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: September 30, 2007
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 Jersey 65-1241959
(State or other jurisdiction of incorporation (IRS Employer
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 November 13, 2007, there were issued and outstanding 3,158,756
shares of the registrant's common stock.
PARKE BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 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)
September 30, 2007 December 31, 2006
------------------ -----------------
ASSETS
Cash and due from banks $ 3,785,208 $ 6,183,916
Federal funds sold and other cash equivalents 8,565,847 5,076,895
------------- -------------
Cash and cash equivalents 12,351,055 11,260,811
------------- -------------
Investment securities available for sale, at market value 29,661,504 24,530,067
Investment securities held to maturity, at amortized cost (market value
$2,392,093 at September 30, 2007 and $2,425,629 at December 31, 2006) 2,449,316 2,430,958
------------- -------------
Total investment securities 32,110,820 26,961,025
------------- -------------
Restricted stock, at cost 1,873,300 1,492,800
------------- -------------
Loans 386,236,556 310,555,306
Less: allowance for loan losses (5,407,529) (4,511,004)
------------- -------------
Total net loans 380,829,027 306,044,302
------------- -------------
Bank premises and equipment, net 3,240,994 3,431,794
Bank owned life insurance 4,768,277 4,632,159
Accrued interest receivable 2,543,763 2,095,179
Other assets 3,302,579 4,078,701
------------- -------------
Total other assets 13,855,613 14,237,833
------------- -------------
Total assets $ 441,019,815 $ 359,996,771
============= =============
See Notes to Consolidated Financial Statements 1
PARKE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, 2007 December 31, 2006
------------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing demand $ 23,814,673 $ 18,287,577
Interest-bearing demand 328,938,109 271,641,283
------------- -------------
Total deposits 352,752,782 289,928,860
------------- -------------
Federal Home Loan Bank advances 29,305,695 24,441,370
Other borrowings 6,500,000 100,000
Subordinated debentures 13,403,000 10,310,000
------------- -------------
Total borrowings 49,208,695 34,851,370
------------- -------------
Accrued interest payable 2,036,823 1,848,614
Other liabilities 1,819,451 2,658,767
------------- -------------
Total other liabilities 3,856,274 4,507,381
------------- -------------
Total liabilities 405,817,751 329,287,611
------------- -------------
SHAREHOLDERS' EQUITY
Common stock, $.10 par value, 10,000,000 shares authorized; 3,246,035
shares issued at September 30, 2007 and 2,884,937 shares issued at
December 31, 2006 324,603 288,494
Preferred stock, 1,000,000 shares authorized; no shares issued and
outstanding - -
Additional paid-in capital 26,442,579 21,153,220
Retained earnings 10,432,715 10,847,763
Accumulated comprehensive income (492,321) (420,250)
Treasury stock, at cost (88,876 shares at September 30, 2007 and 68,026
at December 31, 2006) (1,505,512) (1,160,067)
------------- -------------
Total shareholders' equity 35,202,064 30,709,160
------------- -------------
Total liabilities and shareholders' equity $ 441,019,815 $ 359,996,771
============= =============
See Notes to Consolidated Financial Statements 2
PARKE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended For the nine months ended
September 30, September 30,
-------------------------------- --------------------------------
2007 2006 2007 2006
--------------- --------------- --------------- ---------------
Interest and dividend income
Loans, including fees $ 8,458,830 $ 6,373,897 $ 23,115,910 $ 17,412,925
Securities 451,951 343,119 1,240,288 977,224
Federal funds sold 51,629 35,941 183,622 90,761
-------------- -------------- -------------- --------------
Total interest and dividend income 8,962,410 6,752,957 24,539,820 18,480,910
-------------- -------------- -------------- --------------
Interest expense
Deposits 3,978,597 2,788,168 11,231,990 7,226,022
Federal Home Loan Bank advances 303,821 247,157 942,270 661,458
Other borrowings 271,533 205,582 623,805 593,344
-------------- -------------- -------------- --------------
Total interest expense 4,553,951 3,240,907 12,798,065 8,480,824
-------------- -------------- -------------- --------------
Net interest income 4,408,459 3,512,050 11,741,755 10,000,086
Provision for loan losses 186,000 211,000 896,496 774,000
-------------- -------------- -------------- --------------
Net interest income after provision for loan losses 4,222,459 3,301,050 10,845,259 9,226,086
-------------- -------------- -------------- --------------
Noninterest income
Deposit account service charges and other fees 66,755 55,213 554,576 169,814
Gain on sale of other real estate owned - - 205,090 -
Loan fees 63,271 91,911 165,782 315,094
Bank owned life insurance income 46,542 42,882 136,118 127,582
Loss on sale of securities - - (14,609) -
-------------- -------------- -------------- --------------
Total noninterest income 176,568 190,006 1,046,957 612,490
-------------- -------------- -------------- --------------
Noninterest expense
Compensation and benefits 853,089 722,097 2,339,241 2,054,622
Occupancy and equipment 187,777 170,146 559,456 477,610
Professional services 194,442 139,363 494,379 486,421
Data processing 98,858 108,293 293,304 267,702
Marketing and business development 74,762 57,393 215,838 184,302
Other operating expenses 307,024 271,482 767,049 684,744
-------------- -------------- -------------- --------------
Total noninterest expense 1,715,952 1,468,774 4,669,267 4,155,401
-------------- -------------- -------------- --------------
Income before income tax expense 2,683,075 2,022,282 7,222,949 5,683,175
Income tax expense 1,055,098 805,600 2,836,294 2,269,820
-------------- -------------- -------------- --------------
Net income $ 1,627,977 $ 1,216,682 $ 4,386,655 $ 3,413,355
============== ============== ============== ==============
Net income per common share
Basic $ 0.52 $ 0.39 $ 1.39 $ 1.10
Diluted $ 0.45 $ 0.34 $ 1.22 $ 0.95
Weighted average shares outstanding
Basic 3,160,052 3,109,110 3,154,316 3,096,057
Diluted 3,608,681 3,617,113 3,604,171 3,587,356
See Notes to Consolidated Financial Statements 3
PARKE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(unaudited)
Accumulated
Additional Other Total
Common Paid- Retained Comprehensive Treasury Shareholders'
Stock In capital Earnings Income (Loss) Stock Equity
--------- ------------ ------------ ---------- ------------ ------------
Balance at December 31, 2005 $ 231,736 $ 20,511,410 $ 6,787,118 $ (286,296) $ (50,641) $ 27,193,327
Stock options and warrants
exercised 7,533 533,189 - 540,722
Treasury stock purchased - - - (1,109,426) (1,109,426)
20% stock dividend 47,243 (51,972) - (4,729)
Comprehensive income:
Net income for the period - - 3,413,355 3,413,355
Change in net unrealized gain
on securities available for sale,
net of reclassification
adjustment and tax effects - - - 19,295 19,295
-------------
Total comprehensive income 3,432,650
--------- ------------ ------------ ---------- ------------ ------------
Balance at September 30, 2006 $ 286,512 $ 20,992,627 $ 10,200,473 $ (267,001) $ (1,160,067) $ 30,052,544
========= ============ ============ ========== ============ ============
Balance at December 31, 2006 $ 288,494 $ 21,153,220 $ 10,847,763 $ (420,250) $ (1,160,067) $ 30,709,160
Stock options and warrants
exercised 6,766 496,284 - 503,050
Stock compensation - 24,789 - - - 24,789
Treasury stock purchased - - - (345,445) (345,445)
10% stock dividend 29,343 4,768,286 (4,801,703) (4,074)
Comprehensive income: -
Net income for the period - - 4,386,655 4,386,655
Change in net unrealized gain
on securities available for sale,
net of reclassification
adjustment and tax effects - - - (86,957) (86,957)
Adjustment to minimum
pension liability - - - 14,886 - 14,886
------------
Total comprehensive income 4,314,584
--------- ------------ ------------ ---------- ------------ ------------
Balance at September 30, 2007 $ 324,603 $ 26,442,579 $ 10,432,715 $ (492,321) $ (1,505,512) $ 35,202,064
========= ============ ============ ========== ============ ============
See Notes to Consolidated Financial Statements 4
PARKE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months ended
September 30,
2007 2006
------------ ------------
Operating Activities
Net income $ 4,386,655 $ 3,413,355
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation 228,178 197,569
Provision for losses 896,496 774,000
Net (accretion) of investment securities premium/discounts (45,943) (13,446)
Stock compensation 24,789 -
Bank owned life insurance income (136,118) (127,582)
Supplemental executive retirement plan 194,274 220,678
Loss on sale of investments 14,609 -
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable and other assets 477,742 (77,767)
(Decrease) increase in accrued interest payable and other liabilities (827,211) 715,503
------------ ------------
Net cash provided by operating activities 5,213,471 5,102,310
------------ ------------
Investment Activities
Purchases of investment securities available for sale (9,648,517) (3,003,543)
Purchase of restricted stock (380,500) (274,300)
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 1,349,636 928,524
Net increase in loans (75,683,637) (41,762,936)
Purchases of bank premises and equipment (37,377) (419,385)
------------ ------------
Net cash used in investing activities (81,365,004) (44,531,640)
------------ ------------
Financing Activities
Proceeds from exercise of stock options and warrants 503,050 540,722
Purchase of treasury stock (345,445) (1,109,426)
Cash dividends (4,074) (4,729)
Net increase (decrease) in other borrowings 6,400,000 (1,182,852)
Net increase in Federal Home Loan Bank advances 4,864,324 5,764,131
Proceeds from issuance of subordinated debentures 3,000,000 -
Net increase in interest-bearing deposits 57,296,826 38,894,845
Net increase in noninterest-bearing deposits 5,527,096 347,859
------------ ------------
Net cash provided by financing activities 77,241,774 43,250,550
------------ ------------
Increase in cash and cash equivalents 1,090,244 3,821,220
Cash and Cash Equivalents at January 1, 11,260,811 4,380,036
------------ ------------
Cash and Cash Equivalents at September 30, $ 12,351,055 $ 8,201,256
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest on deposits and borrowings $ 12,609,856 $ 8,262,000
============ ============
Income taxes $ 3,612,651 $ 2,750,000
============ ============
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 loan
production offices in Millville, New Jersey and Havertown, Pennsylvania.
Financial Statements
The accompanying financial statements as of September 30, 2007 and for the three
and nine month periods ended September 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 nine
months ended September 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. A material
estimate that is particularly susceptible to a significant change in the near
term is the determination of the allowance for loan losses.
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 (loss), net of the related income tax effect. Declines in
the fair value of the individual available-for-sale securities below their
6
PARKE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
cost that are other than temporary have resulted in write downs of the
individual securities to their fair value 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 September 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, establishes 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
adoption of SFAS No. 157 is not expected to materially affect the Company's
financial position or results of operations.
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 adoption of SFAS No. 159 is not expected to materially
affect the Company's financial position or results of operations.
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
September 30, 2007 and 2006 was 3,160,052 and 3,109,110, respectively, and
3,154,316 and 3,096,057 for the nine months ended September 30, 2007 and 2006,
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 448,629 and 508,003 additional shares
for the three months ended September 30, 2007 and 2006, respectively, and for
the nine months ended September 30, 2007 and 2006 was 449,855 and 491,299,
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 nine months ended September 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 September 30, 2007, and December 31, 2006, there were 15,400 unvested
options after adjusting for the stock dividend in April 2007. Compensation cost
related to share-based payments amounted to $24,789 during the first nine months
of 2007, which were related to options issued in 2006.
8
PARKE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 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 Adequacy
Purposes
Actual ----------------------
Amount Ratio Amount Ratio
---------- -------- ----------- ---------
As of September 30, 2007:
-------------------------------
(amount in thousands)
Total Risk Based Capital $ 53,716 12.8% $ 33,625 8%
(to Risk Weighted Assets)
Tier 1 Capital $ 48,460 11.5% $ 16,813 4%
(to Risk Weighted Assets)
Tier 1 Capital $ 48,460 11.5% $ 16,889 4%
(to Average Assets)
For Capital Adequacy
Purposes
Actual ----------------------
Amount Ratio Amount Ratio
---------- -------- ----------- ---------
As of December 31, 2006
-------------------------------
(amount in thousands)
Total Risk Based Capital $ 44,405 14.5% $ 24,499 8%
(to Risk Weighted Assets)
Tier 1 Capital $ 40,569 13.5% $ 12,249 4%
(to Risk Weighted Assets)
Tier 1 Capital $ 40,569 11.6% $ 14,054 4%
(to Average Assets)
Management believes, as of September 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 7.19% at
September 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
9
PARKE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
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, no liability has been recorded for unrecognized tax benefits.
NOTE 7. COMPREHENSIVE INCOME
The Company's comprehensive income is presented in the following table.
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- --------------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
Net Income $ 1,627,977 $ 1,216,682 $ 4,386,655 $ 3,413,355
Unrealized gains (losses) on securities 143,400 339,454 (144,929) 32,158
Adjustment to minimum pension liability 8,268 -- 24,804 --
Income tax (expense) benefit (60,706) (135,782) 48,054 (12,863)
----------- ----------- ----------- -----------
Total comprehensive income $ 1,718,939 $ 1,420,355 $ 4,314,584 $ 3,432,650
=========== =========== =========== ===========
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 September 30, 2007 Compared to
Three Months Ended September 30, 2006
(unaudited)
The following discussion compares the results of operations for the three month
period ended September 30, 2007 to the results of operations for the three month
period ended September 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 September 30, 2007, net income totaled $1.6
million, compared to $1.2 million for the quarter ended September 30, 2006.
Diluted earnings per share for the three months ended September 30, 2007 totaled
$0.45, compared to $0.34 per share for the same period of 2006. The earnings
improvement for the current quarter was primarily the result of continued growth
in the loan portfolio during the past year and in particular the first half of
2007. In addition, earnings for the current quarter were favorably impacted by
the collection of past due interest payments associated with a large
nonperforming loan.
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 September 30, 2007 totaled $4.4
million, an increase of $896,000, or 25.5%, over $3.5 million for the three
months ended September 30, 2006. The increase is attributable primarily to the
growth in the loan portfolio, in particular commercial loan balances. The net
interest margin for the quarter ended September 30, 2007 was 4.27%, compared to
4.30% for the comparable quarter of 2006. The net interest margin was negatively
impacted by higher cost time deposits to fund loan growth, primarily
certificates of deposit with maturities of one year or less and brokered
certificates of deposit with mainly one-year maturities. The margin was
favorably impacted by the payment of past due interest and a prepayment penalty
associated with a large nonperforming loan that paid off in July 2007.
Interest income amounted to $9.0 million for the quarter ended September 30,
2007, and increased by $2.2 million, or 32.7%, from the comparable quarter of
2006, primarily due to an increase of $85.6 million in average interest-earning
assets, mainly commercial loans, a higher yield on interest earning assets and
past due interest and prepayment penalty collected on a large nonperforming loan
that paid off during the quarter. Average loans outstanding amounted to $373.3
million and increased by $78.6 million, or 26.7%, and average investment
securities increased by $5.9 million, or 21.9%. Yields on earning assets for the
three months ended September 30, 2007 increased to 8.67% from 8.26% for the same
period of 2006. The increase was primarily attributable to increased interest
rates and the past due interest payments and penalty associated with the large
nonperforming loan. The past due interest and related income collected on the
nonperforming loan amounted to $420,000 for the third quarter of 2007.
Interest expense of $4.6 million for the quarter ended September 30, 2007,
increased by $1.3 million, or 40.5%, due to an increase in average
interest-bearing liabilities and higher interest rates on retail deposits,
brokered deposits and borrowed funds. Average interest-bearing liabilities of
$363.4 million for the third quarter of 2007 increased by $78.6 million, or
27.6%, from the comparable quarter of 2006. The largest change year over year
occurred in retail certificates of deposits, which increased by $48.5 million,
or 41.8%, from the average level for the comparable period of 2006. The average
rate paid on interest-bearing liabilities increased by 45 basis points to 4.97%
for the quarter ended September 30, 2007, from 4.52% for the comparable quarter
of 2006. Interest rates increased year over year for all interest-bearing
liabilities as retail certificates of deposits increased from 4.68% to 5.15%,
brokered certificates of deposits increased from 4.74% to 5.20% and borrowings
increased from 5.34% to 5.56%.
Provision for Loan Losses. The provision for loan losses amounted to $186,000
for the third quarter of 2007 as compared to $211,000 for the comparable quarter
of 2006. The allowance for loan losses amounted to 1.40% of total gross loans at
September 30, 2007 as compared to 1.45% of total gross loans at December 31,
2006. The level of nonperforming loans at September 30, 2007 amounted to $1.0
million, which represented an increase from the December 31, 2006 level of
$788,000 but declined by $3.3 million from the level at June 30, 2007 of $4.3
million. The decline was attributable to one large nonperforming loan which was
paid in full in July 2007.
Noninterest Income. Noninterest income totaled $177,000 for the current quarter
and declined by $13,000 from $190,000 recorded in the comparable quarter of
2006. The decrease was mainly attributable to a decline in commercial loan fees
which consist of exit/modification fees, inspection fees and documentation fees.
12
Noninterest Expense. For the three months ended September 30, 2007, noninterest
expense amounted to $1.7 million versus $1.5 million for the comparable quarter
of 2006, resulting in an increase of $247,000, or 16.8%. 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 and the new loan production office that was opened in Havertown,
Pennsylvania in September 2007 accounted for a majority of the increase year
over year.
Income Taxes. The Company recorded income tax expense of $1.1 million, on income
before taxes of $2.7 million for the three months ended September 30, 2007,
resulting in an effective tax rate of 39.3%, compared to income tax expense of
$806,000 on income before taxes of $2.0 million for the comparable period of
2006, resulting in an effective tax rate of 39.8%.
Interest Yield Table
For the three months ended
September 30, 2007 September 30, 2006
------------------------------------- -------------------------------------
Average Average
Balance Interest Yield Balance Interest Yield
-------------- ------------- ------- -------------- ------------- -------
Assets
Loans $ 373,314,332 $ 8,458,830 8.99 % $ 294,705,065 $ 6,373,897 8.58 %
Investment securities 32,827,976 451,951 5.46 26,928,323 343,119 5.06
Federal funds sold and money markets 3,861,140 51,629 5.30 2,742,856 35,941 5.20
------------- ------------ ------------- ------------
Total interest-earning assets 410,003,448 $ 8,962,410 8.67 324,376,244 $ 6,752,957 8.26
============ ============
Allowance for loan loss (5,247,372) (4,202,910)
Other assets 17,338,984 15,797,456
------------- -------------
Total assets $ 422,095,060 $ 335,970,790
============= =============
Liabilities and Shareholders' Equity
NOWs 7,023,772 27,570 1.56 9,915,703 37,708 1.51 %
Money markets 29,508,946 333,885 4.49 16,947,750 163,652 3.83
Savings 28,670,868 270,662 3.75 27,484,841 254,632 3.68
Time deposits 164,333,938 2,131,240 5.15 115,859,960 1,366,269 4.68
Brokered CDs 92,784,334 1,215,240 5.20 80,866,563 965,907 4.74
------------- ------------ ------------- ------------
Total interest-bearing deposits 322,321,858 3,978,597 4.90 251,074,817 2,788,168 4.41
Borrowings 41,032,151 575,354 5.56 33,629,991 452,739 5.34
------------- ------------ ------------- ------------
Total interest-bearing liabilities 363,354,009 $ 4,553,951 4.97 284,704,808 $ 3,240,907 4.52
============ ============
Non-interest bearing demand deposits 20,040,686 18,406,957
Other liabilities 3,826,811 2,755,367
Shareholders' equity 34,873,554 30,103,658
------------- -------------
Total liabilities and shareholders' equity $ 422,095,060 $ 335,970,790
============= =============
------------ ------------
Net interest income $ 4,408,459 $ 3,512,050
============ ============
Interest rate spread 3.70 % 3.74 %
Net interest margin 4.27 % 4.30 %
13
Nine Months Ended September 30, 2007 and 2006
(unaudited)
The following discussion compares the results of operations for the nine months
ended September 30, 2007 to the results of operations for the nine months ended
September 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 nine months ended September 30, 2007, net income totaled
$4.4 million, compared to $3.4 million for the nine months ended September 30,
2006, an increase of 28.5%. Diluted earnings per share for the first nine months
of 2007 totaled $1.22, compared to $0.95 for the comparable period of 2006,
resulting in an increase of $0.27, or 28.3%. Increased net income for the first
nine months of 2007 was attributable primarily to continued loan growth that
resulted in increases in net interest income of $1.7 million, an increase in
noninterest income of $434,000 associated with a gain on the sale of repossessed
property and insurance reimbursements related to the recovery of legal and other
expenses for repossessed assets. The increased revenue was partially offset by
an increase in the provision for loan losses of $122,000 and an increase in
noninterest expenses of $514,000.
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 first nine months of 2007 totaled $11.7 million, an
increase of $1.7 million, or 17.4%, above $10.0 million for the nine months
ended September 30, 2006. The net interest margin for the nine month period
ended September 30, 2007 was 4.01%, which was down from 4.33% for the comparable
period of 2006. Higher cost time deposits, both retail certificates of deposit
and brokered certificates of deposit coupled with the flat and sometimes
inverted shape of the yield curve for most of the past year contributed to the
margin compression during the first nine months of 2007.
Interest income of $24.5 million for the nine months ended September 30, 2007
increased by $6.1 million, or 32.8%, from the level of the comparable period of
2006. This was driven primarily by an increase of $82.5 million in average
interest-earning assets, which was mainly related to commercial loans and an
increase in the yield on interest-earning assets. Average loans outstanding of
$356.0 million for the nine months ended September 30, 2007, increased by $76.1
million, or 27.2%, from the comparable period of 2006 while average investment
securities of $30.5 million increased by $4.2 million from the comparable period
of 2006. Yields on interest-earning assets for the nine months ended September
30, 2007 increased to 8.39% from 8.01% for the comparable period of 2006 mainly
due to increased interest rates. Yields on average loan balances for the period
ended September 30, 2007 increased to 8.68% from 8.32% from the comparable
period of 2006.
Interest expense for the nine months ended September 30, 2007 amounted to $12.8
million and increased by $4.3 million, or 50.9% primarily due to an increase in
average interest-bearing liabilities and increased interest rates on customer
deposits and borrowed funds. Average interest-bearing deposits of $309.8 million
for the nine months ended September 30, 2007, increased by $71.7 million, or
30.1%, from the comparable period of 2006 while average borrowings of $37.9
million increased by $5.4 million during comparable periods of both years. The
average rate paid on interest-bearing liabilities increased to 4.92% for the
period ended September 30, 2007 from 4.19% for the comparable period of 2006.
Retail certificates of deposit increased year over year from 4.35% to 5.10%
while brokered certificates of deposit increased year over year from 4.38% to
5.16%. Short term interest rates for customer deposits have become extremely
competitive as banks are required to not only compete against each other on
competitive interest rates but also with credit unions, brokerage firms and
large mortgage companies experiencing liquidity issues due to the sub-prime
mortgage market.
Noninterest Income. Noninterest income of $1.0 million for the nine months ended
September 30, 2007 increased $434,000, or 70.9%, from $612,000 for the
comparable period of 2006. The increase was principally due to the gain on the
sale of repossessed property in the second quarter ($205,000) and the insurance
14
reimbursements ($377,000) that occurred in the first quarter of 2007 that were
partially offset by lower commercial loan fees.
Provision for Loan Losses. The provision for loan losses was $896,000 for the
nine months ended September 30, 2007, compared to $774,000 for the comparable
period in 2006. The increase in the provision for the 2007 period was primarily
due to the significant increase in loan balances during the nine months ended
September 30, 2007.
Noninterest Expense. For the nine months ended September 30, 2007, noninterest
expense of $4.7 million increased by $514,000, or 12.4% compared to $4.2 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 and the new loan production office opened in Havertown, Pennsylvania in
September 2007.
Income Taxes. The Company recorded income tax expense of $2.8 million on income
before taxes of $7.2 million for the nine months ended September 30, 2007,
resulting in an effective tax rate of 39.3%, compared to income tax expense of
$2.3 million on income before taxes of $5.7 million for the comparable period of
2006, resulting in an effective tax rate of 39.9%.
15
Interest Yield Table
For the nine months ended
September 30, 2007 September 30, 2006
------------------------------------- -------------------------------------
Average Average
Balance Interest Yield Balance Interest Yield
-------------- ------------- ------- -------------- ------------- -------
Assets
Loans $ 356,030,809 $ 23,115,910 8.68 % $ 279,925,898 $ 17,412,925 8.32 %
Investment securities 30,455,261 1,240,288 5.44 26,161,288 977,224 4.99
Federal funds sold 4,596,076 183,622 5.34 2,487,100 90,761 4.88
-------------- ------------- -------------- -------------
Total interest-earning assets 391,082,146 $ 24,539,820 8.39 308,574,286 $ 18,480,910 8.01
============= =============
Allowance for loan loss (4,966,505) (3,915,323)
Other assets 18,089,961 15,904,662
-------------- ---------------
Total assets $ 404,205,602 $ 320,563,625
============== ===============
Liabilities and Shareholders' Equity
NOWs 8,105,405 94,771 1.56 10,293,877 118,779 1.54 %
Money markets 25,126,253 825,331 4.39 14,930,169 372,152 3.33
Savings 26,842,384 746,841 3.72 30,214,716 776,205 3.43
Time deposits 153,872,729 5,867,945 5.10 107,791,730 3,509,521 4.35
Brokered CDs 95,821,670 3,697,102 5.16 74,793,780 2,449,365 4.38
-------------- ------------- -------------- -------------
Total interest-bearing deposits 309,768,441 11,231,990 4.85 238,024,272 7,226,022 4.06
Borrowings 37,940,795 1,566,075 5.52 32,545,618 1,254,802 5.15
-------------- ------------- -------------- -------------
Total interest-bearing liabilities 347,709,236 $ 12,798,065 4.92 270,569,890 $ 8,480,824 4.19
============= =============
Non-interest bearing demand deposits 19,327,811 18,246,444
Other liabilities 3,790,039 2,675,720
Shareholder's equity 33,378,516 29,071,571
-------------- --------------
Total liabilities and shareholders' equity $ 404,205,602 $ 320,563,625
============== ==============
------------- -------------
Net interest income $ 11,741,755 $ 10,000,086
============= =============
Interest rate spread 3.47 % 3.82 %
Net interest margin 4.01 % 4.33 %
Financial Condition
At September 30, 2007 and December 31, 2006
(unaudited)
The following discussion compares the financial condition at September 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 September 30, 2007 amounted to $441.0 million, compared to
$360.0 million at December 31, 2006, resulting in an increase of $81.0 million,
or 22.5%. 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 and through greater penetration of Philadelphia and the
surrounding market.
Total loans at September 30, 2007 were $386.2 million, which represented an
increase of $75.7 million, or 24.4% above the level of $310.6 million at
December 31, 2006. Growth occurred in all loan categories
16
with commercial loan growth of $65.6 million, or 23.3%, representing the
majority of the loan growth for 2007. Investment securities amounted to $32.1
million at September 30, 2007 versus $27.0 million at December 31, 2006.
The allowance for loan losses amounted to $5.4 million at September 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
September 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
0.27% at September 30, 2007 versus 0.25% at December 31, 2006. At September 30,
2007, the Company had $1.0 million in non-accruing loans, which increased from
$788,000 at December 31, 2006. There were no loan charge-offs during the current
quarter or year.
Total deposits amounted to $352.8 million at September 30, 2007 and increased by
$62.8 million, or 21.7%, from $289.9 million at December 31, 2006. Time deposits
(retail certificates of deposit) 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 $49.2 million at September
30, 2007, an increase of $14.4 million from $34.9 million at December 31, 2006.
The majority of the increase was related to FHLB advances which increased to
fund the significant loan growth. Also, 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 7.19% at September 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 September 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 $35.2 million at September 30, 2007 and $30.7 million
at December 31, 2006, amounting to an increase of $4.5 million, or 14.6%.
Increases in net income of $4.4 million and capital of $523,000 associated with
the exercise of warrants and stock options were modestly offset by an increase
in investment portfolio losses included in other comprehensive income loss of
$72,000, which was primarily associated with unrealized investment portfolio
losses and an increase in treasury stock purchases of $345,000.
17
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 September 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 predicted 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 109.5% and 107.1% at September 30, 2007
and December 31, 2006, respectively. Funds received from new and existing
depositors provided a large source of liquidity for the nine-month period ended
September 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
September 30, 2007, the Company maintained lines of credit with the FHLB of
$41.4 million, of which $30.8 million was outstanding at September 30, 2007.
As of September 30, 2007, the Company's investment securities portfolio included
$17.4 million of mortgage-backed securities that provide significant cash flow
each month. The majority of the investment portfolio is classified as available
for sale, is readily marketable, and is available to meet liquidity needs. The
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
18
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 September 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 on Form 10-K 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.
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
19
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 September 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 third quarter for Parke Bancorp, Inc. were
as follows:
Total number of
shares purchased Maximum number
Total as part of of shares that may
number of Average publicity yet be purchased
shares price paid announced plans under the plans or
Period purchased per share or programs programs
---------------- ----------- ----------- ---------------- -------------------
July, 2007 600 $ 17.66 600 81,736
August, 2007 12,450 16.44 12,450 69,286
September, 2007 - - - 69,286
-------
------- ------- -------
Totals: 13,050 $ 16.49 13,050
======= ======= =======
As of September 30, 2007, the Company has purchased 88,776 shares of common
stock and is allowed to purchase up to 5% of the outstanding stock (158,062
shares), which allows additional repurchases of 69,286 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.
20
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: November 14, 2007 /s/Vito S. Pantilione
-------------------------------------
Vito S. Pantilione
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2007 /s/Robert A. Kuehl
-------------------------------------
Robert A. Kuehl
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)