investment securities available for sale1,870 1,253 
Net decrease (increase) in loans18,227 (47,443)
Purchases of bank premises and equipment(25)(74)
Proceeds from sale of OREO, net48 645 
Redemptions of restricted stock1,435  
Net cash provided by (used) in investing activities21,555 (45,619)
Cash Flows from Financing Activities:  
Cash dividends(1,899)(1,735)
Earnings distribution to non-controlling interest(447)(594)
Proceeds from exercise of stock options200  
Net (decrease) in FHLBNY and short-term borrowings(33,000) 
Net (decrease) in other borrowings(90,026) 
Net increase in noninterest-bearing deposits101,373 92,623 
Net increase in interest-bearing deposits36,949 37,488 
Net cash provided by financing activities13,150 127,782 
Net increase in cash and cash equivalents45,756 91,584 
Cash and Cash Equivalents, January 1,458,601 191,607 
Cash and Cash Equivalents, March 31$504,357 $283,191 
Supplemental Disclosure of Cash Flow Information:  
Interest paid$4,665 $5,217 
Income taxes paid$ $ 
Non-cash Investing and Financing Items  
Loans transferred to OREO$55 $ 
See accompanying notes to consolidated financial statements
5


Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

Parke Bancorp, Inc. (the “Company, we, us, our”) is a bank holding company headquartered in Sewell, New Jersey. Through subsidiaries, the Company provides individuals, corporations and other businesses and institutions with commercial and retail banking services, principally loans and deposits. The Company was incorporated in January 2005 under the laws of the State of New Jersey for the sole purpose of becoming the holding company of Parke Bank (the "Bank").
The Bank is a commercial bank, which was incorporated on August 25, 1998, and commenced operations on January 28, 1999. The Bank is chartered by the New Jersey Department of Banking and Insurance and its deposits are insured by the Federal Deposit Insurance Corporation. The Bank maintains its principal office at 601 Delsea Drive, Sewell, New Jersey, and seven additional branch office locations; 501 Tilton Road, Northfield, New Jersey, 567 Egg Harbor Road, Washington Township, New Jersey, 67 East Jimmie Leeds Road, Galloway Township, New Jersey, 1150 Haddon Avenue, Collingswood, New Jersey, 1610 Spruce Street, Philadelphia, Pennsylvania, and 1032 Arch Street, Philadelphia, Pennsylvania.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The accompanying interim financial statements should be read in conjunction with the annual financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The accompanying interim financial statements for the three months ended March 31, 2021 and 2020 are unaudited. The balance sheet as of December 31, 2020, was derived from the audited financial statements. In the opinion of management, these financial statements include all normal and recurring adjustments necessary for a fair statement of the results for such interim periods. Results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for the full year.

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

Recently Issued Accounting Pronouncements:

During June 2016, the Financial Accounting Standard Board (FASB) issued accounting standards update ("ASU") 2016-13, Financial Instruments-Credit Losses. ASU 2016-13 (Topic 326), replaces the incurred loss impairment methodology in current GAAP with an expected credit loss (CECL) methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. 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. The ASU was amended in some aspects by subsequent Accounting Standards Updates. The guidance of the Financial Instruments-Credit Losses became effective for public entities except small reporting companies ("SRCs") for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all entities, early adoption will continue to be allowed. As a small reporting company, CECL is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement-Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 (Topic 820) requires public entities to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements for instruments held at the end of the reporting period, and also disclose the range and weighted average used to develop
6


significant inputs for Level 3 fair value measurements. This ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this guidance in the first quarter of 2020. The adoption of the guidance did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General-Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 (Subtopic 715) requires entities to disclose weighted-average interest crediting rates for plans with promised interest crediting rates and reasons for significant gains and losses related to changes in the benefit obligation for reporting period. It also clarifies some disclosure requirements. This ASU is effective for fiscal years ending after December 15, 2020, for public business entities. The adoption of the guidance did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by removing certain tax exceptions to the general principles in Topic 740. The ASU also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for public business entities for fiscal years ending after December 15, 2020. Early adoption of the ASU is permitted. The Company adopted this guidance in the first quarter of 2021. The adoption of the guidance did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-3, Codification Improvements to Financial Instruments. ASU 2020-3 improves various financial instruments topics in the Accounting Standard Codification, such as: fair value option, applicability of portfolio exception in Topic 820 to nonfinancial items, disclosures for depository and lending institutions, etc. The confirming amendments are effective upon issuance of this Update for public entities. The amendments related to other issues are effective on various dates depending on the affects the guidance in the amendments in Accounting Standards Updates. The Company has adopted certain items in the guidance and is currently evaluating the impact of the other areas of the guidance and doesn't expect the adoption of the ASU have or will have a material impact to our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-4 (Topic 848) provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

NOTE 3. INVESTMENT SECURITIES

The following is a summary of the Company's investments in available for sale and held to maturity securities as of March 31, 2021 and December 31, 2020: 
As of March 31, 2021Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
(Dollars in thousands)
Available for sale:    
Corporate debt obligations$500 $ $ $500 
Residential mortgage-backed securities16,837 537 26 17,348 
Collateralized mortgage obligations19 1  20 
Total available for sale$17,356 $538 $26 $17,868 
     
Held to maturity:    
States and political subdivisions$1,238 $266 $ $1,504 
7


As of December 31, 2020Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
(Dollars in thousands)
Available for sale:    
Corporate debt obligations$500 $ $ $500 
Residential mortgage-backed securities18,736 646 23 19,359 
Collateralized mortgage obligations22 1  23 
Total available for sale$19,258 $647 $23 $19,882 
     
Held to maturity:    
States and political subdivisions$1,224 $306 $ $1,530 

The amortized cost and fair value of debt securities classified as available for sale and held to maturity, by contractual maturity as of March 31, 2021 are as follows:
 Amortized
Cost
Fair
Value
 (Dollars in thousands)
Available for sale: 
Due within one year$ $ 
Due after one year through five years546 545 
Due after five years through ten years9,682 9,964 
Due after ten years7,128 7,359 
Total available for sale$17,356 $17,868 
Held to maturity: 
Due within one year$ $ 
Due after one year through five years  
Due after five years through ten years1,238 1,504 
Due after ten years  
Total held to maturity$1,238 $1,504 

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

The Company did not sell any securities during the three months ended March 31, 2021. The following tables show the gross unrealized losses and fair value of the Company's investments which are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2021 and December 31, 2020:
As of March 31, 2021Less Than 12 Months12 Months or GreaterTotal
Description of SecuritiesFair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
 (Dollars in thousand)
Available for sale:      
Residential mortgage-backed securities$1,699 $24 $187 $2 $1,886 $26 
Total available for sale$1,699 $24 $187 $2 $1,886 $26 
8


As of December 31, 2020Less Than 12 Months12 Months or GreaterTotal
Description of SecuritiesFair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
 (Dollars in thousands)
Available for sale:      
Residential mortgage-backed securities$2,142 $20 $215 $3 $2,357 $23 
Total available for sale$2,142 $20 $215 $3 $2,357 $23 

Other Than Temporarily Impaired Debt Securities (OTTI)

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

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

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

The Company’s unrealized loss for the debt securities is comprised of 1 securities in the less than 12 months loss position and 2 securities in the 12 months or greater loss position at March 31, 2021, and 2 securities in the less than 12 months loss position and 2 securities in the 12 months or greater loss position at December 31, 2020. The mortgage-backed securities that had unrealized losses were issued or guaranteed by the US government or US government sponsored entities. The unrealized losses associated with those mortgage-backed securities are generally driven by changes in interest rates and are not due to credit losses given the explicit or implicit guarantees provided by the U.S. government. Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, the Company does not consider the unrealized loss in these securities to be OTTI at March 31, 2021.











9


NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES

At March 31, 2021 and December 31, 2020, the Company had $1.55 billion and $1.57 billion, respectively, in loans receivable outstanding. Outstanding balances include a total net reduction of $0.2 million and $0.4 million at March 31, 2021 and December 31, 2020, respectively, for unearned income, net deferred loan fees, and unamortized discounts and premiums. We had $544,000 and $200,000 in loans held for sale at March 31, 2021 and December 31, 2020. Also, at March 31, 2021, our commercial and industrial loan portfolio includes $93.4 million of loans to small businesses through the Paycheck Protection Program ("SBA PPP" loans), which is a loan designed by the Federal government to provide a direct incentive for small businesses to keep their workers on the payroll. The portfolios of loans receivable at March 31, 2021 and December 31, 2020, consist of the following:
 March 31, 2021December 31, 2020
 AmountAmount
 (Dollars in thousands)
Commercial and Industrial$120,062 $121,808 
Construction207,750 211,013 
Real Estate Mortgage:  
Commercial – Owner Occupied132,290 132,207 
Commercial – Non-owner Occupied326,713 324,840 
Residential – 1 to 4 Family667,371 670,827 
Residential – Multifamily83,864 94,748 
Consumer9,689 10,364 
Total Loans$1,547,739 $1,565,807 

An age analysis of past due loans by class at March 31, 2021 and December 31, 2020 is as follows:
March 31, 202130-59
Days Past
Due
60-89
Days Past
Due
Greater
than 90
Days and
Not
Accruing
Total Past
Due
CurrentTotal
Loans
Loans > 90 Days and Accruing
 (Dollars in Thousands)
Commercial and Industrial$ $ $49 $49 $120,013 $120,062 $ 
Construction  1,365 1,365 206,385 207,750  
Real Estate Mortgage:      
Commercial – Owner Occupied 152 4,159 4,311 127,979 132,290  
Commercial – Non-owner Occupied  309 309 326,404 326,713  
Residential – 1 to 4 Family 28 1,292 1,320 666,051 667,371  
Residential – Multifamily    83,864 83,864  
Consumer205   205 9,484 9,689  
Total Loans$205 $180 $7,174 $7,559 $1,540,180 $1,547,739 $ 
10


December 31, 202030-59
Days Past
Due
60-89
Days Past
Due
Greater
than 90
Days and
Not
Accruing
Total Past
Due
CurrentTotal
Loans
Loans > 90 Days and Accruing
 (Dollars in thousands)
Commercial and Industrial$ $ $50 $50 $121,758 $121,808 $ 
Construction  1,365 1,365 209,648 211,013  
Real Estate Mortgage:      
Commercial – Owner Occupied
 1,171 5,521 6,692 125,515 132,207  
Commercial – Non-owner Occupied
 872 69 941 323,899 324,840  
Residential – 1 to 4 Family
 662 1,669 2,331 668,496 670,827  
Residential – Multifamily
    94,748 94,748  
Consumer45  55 100 10,264 10,364  
Total Loans$45 $2,705 $8,729 $11,479 $1,554,328 $1,565,807 $ 

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

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

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

The general component of the allowance evaluates the impairments of pools of the loan portfolio collectively. It incorporates a historical valuation allowance and general valuation allowance. The historical loss experience is measured by type of credit and internal risk grade, loss severity, specific homogeneous risk pools. A historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events. The general valuation allowance is based on general economic conditions and other qualitative risk factors both internal and external to the Company. It is generally determined by evaluating, among other things: (i) the experience, ability and effectiveness of the Bank's lending management and staff; (ii) the effectiveness of the Bank's lending policies, procedures and internal controls;(iii) volume and severity of loan credit quality; (iv) nature and volume of portfolio and term of loans (v) the composition and concentrations of credit; (vi) the effectiveness of the internal loan review system; and (vii) national and local economic trends and conditions, and industry conditions. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, high-moderate, moderate, low-moderate or low degree of risk. The results are then input into a "general allocation matrix" to determine an appropriate general valuation allowance.

The process of determining the level of the allowance for loan and lease losses requires a high degree of estimate and judgment. It is reasonably possible that actual outcomes may differ from our estimates.



11


The following tables present the information regarding the allowance for loan and lease losses and associated loan data:
Real Estate Mortgage
Commercial and IndustrialConstructionCommercial Owner OccupiedCommercial Non-owner OccupiedResidential 1 to 4 FamilyResidential MultifamilyConsumerTotal
Allowance for loan losses(Dollars in thousands)
Three months ended March 31, 2021
December 31, 2020$492 $3,359 $3,078 $8,398 $12,595 $1,639 $137 $29,698 
    Charge-offs        
    Recoveries4