UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 2007
or
[X] 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 Jersey 65-1241959
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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 [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 13, 2007, there were issued and outstanding 3,161,153 shares
of the registrant's common stock.
PARKE BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2007
INDEX
Page
----
Part I FINANCIAL INFORMATION
------
Item 1. Financial Statements..............................................1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......19
Item 4. Controls and Procedures..........................................19
Part II OTHER INFORMATION
-------
Item 1. Legal Proceedings................................................19
Item 1A. Risk Factors.....................................................20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......20
Item 3. Defaults Upon Senior Securities..................................20
Item 4. Submission of Matters to a Vote of Security Holders..............20
Item 5. Other Information................................................20
Item 6. Exhibits.........................................................20
SIGNATURES
EXHIBITS and CERTIFICATIONS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2007 2006
------------- -------------
Assets
Cash and cash due from banks $ 3,330,339 $ 6,183,916
Federal funds sold and other cash equivalents 4,527,846 5,076,895
------------- -------------
Cash and cash equivalents 7,858,185 11,260,811
------------- -------------
Investment securities available for sale, at market value 27,797,087 24,530,067
Investment securities held to maturity, at amortized cost
(market value $2,402,957 at June 30, 2007 and
$2,425,629 at December 31, 2006) 2,443,106 2,430,958
------------- -------------
Total investment securities 30,240,193 26,961,025
------------- -------------
Restricted stock, at cost 1,757,500 1,492,800
------------- -------------
Loans 372,421,916 310,555,306
Less: allowance for loan losses (5,221,500) (4,511,004)
------------- -------------
Total net loans 367,200,416 306,044,302
------------- -------------
Bank premises and equipment, net 3,285,290 3,431,794
Bank owned life insurance 4,721,735 4,632,159
Accrued interest receivable and other assets 5,761,298 6,173,880
------------- -------------
Total assets $ 420,824,617 $ 359,996,771
============= =============
See Notes to Consolidated Financial Statements 1
PARKE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2007 2006
------------- -------------
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing demand $ 20,130,125 $ 18,287,577
Interest-bearing 321,716,136 271,641,283
------------- -------------
Total deposits 341,846,261 289,928,860
Borrowed funds 6,250,000 100,000
Federal Home Loan Bank advances 21,981,698 24,441,370
Subordinated debentures 13,403,000 10,310,000
Accrued interest payable and other liabilities 3,708,826 4,507,381
------------- -------------
Total liabilities 387,189,785 329,287,611
------------- -------------
Commitments and Contingencies (Note 1)
Shareholders' Equity
Common stock, $0.10 par value, 10,000,000 shares
authorized; 3,236,310 shares issued at June 30, 2007 and
2,884,937 shares issued at December 31, 2006 323,631 288,494
Preferred stock, 1,000,000 shares authorized; no shares issued
and outstanding -- --
Additional paid-in capital 26,379,370 21,153,220
Retained earnings 8,804,738 10,847,763
Accumulated other comprehensive (loss) (583,283) (420,250)
Treasury stock, at cost (75,826 shares at June 30, 2007 and
68,026 at December 31, 2006) (1,289,624) (1,160,067)
------------- -------------
Total shareholders' equity 33,634,832 30,709,160
------------- -------------
Total liabilities and shareholders' equity $ 420,824,617 $ 359,996,771
============= =============
See Notes to Consolidated Financial Statements 2
PARKE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
------------- ------------- ------------- -------------
Interest and Dividend Income
Loans, including fees $ 7,715,481 $ 5,789,039 $ 14,657,081 $ 11,039,027
Securities 402,119 331,653 788,336 634,104
Federal funds sold 40,811 37,763 131,993 54,821
------------ ------------ ------------ ------------
Total interest and dividend income 8,158,411 6,158,455 15,577,410 11,727,952
------------ ------------ ------------ ------------
Interest Expense
Deposits 3,895,184 2,414,195 7,253,394 4,437,853
Federal Home Loan Bank Advances 295,949 212,982 633,147 414,300
Other borrowings 173,435 198,751 357,573 387,763
------------ ------------ ------------ ------------
Total interest expense 4,364,568 2,825,928 8,244,114 5,239,916
------------ ------------ ------------ ------------
Net interest income 3,793,843 3,332,527 7,333,296 6,488,036
Provision For Loan Losses 210,000 328,000 710,496 563,000
------------ ------------ ------------ ------------
Net Interest Income After Provision For Losses 3,583,843 3,004,527 6,622,800 5,925,036
------------ ------------ ------------ ------------
Noninterest Income
Gain on sale of other real estate owned 205,090 -- 205,090 --
Service charges and other fee income 107,650 124,835 590,332 337,784
Bank owned life insurance 45,647 41,800 89,576 84,700
Loss on sale of securities (14,609) -- (14,609) --
------------ ------------ ------------ ------------
Total noninterest income 343,778 166,635 870,389 422,484
------------ ------------ ------------ ------------
Noninterest Expenses
Compensation and benefits 700,318 636,028 1,486,153 1,332,525
Occupancy, equipment and data processing 265,778 221,163 533,013 433,874
Marketing and business development 73,594 73,481 141,077 126,908
Professional services 185,766 198,028 299,937 347,058
Other operating expenses 248,619 181,251 493,135 446,262
------------ ------------ ------------ ------------
Total noninterest expenses 1,474,075 1,309,951 2,953,315 2,686,627
------------ ------------ ------------ ------------
Income Before Income Tax Expense 2,453,546 1,861,211 4,539,874 3,660,893
Income Tax Expense 972,098 740,000 1,781,196 1,464,220
------------ ------------ ------------ ------------
Net Income $ 1,481,448 $ 1,121,211 $ 2,758,678 $ 2,196,673
============ ============ ============ ============
Net Income Per Common Share
Basic $ 0.47 $ 0.36 $ 0.88 $ 0.71
============ ============ ============ ============
Diluted $ 0.41 $ 0.30 $ 0.77 $ 0.60
============ ============ ============ ============
Weighted Average Shares Outstanding
Basic 3,163,925 3,113,255 3,151,400 3,089,423
Diluted 3,617,051 3,687,334 3,601,525 3,691,327
See Notes to Consolidated Financial Statements 3
PARKE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(unaudited)
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Shareholders'
Stock Capital Earnings Income (Loss) Treasury Stock Equity
------------ ------------ ------------ ------------ -------------- ------------
Balance, December 31, 2005 $ 231,736 $ 20,511,410 $ 6,787,118 $ (286,296) $ (50,641) $ 27,193,327
Stock options and warrants
exercised 6,127 445,611 - - - 451,738
Treasury stock purchased - - - - (392,671) (392,671)
20% stock dividend 47,243 (51,972) - - - (4,729)
Comprehensive income:
Net income for the period - - 2,196,673 - - 2,196,673
Change in net unrealized gain
on securities available for
sale, net of reclassification
adjustment and tax effects - - - (184,378) - (184,378)
------------
Total comprehensive income 2,012,295
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2006 $ 285,106 $ 20,905,049 $ 8,983,791 $ (470,674) $ (443,312) $ 29,259,960
============ ============ ============ ============ ============ ============
Balance, December 31, 2006 $ 288,494 $ 21,153,220 $ 10,847,763 $ (420,250) $ (1,160,067) 30,709,160
Stock options and warrants
exercised 5,794 441,338 - - - 447,132
Stock compensation - 16,526 - - - 16,526
Treasury stock purchased - - - - (129,557) (129,557)
10% stock dividend 29,343 4,768,286 (4,801,703) - - (4,074)
Comprehensive income:
Net income for the period - - 2,758,678 - - 2,758,678
Change in net unrealized gain
on securities available for
sale, net of reclassification
adjustment and tax effects (172,957) (172,957)
Adjustment to minimum
pension liability 9,924 9,924
------------ ------------ ------------ ------------ ------------ ------------
Total comprehensive income 2,595,645
============ ============ ============ ============ ============ ============
Balance, June 30, 2007 $ 323,631 $ 26,379,370 $ 8,804,738 $ (583,283) $ (1,289,624) $ 33,634,832
============ ============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements 4
PARKE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended June 30,
---------------------------------
2007 2006
------------ ------------
Operating Activities
Net income $ 2,758,678 $ 2,196,673
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 154,284 124,486
Provision for loan losses 710,496 563,000
Net (accretion) of investment securities premiums/discounts (24,702) (10,379)
Stock compensation 16,526 --
Bank owned life insurance income (89,576) (84,700)
Supplemental executive retirement plan 129,516 147,119
Loss on sale of investments 14,609 --
Changes in operating assets and liabilities:
Decrease in accrued interest receivable and other assets 438,018 128,679
(Decrease) increase in accrued interest payable and other liabilities (800,925) 251,691
------------ ------------
Net cash provided by operating activities 3,306,924 3,316,570
------------ ------------
Investing Activities
Purchases of investment securities available for sale (7,287,767) (2,000,000)
(Redemptions) purchases of restricted stock (264,700) 36,400
Proceeds from sales of investment securities available for sale 985,391 --
Proceeds from maturities of investment securities available for sale 2,050,000 --
Principal payments on mortgage-backed securities 694,721 551,645
Net increase in loans (61,800,644) (35,243,780)
Purchases of bank premises and equipment (7,780) (54,535)
------------ ------------
Net cash used in investing activities (65,630,779) (36,710,270)
------------ ------------
Financing Activities
Proceeds from exercise of stock options and warrants 447,132 451,738
Purchase of treasury stock (129,557) (392,671)
Stock dividends (4,074) (4,729)
Net increase (decrease) in other borrowings 6,150,000 (163,500)
Net decrease in Federal Home Loan Bank Advances (2,459,672) (2,039,336)
Proceeds from issuance of subordinated debentures 3,000,000 --
Net increase in interest-bearing deposits 50,074,852 36,562,504
Net increase in noninterest-bearing deposits 1,842,548 1,248,901
------------ ------------
Net cash provided by financing activities 58,921,229 35,662,907
------------ ------------
(Decrease) increase in cash and cash equivalents (3,402,626) 2,269,207
Cash and Cash Equivalents at January 1, 11,260,811 4,380,036
------------ ------------
Cash and Cash Equivalents at June 30, $ 7,858,185 $ 6,649,243
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest on deposits and borrowings $ 8,041,719 $ 4,899,035
============ ============
Income taxes $ 2,310,821 $ 1,900,000
============ ============
See Notes to Consolidated Financial Statements 5
PARKE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. GENERAL
Business
Parke Bancorp, Inc. ("Parke Bancorp or the "Company") is a bank holding
company incorporated under the laws of the State of New Jersey in January 2005
for the sole purpose of becoming the holding company of Parke Bank (the "Bank").
The Bank is a commercial bank which commenced operations on January 28,
1999. The Bank is chartered by the New Jersey Department of Banking and insured
by the Federal Deposit Insurance Corporation ("FDIC"). Parke Bancorp and the
Bank maintain their principal offices at 601 Delsea Drive, Washington Township,
New Jersey. The Bank also conducts business through offices in Northfield and
Washington Township, New Jersey and Philadelphia, Pennsylvania and has a loan
production office in Millville, New Jersey.
Financial Statements
The accompanying financial statements as of June 30, 2007 and for the
three and six month periods ended June 30, 2007 and 2006 included herein have
not been audited. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP") have been condensed
or omitted; therefore, these financial statements should be read in conjunction
with the Company's audited financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2006, as filed with the SEC. The accompanying financial statements reflect
all adjustments, which are, in the opinion of management, necessary to present a
fair statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature. The results for the three and six
months ended June 30, 2007 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2007 or any other periods.
Basis of Financial Statement Presentation
The financial statements include the accounts of Parke Bancorp Inc. and
its wholly owned subsidiaries, Parke Bank, Parke Capital Markets and Farm Folly,
LLC. 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 consolidation requirements. All significant inter-company balances and
transactions have been eliminated. Such statements have been prepared in
accordance with GAAP and general practice within the banking industry.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from such estimates.
Investments
The Company has identified investment securities that will be held for
indefinite periods of time, including securities that will be used as a part of
the Bank's asset/liability management strategy and may be 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 temporary
unrealized gains or losses reported as a separate component of accumulated other
comprehensive income (losses), net of the related income tax effect. Declines in
the fair value of the individual available-for-sale securities below their cost
that are other than temporary have resulted in write downs of the individual
securities to their fair value
6
PARKE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
and are included in noninterest income in the consolidated statements of
operations. Factors affecting the determination of whether an
other-than-temporary impairment has occurred include a downgrading of the
security by a rating agency, a significant deterioration in the financial
condition of the issuer, or that the Company would not have the intent and
ability to hold a security for a period of time sufficient to allow for any
anticipated recovery in fair value. The unrealized losses that existed as of
June 30, 2007 are the result of market changes in interest rates since the
securities were purchased. This factor, coupled with the fact the Company has
both the intent and ability to hold securities for a period of time sufficient
to allow for any anticipated recovery in fair value, substantiates that the
unrealized losses in the available-for-sale portfolio are temporary.
Commitments
In the general course of business, there are various outstanding
commitments to extend credit, such as letters of credit and un-advanced loan
commitments, which are not reflected in the accompanying financial statements.
Management does not anticipate any material losses as a result of these
commitments.
Contingencies
The Company is from time to time a party to routine litigation in the
normal course of its business. Management does not believe that the resolution
of this litigation will have a material adverse effect on the financial
condition or results of operations of the Company. However, the ultimate outcome
of any such litigation, as with litigation generally, is inherently uncertain
and it is possible that some litigation matters may be resolved adversely to the
Company.
Income Taxes
When corporate income 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. Interest and penalties associated with
unrecognized tax benefits are recognized in income tax expense on the statement
of operations.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements ("SFAS No. 157"). This statement defines fair value, established a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. SFAS No. 157 does not
require any new fair value measurements, but provides enhanced guidance to other
pronouncements that require or permit assets or liabilities to be measured at
fair value. This statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
years. The Company is currently evaluating the impact of SFAS No. 157 on its
financial statements.
7
PARKE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In February 2007, the FASB issued SFAS No. 159, Fair Value Option for
Financial Assets and Financial Liabilities ("SFAS No. 159"). This statement
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007, with early adoption permitted provided the entity also elects to apply the
provisions of SFAS No. 157. The Company is currently evaluating the impact, if
any, of SFAS No. 159 on its financial position and results of operation.
NOTE 2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to
holders of common stock (the numerator) by the weighted average number of common
shares outstanding (the denominator) during the period. Shares issued during the
period are weighted for the portion of the period that they were outstanding.
The weighted average number of common shares outstanding for the three months
ended June 30, 2007 and 2006 was 3,163,925 and 3,113,255, respectively, and for
the six months ended June 30, 2007 and 2006 was 3,151,400 and 3,089,423,
respectively.
Diluted earnings per share are similar to the computation of basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
dilutive options and warrants outstanding had been exercised. The assumed
conversion of dilutive options and warrants resulted in 453,126 and 574,079
additional shares for the three months ended June 30, 2007 and 2006,
respectively, and for the six months ended June 30, 2007 and 2006 was 450,125
and 601,904, respectively.
Both basic and diluted earnings per share calculations give retroactive
effect to stock dividends declared, including the most recently completed 10%
stock dividend that was effective April 23, 2007.
NOTE 3. STOCK COMPENSATION
Effective January 1, 2006, the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 123 Share-Based Payment (Revised 2004)
("SFAS 123R") utilizing the modified prospective approach. Under the modified
prospective transition method, the Company is required to recognize compensation
cost for 1) all share-based payments granted prior to, but not vested as of,
January 1, 2006 based on the grant date fair value estimated in accordance with
the original provisions of SFAS 123; and 2) for all share-based payments granted
on or after January 1, 2006 based on the grant date fair value estimated in
accordance with SFAS 123R. In accordance with the modified prospective method,
the Company has not restated prior period results.
Prior to January 1, 2006, the Company accounted for share-based
payments under the recognition and measurement provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations, as
permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation.
All outstanding stock options as of January 1, 2006 were fully vested (in prior
years, all options vested upon issuance), thus no compensation expense was
recognized during the six months ended June 30, 2007 or 2006 for such options.
The Company used the Black-Scholes option pricing model to estimate the fair
value of stock-based awards in 2006 and thereafter.
As of June 30, 2007, there were 14,000 unvested options, which was no
change from December 31, 2006. Compensation cost related to share-based payments
amounted to $16,526 during the first six months of 2007, which related to
options issued in 2006.
NOTE 4. REGULATORY RESTRICTIONS
The Bank is subject to various regulatory capital requirements of
federal and state banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and
8
PARKE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the following table) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined).
For Capital
Actual Adequacy Purposes
Amount Ratio Amount Ratio
------ ----- ------ -----
As of June 30, 2007:
--------------------
(amounts in thousands)
Total Risk Based Capital $ 52,034 12.5% $ 33,186 8%
(to Risk Weighted Assets)
Tier 1 Capital $ 45,648 11.3% $ 16,593 4%
(to Risk Weighted Assets)
Tier 1 Capital $ 45,648 11.4% $ 16,375 4%
(to Average Assets)
For Capital
Actual Adequacy Purposes
Amount Ratio Amount Ratio
------ ----- ------ -----
As of December 31, 2006:
------------------------
(amounts in thousands)
Total Risk Based Capital $44,405 14.5% $24,499 8%
(to Risk Weighted Assets)
Tier 1 Capital $40,569 13.3% $12,249 4%
(to Risk Weighted Assets)
Tier 1 Capital $40,569 11.6% $14,054 4%
(to Average Assets)
Management believes, as of June 30, 2007 and December 31, 2006, that
the Bank met all capital adequacy requirements to which it was subject.
NOTE 5. SUBORDINATED DEBENTURES
On June 21, 2007, Parke Capital Trust III, a Delaware statutory
business trust and a wholly-owned subsidiary of the Company, issued $3.0 million
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 6.86% at June 30, 2007. Parke Capital Trust III purchased $3.1 million
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 June 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
9
PARKE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
redeemed upon final maturity of the subordinated debentures on September 15,
2037. Proceeds of approximately $3.0 million were retained at the Company for
future use.
NOTE 6. INCOME TAXES
The Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, ("FIN 48"), on January 1, 2007. The
Company files United States (US) federal income tax returns and state tax
returns in New Jersey. Based upon the statute of limitations, the Company is no
longer subject to US federal and state examinations by tax authorities for years
before 2003. Based on the review of the tax returns filed for the years 2003
through 2005 and the deferred tax benefits accrued in the 2006 annual financial
statements, management determined that all tax positions taken had a probability
of greater than 50 percent of being sustained and that 100 percent of the
benefits accrued were expected to be realized. Management has a high confidence
level in the technical merits of the positions. It believes that the deductions
taken and benefits accrued are based on widely understood administrative
practices and procedures and are based on clear and unambiguous tax law. As a
result of this evaluation, management did not see a need to record a liability
for unrecognized tax benefits.
NOTE 7. COMPREHENSIVE INCOME
The Company's comprehensive income is presented in the following table.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2007 2006 2007 2006
----------- ----------- ----------- -----------
Net Income $ 1,481,448 $ 1,121,211 $ 2,758,678 $ 2,196,673
Unrealized gains (losses) on securities (391,402) (199,924) (288,262) (307,297)
Adjustment to minimum pension liability 8,270 - 16,540 -
Income tax (expense) benefit 153,253 79,970 108,689 122,919
----------- ----------- ----------- -----------
Total comprehensive income $ 1,251,569 $ 1,001,257 $ 2,595,645 $ 2,012,295
=========== =========== =========== ===========
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
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, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; 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); technological changes; acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
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. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the SEC, including quarterly reports on Form 10-Q, Annual Reports on
Form 10-K and any current reports on Form 8-K.
General
The Company's results of operations are dependent primarily on 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, earnings from bank owned life insurance (BOLI), loan exit fees and
other fees. The Company's noninterest expenses primarily consist of employee
compensation and benefits, occupancy expenses, marketing expenses, data
processing costs and other operating expenses. The Company is also subject to
losses in 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.
Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
(unaudited)
The following discussion compares the results of operations for the
three month period ended June 30, 2007 to the results of operations for the
three month period ended June 30, 2006. This discussion should be read in
conjunction with the accompanying financial statements and related notes as well
as the financial information included in the 2006 Annual Report on Form 10-K.
11
Results of Operations
Net Income. For the quarter ended June 30, 2007, net income totaled
$1.5 million, compared to $1.1 million for the quarter ended June 30, 2006.
Diluted earnings per share for the three months ended June 30, 2007 totaled
$0.41, compared to $0.30 per share for the same period of 2006. Increased net
income for the three months ended June 30, 2007 was attributable primarily to an
increase in net interest income of $461,000, an increase in noninterest income
of $177,000, and a reduction in the provision for loan losses of $118,000, which
were partially offset by an increase in noninterest expenses of $164,000.
Net Interest Income. Our 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 the interest-bearing sources of funds, such as deposits and borrowings. The
level of net interest income is determined primarily by the average balances
("volume") and the rate spreads between the interest-earning assets and our
funding sources.
Net interest income for the three months ended June 30, 2007 totaled
$3.8 million, an increase of 13.8% over $3.3 million for the three months ended
June 30, 2006. The increase is attributable primarily to the growth in
commercial loan balances. The net interest margin for the three month period
ended June 30, 2007 was 3.84%, compared to 4.32% for the comparable period of
2006. The net interest margin was negatively impacted by higher cost time
deposits to fund loan growth, the recent shape of the yield curve, which has
been either flat or inverted, and one large nonperforming loan in the second
quarter. The nonperforming loan has subsequently been paid off in July 2007,
including prior interest owed.
Interest income amounted to $8.2 million and increased by $2.0 million,
or 32.5%, for the quarter ended June 30, 2007, as compared to the quarter ended
June 30, 2006, primarily due to an increase of $86.3 million in average
interest-earning assets as well as higher, interest-earning yield on assets.
Average loans outstanding increased by $82.6 million and average investment
securities increased by $3.9 million. Yields on earning assets for the three
months ended June 30, 2007 increased to 8.27% from 7.98% for the same period of
2006. Interest expense of $4.4 million increased by $1.5 million, which is
primarily attributable to average interest-bearing liabilities increasing by
$82.1 million coupled with a general rise in interest rates. Average
interest-bearing deposits increased by $79.8 million and average borrowings
increased by $2.4 million. The average rate paid on interest-bearing liabilities
increased to 4.96% for the three months ended June 30, 2007 from 4.18% for the
same period of 2006.
Provision for Loan Losses. The provision for loan losses amounted
to $210,000 for the second quarter of 2007 as compared to $328,000 for the
comparable quarter of 2006. The allowance for loan losses amounted to 1.40% of
total gross loans at June 30, 2007 as compared to 1.45% of total gross loans at
December 31, 2006. The level of nonperforming loans at June 30, 2007 increased
by $3.6 million from the level at March 31, 2007, and was entirely attributable
to one new nonperforming loan. The nonperforming loan, which was well
collateralized, was paid in full in July, 2007.
Noninterest Income. Noninterest income totaled $344,000 for the current
quarter and increased by $177,000 above the comparable quarter of 2006. The
increase was mainly attributable to a pre-tax gain of $205,000 on the sale of a
repossessed property. In addition, losses on the sale of securities amounted to
$15,000 as investment securities of approximately $1.0 million with lower yields
were sold and replaced by higher yielding investments.
Noninterest Expense. For the three months ended June 30, 2007,
noninterest expenses increased by $164,000, or 12.5%, to $1.5 million, compared
to $1.3 million for the same period of 2006. Increased compensation and related
expenses associated with the Philadelphia retail branch and loan production
office in Millville, New Jersey that were opened in the third quarter of 2006,
accounted for a majority of the expense increase from the prior years'
comparable quarter.
Income Taxes. The Company recorded income tax expense of $972,000, on
income before taxes of $2.4 million for the three months ended June 30, 2007,
resulting in an effective tax rate of 39.6%, compared to income tax expense of
$740,000 on income before taxes of $1.9 million for the same period of 2006,
resulting in an effective tax rate of 39.8%.
12
Interest Yield Table
For the three months ended June 30,
2007 2006
------------------------------------ --------------------------------------
Average Interest Annual Average Interest Annual
Balance Income/Expense Yield Balance Income/Expense Yield
------- -------------- ----- ------- -------------- -----
Assets
------
Loans $362,925,440 $7,715,481 8.53% $280,300,211 $5,789,040 8.28%
Investment securities 29,916,270 402,119 5.39 26,065,747 331,653 5.10
Federal funds sold 2,970,899 40,812 5.51 3,132,395 37,763 4.84
------------ ---------- ------------ ----------
Total interest-earning assets 395,812,609 8,158,412 8.27 309,498,353 6,158,455 7.98
---------- ----------
Allowance for loan losses (5,033,039) (3,894,092)
Other assets 18,623,013 15,967,874
------------ ------------
Total assets $409,382,583 $321,572,135
============ ============
Liabilities and shareholders' equity
------------------------------------
Regular savings deposits $ 25,525,762 $ 236,287 3.71% $28,969,750 $ 248,425 3.44%
NOW & money market savings 32,684,734 309,786 3.80 26,008,170 163,453 2.52
Time deposits 260,545,599 3,349,111 5.16 184,002,310 2,002,318 4.36
------------ ---------- ------------ ----------
Total interest-bearing deposits 318,756,095 3,895,184 4.90 238,980,230 2,414,195 4.05
Borrowed funds 34,256,283 469,383 5.50 31,899,481 411,733 5.18
------------ ---------- ------------ ----------
Total interest-bearing liabilities 353,012,387 4,364,568 4.96 270,879,711 2,825,925 4.18
---------- ----------
Non interest-bearing demand deposits 19,131,213 18,904,872
Other liabilities 3,863,397 2,667,449
Shareholders' equity 33,375,596 29,120,103
------------ ------------
Total liabilities and shareholders'
Equity $409,382,583 $321,572,135
============ ============
Net interest income $3,793,844 $3,332,527
========== ==========
Interest rate spread 3.31% 3.80%
Net interest margin 3.84% 4.32%
Six Months Ended June 30, 2007 and 2006
(unaudited)
The following discussion compares the results of operations for the six
months ended June 30, 2007 to the results of operations for the six months ended
June 30, 2006. This discussion should be read in conjunction with the
accompanying financial statements and related notes as well as the financial
information included in the 2006 Annual Report on Form 10-K.
Results of Operations
Net Income. For the six months ended June 30, 2007, net income totaled
$2.8 million, compared to $2.2 million for the six months ended June 30, 2006,
an increase of 25.5%. Diluted earnings per share for the first six months of
2007 totaled $0.77, compared to $0.60 per share for the comparable period of
2006. Increased net income for the first six months of 2007 was attributable
primarily to increases in net interest income of $845,000 and an increase in
noninterest income of $448,000, which were partially offset by an increase in
the provision for loan losses of $147,000 and an increase in noninterest
expenses of $267,000.
Net Interest Income. Our 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 the interest-bearing sources of funds, such as deposits and borrowings. The
level of net interest income is determined primarily by the average balances
("volume") and the rate spreads between the interest-earning assets and our
funding sources.
13
Net interest income for the first six months of 2007 totaled $7.3
million, an increase of $845,000, or 13.0%, above $6.5 million for the six
months ended June 30, 2006. The net interest margin for the six month period
ended June 30, 2007 was 3.88%, which was down from 4.35% for the comparable
period of 2006. Higher cost time deposits, the recent shape of the yield curve
and one large nonperforming loan in the second quarter of 2007 all contributed
to the margin compression during the past year.
Interest income of $15.6 million for the six months ended June 30, 2007
increased by $3.8 million, or 32.8%, from the level of the comparable period of
2006. This was driven primarily by an increase of $80.9 million in average
interest-earning assets and an increase in the yield on interest-earning assets.
Average loans outstanding of $347.2 million for the six months ended June 30,
2007, increased by $74.8 million from the comparable period of 2006 while
average investment securities increased by $3.5 million. Yields on earning
assets for the period ended June 30, 2007 increased to 8.23% from 7.87% for the
comparable period of 2006. Interest expense for the six months ended June 30,
2007 amounted to $8.2 million and increased by $3.0 million, or 57.3% primarily
due to an increase in average interest-bearing liabilities and increased
interest rates on customer deposits and borrowed funds. Average interest-bearing
deposits for the six months ended June 30, 2007, increased by $72.0 million form
the comparable period of 2006 while average borrowings increased by $4.4 million
during comparable periods of both years. The average rate paid on
interest-bearing liabilities increased to 4.89% for the period ended June 30,
2007 from 4.01% for the comparable period of 2006.
Noninterest Income. Noninterest income of $870,000 for the six months
ended June 30, 2007 increased $448,000, or 106%, from $422,000 for the
comparable period of 2006. The increase was principally due to the previously
mentioned gain on the sale of repossessed property in the second quarter
($205,000) and the insurance reimbursements ($377,000) that occurred in the
first quarter of 2007.
Provision for Loan Losses. The provision for loan losses was $710,000
for the six months ended June 30, 2007, compared to $563,000 for the same period
in 2006. The increase in the provision for the 2007 period was primarily due to
the 26% increase in loan balances during the twelve months ended June 30, 2007.
Noninterest Expense. For the six months ended June 30, 2007,
noninterest expense of $3.0 million increased by $267,000, or 6.2% compared to
$2.7 million for the same period of 2006. The increase was mainly due to
staffing and related expenses associated with the new retail branch in
Philadelphia and the loan production office in Millville, New Jersey that were
opened in the third quarter of 2006.
Income Taxes. The Company recorded income tax expense of $1.8 million
on income before taxes of $4.5 million for the six months ended June 30, 2007,
resulting in an effective tax rate of 39.2%, compared to income tax expense of
$1.5 million on income before taxes of $3.7 million for the comparable period of
2006, resulting in an effective tax rate of 39.8%.
14
Interest Yield Table
For the six months ended June 30,
2007 2006
------------------------------------ --------------------------------------
Average Interest Annual Average Interest Annual
Balance Income/Expense Yield Balance Income/Expense Yield
------- -------------- ----- ------- -------------- -----
Assets
------
Loans $347,245,814 $14,657,081 8.51% $272,413,835 $11,039,027 8.13%
Investment securities 29,249,239 788,336 5.44 25,771,413 634,104 4.96
Federal funds sold 4,969,636 131,993 5.36 2,357,102 54,821 4.69
------------ ----------- ------------ -----------
Total interest-earning assets 381,464,689 15,577,410 8.23 300,542,350 11,727,952 7.87
----------- -----------
Allowance for loan losses (4,823,745) (3,769,146)
Other assets 18,471,674 15,959,153
------------ ------------
Total assets $395,112,618 $312,732,357
============ ============
Liabilities and shareholders' equity
Regular savings deposits $ 25,912,989 $ 476,179 3.71% $ 31,602,277 $ 521,573 3.33%
NOW & money market savings 31,553,772 558,648 3.57 24,390,756 289,570 2.39
Time deposits 245,920,939 6,218,567 5.10 175,397,812 3,626,710 4.17
------------ ----------- ------------ -----------
Total interest-bearing deposits 303,387,700 7,253,394 4.82 231,390,845 4,437,853 3.87
Borrowed funds 36,369,497 990,720 5.49 31,994,445 802,063 5.06
------------ ----------- ------------ -----------
Total interest-bearing liabilities 339,757,197 8,244,114 4.89 263,385,290 5,239,916 4.01
----------- -----------
Non interest-bearing demand deposits 18,965,466 18,164,857
Other liabilities 3,771,348 2,635,236
Shareholders' equity 32,618,607 28,546,974
------------ ------------
Total liabilities and shareholders'
Equity $395,112,618 $312,732,357
============ ============
Net interest income $ 7,333,296 $ 6,488,036
=========== ===========
Interest rate spread 3.34% 3.86%
Net interest margin 3.88% 4.35%
15
Financial Condition
At June 30, 2007 and December 31, 2006
(unaudited)
The following discussion compares the financial condition at June 30,
2007 to the financial condition at December 31, 2006. This discussion should be
read in conjunction with the accompanying financial statements and related notes
as well as statistical information included in the 2006 Annual Report on Form
10-K.
Total assets at June 30, 2007 amounted to $420.8 million, compared to
$360.0 million at December 31, 2006, resulting in an increase of $60.8 million,
or 16.9%. This increase was driven primarily by loan growth as the Company
continued to expand its loan portfolio through development of new and existing
business relationships.
Total loans at June 30, 2007 were $372.4 million, which represented an
increase of $61.9 million, or 19.9% above the level of $310.6 million at
December 31, 2006. Growth occurred in all loan categories with commercial loan
growth of $56.9 million, or 20.2%, representing the majority of the loan growth
for 2007. Investment securities amounted to $30.3 million at June 30, 2007
versus $27.0 million at December 31, 2006.
The allowance for loan losses amounted to $5.2 million at June 30, 2007
compared to $4.5 million at December 31, 2006. The ratio of the allowance for
loan losses to total loans decreased from 1.45% at December 31, 2006 to 1.40% at
June 30, 2007. The Company's management has taken nonperforming loans and other
loans of concern into consideration in establishing the allowance for loan
losses. The Company continues to monitor its allowance for loan losses and will
make future additions or reductions in light of the level of loans in its
portfolio and as economic conditions dictate. The current level of the allowance
for loan losses is a result of the Company's management assessment of the risks
within the portfolio based upon the information revealed in credit reporting
processes. The Company utilizes a risk-rating system on all commercial,
business, agricultural, construction, consumer, multi-family, residential and
commercial real estate loans, including purchased loans. This risk assessment
takes into account the composition of the loan portfolio and historical loss
experience for each major loan category. In addition qualitative adjustments are
made for levels and trends in delinquencies, non-accruals and impaired loans;
trends in volume; effects, if any, for changes in the Company's credit policy;
experience and depth of the lending staff; any national and local economic
trends and conditions; and concentrations of credit within the total portfolio.
Although the Company's management believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in adjustments to the allowance, which could
significantly impact the Company's financial results, if circumstances differ
substantially from the assumptions used in making the final determinations.
Future additions to the Company's allowances may result from periodic loan,
property and collateral reviews coupled with negative trends in the factors
noted above and therefore cannot always be accurately predicted in advance.
Non-performing loans, expressed as a percentage of total loans,
amounted to 1.14% at June 30, 2007 versus 0.3% at December 31, 2006. At June 30,
2007, the Company had $4.3 million in non-accruing loans, which increased from
$788,000 at December 31, 2006. The increase was entirely attributed to one new
nonperforming loan that was subsequently paid in full during July, 2007.
Total deposits amounted to $341.8 million at June 30, 2007 and
increased by $51.9 million, or 17.9%, from $289.9 million at December 31, 2006.
Time deposits accounted for a majority of the increase in total deposits.
Borrowings, which included Federal Home Loan Bank (FHLB) advances,
repurchase agreements and subordinated debentures amounted to $41.6 million at
June 30, 2007, an increase of $6.8 million from $34.9 million at December 31,
2006. On June 21, 2007, Parke Capital Trust III, a Delaware statutory business
trust and a wholly-owned subsidiary of the Company, issued $3 million of
variable rate capital trust pass-through securities to investors. The variable
interest rate re-prices quarterly at the three-month
16
LIBOR plus 1.50% and was 6.86% at June 30, 2007. Parke Capital Trust III
purchased $3.1 million 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 June 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. Proceeds of
approximately $3.0 million were retained at the Company for future use.
Shareholders' equity was $33.6 million at June 30, 2007 and $30.7
million at December 31, 2006. An increase in net income of $2.8 million and the
exercise of warrants and stock options, which were modestly offset by an
increase in unrealized investment portfolio losses included in other
comprehensive income, accounted for the 9.5% increase.
Critical Accounting Policy
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
financial information contained within these statements is, to a significant
extent, financial information that is used on approximate measures of the
financial effects of transactions and events that have already occurred. Based
on its consideration of accounting policies that involve the most complex and
subjective decisions and assessments, management has identified its most
critical accounting policy to be related to the allowance for loan losses. The
Company's allowance for loan loss methodology incorporates a variety of risk
considerations, both quantitative and qualitative in establishing an allowance
for loan loss that management believes is appropriate at each reporting date.
Quantitative factors include the Company's historical loss experience,
delinquency and charge-offs trends, collateral values, changes in nonperforming
loans, and other factors. Quantitative factors also incorporate known
information about individual loans, including borrowers' sensitivity to
increased rate movements. Qualitative factors include the general economic
environment in the Company's market area. Size and complexity of individual
credits in relation to loan structure, existing loan policies and pace of
portfolio growth are other qualitative factors that are considered in the
methodology. Management may report a materially different amount for the
provision for loan losses in the statement of operations to change the allowance
for loan losses if its assessment of the above factors were different. This
discussion and analysis should be read in conjunction with the Company's
financial statements and the accompanying notes presented elsewhere herein, as
well as the portion of this Managements Discussion and Analysis, which discusses
the allowance for loan losses in this section, entitled "Financial Condition".
Although management believes the level of this allowance as of June 30, 2007 was
adequate to absorb losses inherent in the loan portfolio, a decline in local
economic conditions, or other factors, could result in increasing losses that
can not be reasonably predicated at this time.
Liquidity and Capital Resources
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 interest-earning
assets. The loan to deposit ratio was 108.9% and 107.1% at June 30, 2007 and
December 31, 2006, respectively. Funds received from new and existing depositors
provided a large source of liquidity for the six-month period ended June 30,
2007. The Company seeks to rely primarily on core deposits from customers to
provide stable and cost-effective sources of funding to support local growth.
The Company also seeks to augment such deposits with longer term and higher
yielding certificates of deposit. 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 can be obtained through the
issuance of trust preferred securities and advances from the FHLB. As of June
30, 2007, the Company maintained lines of credit with the FHLB of $43.3 million,
of which $28.2 million was outstanding at June 30, 2007.
As of June 30, 2007, the Company's investment securities portfolio
included $15.7 million of mortgage-backed securities that provide significant
cash flow each month. The majority of the investment
17
portfolio is classified as available for sale, is readily marketable, and is
available to meet liquidity needs. The Company's residential real estate
portfolio includes loans, which are underwritten to secondary market criteria,
and accordingly could be sold in the secondary mortgage market if needed as an
additional source of liquidity. The Company's management is not aware of any
known trends, demands, commitments or uncertainties that are reasonably likely
to result in material changes in liquidity.
Capital
A strong capital position is fundamental to support the continued
growth of the Company. The Company is subject to various regulatory capital
requirements. Regulatory capital is defined in terms of Tier I capital
(shareholders' equity as adjusted for unrealized gains or losses on
available-for-sale securities), Tier II capital (which includes a portion of the
allowance for loan losses) and total capital (Tier I plus Tier II). Risk-based
capital ratios are expressed as a percentage of risk-weighted assets.
Risk-weighted assets are determined by assigning various weights to all assets
and off-balance sheet associated risk in accordance with regulatory criteria.
Regulators have also adopted minimum Tier I leverage ratio standards, which
measure the ratio of Tier I capital to total assets.
At June 30, 2007, the Company's management believes that the Bank and
the Company are "well-capitalized" and in compliance with all applicable
regulatory requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information regarding
market risk disclosed under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Interest Rate Sensitivity and
Liquidity -- Rate Sensitivity Analysis" in the Company's Annual Report for the
fiscal year ended December 31, 2006.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, (the "Exchange Act")),
the Company's principal executive officer and principal financial officer have
concluded that as of the end of the period covered by this Quarterly Report on
Form 10-Q, such disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the required time periods.
Internal Controls
Changes in internal control over financial reporting. During the last
quarter, there was no change in the Company's internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 27, 2004, Republic First Bank filed an action captioned
Republic First Bank v. Parke Bank and Vito S. Pantilione in the Superior Court
of New Jersey Law Division, Gloucester County. The Bank believes that the action
is without merit and intends to vigorously defend against it. The suit alleges,
among other things, fraud, negligent misrepresentation, breach of fiduciary duty
and breach of contract in connection with certain loans to two Parke Bank
customers in which Republic First Bank became a participant. Republic First Bank
is seeking unspecified damages and requesting that a receivership be appointed
for certain collateral. This lawsuit is currently in the discovery phase of
litigation.
18
In January, 2007, the Bank reached a final agreement with both Atlantic
Central Bankers Bank and New Century Bank in connection with their action filed
against the Bank in 2005 alleging breach of participation agreements and
fraudulent misrepresentation in connection with the plaintiffs' participations
in loans to the same Parke Bank customers as the First Republic matter discussed
above. Their lawsuit against Parke Bank was dismissed in February, 2007. In
connection with this settlement, the Bank paid $150,000 and $60,000,
respectively to Atlantic Central Bankers Bank and New Century Bank in February
and March, 2007, respectively.
On November 4, 2004, Stephen P. Magenta and other parties filed an
action captioned Stephen P. Magenta, et. al. v. General Insulation Services,
Inc., et. al. in the Superior Court of New Jersey Law Division, Gloucester
County, related to the alleged embezzlement of over $1 million by an employee of
one of our customers of funds maintained in accounts at the Bank. All but one of
the claims against the Bank have been dismissed. The Bank believes that the
action is without merit and intends to vigorously defend against it. In
addition, the Bank believes that this action is covered by its insurance.
Other than the foregoing, at June 30, 2007, the Company was not a party
to any material legal proceedings.
ITEM 1A. RISK FACTORS
There have been no material changes from the Risk Factors disclosed in
Company's Annual Report for the fiscal year ended December 31, 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Treasury stock repurchases during the second quarter for Parke Bancorp,
Inc. were as follows:
Total number of Maximum number of
shares purchased shares that may
Period Total number of shares Average price paid as part of publicly yet be purchased
------ ---------------------- ------------------ announced plans under the plans
purchased per share or programs or programs
--------- --------- ------------------- -----------------
April, 2007 - $ - - 90,136
May, 2007 2,700 15.94 2,700 87,436
June, 2007 5,100 16.89 5,100 82,336
----- ------- -----
Totals: 7,800 $ 16.56 7,800
===== ======= =====
As of June 30, 2007, the Company has purchased 75,726 shares of common
stock and is allowed to purchase up to 5% of the outstanding stock (158,062
shares), which allows additional repurchases of 82,336 shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
31 Certifications required by Rule 13a-14(a).
32 Certification required by 18 U.S.C. ss.1350.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKE BANCORP, INC.
Date: August 14, 2007 /s/Vito S. Pantilione
-------------------------------------
Vito S. Pantilione
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2007 /s/Robert A. Kuehl
-------------------------------------
Robert A. Kuehl
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)