PARKE BANCORP, INC.PKBK
PARKE BANCORP, INC. Fair Value Disclosure
Fair Value
Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures (Topic 820) of FASB Accounting Standards Codification, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
Fair value is a market-based measurement, not an entity-specific measurement. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:
Level 1 Input:
1)Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 Inputs:
1)Quoted prices for similar assets or liabilities in active markets.
2)Quoted prices for identical or similar assets or liabilities in markets that are not active.
3)Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”
Level 3 Inputs:
1)Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.
2)These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
Fair Value on a Recurring Basis:
The following is a description of the Company’s valuation methodologies for assets carried at fair value on a recurring basis. These methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes that its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting measurement date.
Investments in Available for Sale Securities:
Where quoted prices are available in an active market, securities or other assets are classified in Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security, then fair values are provided by independent third-party valuation services. These valuation services estimate fair values using pricing models and other accepted valuation methodologies, such as quotes for similar securities and observable yield curves and spreads. As part of the Company’s overall valuation process, management evaluates these third-party methodologies to ensure that they are representative of exit prices in the Company’s principal markets. Securities in Level 2 include mortgage-backed securities, corporate debt obligations, and collateralized mortgage-backed securities.
The table below presents the balances of assets and liabilities measured at fair value on a recurring basis at December 31, 2024 and 2023.
Financial Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Investment securities available for sale | ||||||||||||||||||||||||||
| As of December 31, 2024 | ||||||||||||||||||||||||||
| Residential mortgage-backed securities | $ | — | $ | 5,551 | $ | — | $ | 5,551 | ||||||||||||||||||
| Total | $ | — | $ | 5,551 | $ | — | $ | 5,551 | ||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||
| Residential mortgage-backed securities | $ | — | $ | 7,095 | $ | — | $ | 7,095 | ||||||||||||||||||
| Total | $ | — | $ | 7,095 | $ | — | $ | 7,095 | ||||||||||||||||||
For the year ended December 31, 2024, there were no transfers between the levels within the fair value hierarchy.
There were no level 3 assets or liabilities held for the year ended at December 31, 2024 and December 31, 2023.
Fair Value on a Non-Recurring Basis:
Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
| Financial Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| As of December 31, 2024 | ||||||||||||||||||||||||||
| Collateral dependent loans | $ | — | $ | — | $ | 5,189 | $ | 5,189 | ||||||||||||||||||
| OREO | $ | — | $ | — | $ | 1,562 | $ | 1,562 | ||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||
| Collateral dependent loans | $ | — | $ | — | $ | 1,655 | $ | 1,655 | ||||||||||||||||||
| OREO | $ | — | $ | — | $ | 1,550 | $ | 1,550 | ||||||||||||||||||
All collateral dependent individually evaluated 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. 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.
The following table summarizes the carrying amounts and fair values for financial instruments at December 31, 2024 and December 31, 2023:
| December 31, 2024 | Carrying Amount | Fair Value | |||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 221,527 | $ | 221,527 | $ | 221,527 | $ | — | $ | — | |||||||||||||||||||
| Investment securities AFS | 5,551 | 5,551 | — | 5,551 | — | ||||||||||||||||||||||||
| Investment securities HTM | 9,209 | 7,492 | — | 7,492 | — | ||||||||||||||||||||||||
| Restricted stock | 8,619 | 8,619 | — | — | 8,619 | ||||||||||||||||||||||||
| Loans, net | 1,835,580 | 1,834,007 | — | 1,822,203 | 11,804 | ||||||||||||||||||||||||
| Accrued interest receivable | 9,659 | 9,659 | — | 9,659 | — | ||||||||||||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||||||||
| Non-time deposits | $ | 915,892 | $ | 915,892 | $ | 915,892 | $ | — | $ | — | |||||||||||||||||||
| Time deposits | 715,158 | 716,904 | — | 716,904 | — | ||||||||||||||||||||||||
| Borrowings | 188,300 | 189,621 | — | 189,621 | — | ||||||||||||||||||||||||
| Accrued interest payable | 7,968 | 7,968 | — | 7,968 | — | ||||||||||||||||||||||||
| December 31, 2023 | Carrying Amount | Fair Value | |||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 180,376 | $ | 180,376 | $ | 180,376 | $ | — | $ | — | |||||||||||||||||||
| Investment securities AFS | 7,095 | 7,095 | — | 7,095 | — | ||||||||||||||||||||||||
| Investment securities HTM | 9,292 | 7,892 | — | 7,892 | — | ||||||||||||||||||||||||
| Restricted stock | 7,636 | 7,636 | — | — | 7,636 | ||||||||||||||||||||||||
| Loans, net | 1,755,209 | 1,727,842 | — | 1,718,866 | 8,976 | ||||||||||||||||||||||||
| Accrued interest receivable | 8,555 | 8,555 | — | 8,555 | — | ||||||||||||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||||||||
| Non-time deposits | $ | 945,756 | $ | 945,756 | $ | 945,756 | $ | — | $ | — | |||||||||||||||||||
| Time deposits | — | 605,216 | — | 605,216 | — | ||||||||||||||||||||||||
| Borrowings | 168,111 | 172,985 | — | 172,985 | — | ||||||||||||||||||||||||
| Accrued interest payable | 4,146 | 4,146 | — | 4,146 | — | ||||||||||||||||||||||||
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.