**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-K**

 

**ANNUAL REPORT**

**PURSUANT TO SECTIONS 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

(Mark One)

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

For the fiscal year ended: December 31, 2008 or

o 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 or Organization) |   | (I.R.S. Employer Identification No.) |

 

| **601 Delsea Drive, Washington Township, New Jersey** |   |   | **08080**  |   |
|-------------------------------------------------------|--------|--------|------------|--------|
| (Address of Principal Executive Offices)              |   |   | (Zip Code) |   |

 

Registrant’s telephone number, including area code:**856-256-2500**

Securities registered pursuant to Section 12(b) of the Act:

 

| Title of Each Class               |   | Name of Each Exchange on Which Registered |
|-----------------------------------|--------|-------------------------------------------|
| **Common Stock, $0.10 par value** |   | **The Nasdaq Stock Market LLC**           |

 

Securities registered pursuant to Section 12(g) of the Act:**None**

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

|   | YES o NOx |
|--------|-----------|

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

|   | YES o NOx |
|--------|-----------|

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.                      YESxNO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form            10-K.                                                                                 o

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

 

| Large accelerated filer o | Accelerated filer o | Non-accelerated filero  | Smaller reporting companyx |
|---------------------------|---------------------|------------------------------|----------------------------|

 

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant’s common stock as quoted on the Nasdaq Capital Market on June 30, 2008, was approximately $24.5 million.

|   | As of March 18, 2009 there were issued and outstanding 4,033,098 shares of the Registrant’s common stock. |
|--------|----------------------------------------------------------------------------------------------------------------------|

**DOCUMENTS INCORPORATED BY REFERENCE**

| 1. | Portions of the Annual Report to Shareholders for the Fiscal Year Ended December 31, 2008. (Parts II and IV) |
|----|--------------------------------------------------------------------------------------------------------------|

| 2. | Portions of the Proxy Statement for the 2009 Annual Meeting of Shareholders. (Parts II and III) |
|----|-------------------------------------------------------------------------------------------------|

 

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**PARKE BANCORP, INC.**

 

**FORM 10-K**

 

**FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008**

 

**INDEX**

 

|        |
|-------------|
| PART 1      |   |   |   | **Page** |
| Item 1.     |   | Business |   | 1 |
| Item 1A.    |   | Risk Factors |   | 23 |
| Item 1B.    |   | Unresolved Staff Comments |   | 23 |
| Item 2.     |   | Property |   | 24 |
| Item 3.     |   | Legal Proceedings |   | 24 |
| Item 4.     |   | Submission of Matters to a Vote of Security Holders |   | 25 |
|        |   |   |   |   |
| PART II     |   |   |   |   |
| Item 5.     |   | Market for Registrant’s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities |   | 26 |
| Item 6.     |   | Selected Financial Data |   | 26 |
| Item 7.     |   | Management’s Discussion and Analysis of Financial Condition

and Results of Operations |   | 26 |
| Item 7A.    |   | Quantitative and Qualitative Disclosures About Market Risk |   | 26 |
| Item 8.     |   | Financial Statements and Supplementary Data |   | 27 |
| Item 9.     |   | Changes and Disagreements with Accountants on Accounting and

Financial Disclosure |   | 27 |
| Item 9A(T). |   | Controls and Procedures |   | 27 |
| Item 9B.    |   | Other Information |   | 27 |
|        |   |   |   |   |
| PART III    |   |   |   |   |
| Item 10.    |   | Directors, Executive Officers and Corporate Governance |   | 28 |
| Item 11.    |   | Executive Compensation |   | 28 |
| Item 12.    |   | Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters |   | 28 |
| Item 13.    |   | Certain Relationships and Related Transactions, and Director Independence |   | 29 |
| Item 14.    |   | Principal Accountant Fees and Services |   | 29 |
|        |   |   |   |   |
| PART IV     |   |   |   |   |
| Item 15.    |   | Exhibits and Financial Statement Schedules

 

Signatures |   | 29 |
|        |   |   |   |   |

 

 

 

i

 

 

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**PART I**

**Forward-Looking Statements**

Parke Bancorp, Inc. (the “Company”) may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the Securities and Exchange Commission (including this Annual Report on Form 10-K and the exhibits hereto), in its reports to shareholders and in other communications by the Company,            which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that 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’s wholly-owned subsidiary, Parke Bank (the “Bank”), 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 rates, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Bank 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; changes in consumer spending and saving habits; and the success of the Company at managing the risks resulting from these factors.

The Company cautions that the listed factors are not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

 

| **Item 1.** | **Business** |
|-------------|--------------|

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 the Bank. The Company commenced operations on June 1, 2005, upon completion of the reorganization of the Bank into the holding company form of organization following approval of the reorganization by shareholders of            the Bank at its 2005 Annual Meeting of Shareholders. The Company’s business and operations primarily consist of its ownership of 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”). The Company 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 in Philadelphia, Pennsylvania. In addition, the Bank opened a Loan Production Office in Havertown, Pennsylvania in the third quarter of 2007 maintained exclusively for loan production, while a Loan Production Office in Millville, New Jersey was closed during the first quarter of 2008. The Bank is a full service bank, with an emphasis on providing personal and business financial services to individuals and small to mid-sized            businesses in Gloucester, Atlantic and Cape May Counties in New Jersey and the Philadelphia area in Pennsylvania. At December 31, 2008, the Company had assets of $603.2 million, net loans of $539.9 million, deposits of $495.3 million and shareholders’ equity of $41.5 million.

 

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The Bank focuses its commercial loan originations on small and mid-sized business (generally up to $25 million in annual sales). Commercial loan products include residential and commercial real estate construction loans; working capital loans and lines of credit; demand, term and time loans; and equipment, inventory and accounts receivable financing. Residential construction loans            in tract development are also included in the commercial loan category. The Bank also offers a range of deposit products to its commercial customers. Commercial customers also have the ability to use overnight depository, ACH, wire transfer services and merchant capture electronic check processing services.

The Bank’s retail banking activities emphasize consumer deposit and checking accounts. An extensive range of these services is offered by the Bank to meet the varied needs of its customers in all age groups. In addition to traditional products and services, the Bank offers contemporary products and services, such as debit cards, Internet banking and online bill payment.            Retail lending activities by the Bank include residential mortgage loans, home equity lines of credit, fixed rate second mortgages, new and used auto loans and overdraft protection.

**Market Area**

Substantially all of the Bank’s business is with customers in its market areas of Southern New Jersey and the Philadelphia area of Pennsylvania. Most of the Bank’s customers are individuals and small and medium-sized businesses which are dependent upon the regional economy. Adverse changes in economic and business conditions in the Bank’s markets could adversely            affect the Bank’s borrowers, their ability to repay their loans and to borrow additional funds, and consequently the Bank’s financial condition and performance.

Additionally, most of the Bank’s loans are secured by real estate located in Southern New Jersey and the Philadelphia area. A decline in local economic conditions could adversely affect the values of such real estate. Consequently, a decline in local economic conditions may have a greater effect on the Bank’s earnings and capital than on the earnings and capital of            larger financial institutions whose real estate loan portfolios are more geographically diverse.

**Competition**

The Bank faces significant competition, both in making loans and attracting deposits. The Bank’s competition in both areas comes principally from other commercial banks, thrift and savings institutions, including savings and loan associations and credit unions, and other types of financial institutions, including brokerage firms and credit card companies. The Bank faces            additional competition for deposits from short-term money market mutual funds and other corporate and government securities funds.

Most of the Bank’s competitors, whether traditional or nontraditional financial institutions, have a longer history and significantly greater financial and marketing resources than does the Bank. Among the advantages certain of these institutions have over the Bank are their ability to finance wide-ranging and effective advertising campaigns, to access international money            markets and to allocate their investment resources to regions of highest yield and demand. Major banks operating in the primary market area offer certain services, such as international banking and trust services, which are not offered directly by the Bank.

In commercial transactions, the Bank’s legal lending limit to a single borrower enables the Bank to compete effectively for the business of individuals and smaller enterprises. However, the Bank’s legal lending limit is considerably lower than that of various competing institutions, which have substantially greater capitalization. The Bank has a relatively smaller            capital base than most other competing institutions which, although above regulatory minimums, may constrain the Bank’s effectiveness in competing for loans.

 

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**Lending Activities**

 

**Composition of Loan Portfolio.**Set forth below is selected data relating to the composition of the Bank’s loan portfolio by type of loan at the dates indicated. (1) Except as set forth below, the Bank had no concentrations of loans exceeding 10% of its loans. Refer to pages five through eight for descriptions of the loan categories            presented.

 

|                     | At December 31,                            |    |
|--------------------------|--------------------------------------------|---------|
|                     | 2008                                       |    | 2007 |   | 2006 |   | 2005 |   | 2004 |   |
|                     | Amount                                     |    | Percentage |   | Amount |   | Percentage |   | Amount |   | Percentage |   | Amount |   | Percentage |   | Amount |   | Percentage |   |
|                     | (Amounts in thousands, except percentages) |    |
|                     |                                       |    |
| Commercial               | $                                          | 19,935  |   | 3.6 | % | $ | 14,899 |   | 3.7 | % | $ | 13,436 |   | 4.3 | % | $ | 11,053 |   | 4.3 | % | $ | 9,708 |   | 5.1 | % |
| Real estate construction |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential              |                                       | 87,327  |   | 15.9 |   |   | 2,091 |   | 0.5 |   |   | 2,465 |   | 0.8 |   |   | 1,174 |   | 0.5 |   |   | 1,253 |   | 0.7 |   |
| Commercial               |                                       | 31,582  |   | 5.8 |   |   | 106,320 |   | 26.0 |   |   | 69,254 |   | 22.3 |   |   | 70,157 |   | 27.1 |   |   | 37,270 |   | 19.8 |   |
| Real estate mortgage     |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential              |                                       | 90,226  |   | 16.5 |   |   | 24,488 |   | 6.0 |   |   | 19,727 |   | 6.4 |   |   | 17,309 |   | 6.7 |   |   | 16,360 |   | 8.7 |   |
| Commercial               |                                       | 308,457 |   | 56.3 |   |   | 242,668 |   | 59.4 |   |   | 198,668 |   | 64.0 |   |   | 154,288 |   | 59.6 |   |   | 120,052 |   | 63.6 |   |
| Consumer                 |                                       | 10,133  |   | 1.9 |   |   | 17,923 |   | 4.4 |   |   | 7,005 |   | 2.2 |   |   | 5,054 |   | 1.8 |   |   | 3,964 |   | 2.1 |   |
| Total Loans              | $                                          | 547,660 |   | 100.00 | % | $ | 408,389 |   | 100.0 | % | $ | 310,555 |   | 100.0 | % | $ | 259,035 |   | 100.0 | % | $ | 188,607 |   | 100.0 | % |

 

| (1) | Amounts presented include adjustments for related unamortized deferred costs and fees. |
|-----|----------------------------------------------------------------------------------------|

 

The composition of the loan portfolio for 2008 is based on FDIC Call Report classifications, which were expanded in 2008.  The data was not readily available to restate prior years.

 

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**Loan Maturity.**The following table sets forth the contractual maturity of certain loan categories at December 31, 2008.

 

|                     |   | Due withinone year     |    | Due after onethrough fiveyears |   | Due afterfive years |   | Total  |
|--------------------------|--------|------------------------|---------|--------------------------------|--------|---------------------|--------|--------|
|                     |   | (Amounts in thousands) |
|                     |   |                   |    |                           |   |                |   |   |   |   |   |   |
| Commercial               |   | $                      | 11,139  |                           | $      | 2,724               |   | $      | 6,072 |   | $ | 19,935 |
| Real estate construction |   |                   |    |                           |   |                |   |   |   |   |   |   |
| Residential              |   |                   | 59,665  |                           |   | 14,474              |   |   | 13,188 |   |   | 87,327 |
| Commercial               |   |                   | 17,629  |                           |   | 7,718               |   |   | 6,235 |   |   | 31,582 |
| Real estate mortgage     |   |                   |    |                           |   |                |   |   |   |   |   |   |
| Residential              |   |                   | 22,792  |                           |   | 6,059               |   |   | 61,375 |   |   | 90,226 |
| Commercial               |   |                   | 68,629  |                           |   | 56,590              |   |   | 183,238 |   |   | 308,457 |
| Consumer                 |   |                   | 2,006   |                           |   | 184                 |   |   | 7,943 |   |   | 10,133 |
| Total Loans              |   | $                      | 181,860 |                           | $      | 87,749              |   | $      | 278,051 |   | $ | 547,660 |

 

The following table sets forth the dollar amount of loans in certain loan categories due one year or more after December 31, 2008, which have predetermined interest rates and which have floating or adjustable interest rates.

 

|                     |   | Fixed Rates            |   |   | Floating orAdjustableRates |   | Total   |   |
|--------------------------|--------|------------------------|--------|--------|----------------------------|--------|---------|--------|
|                     |   | (Amounts in thousands) |   |
|                     |   |                   |   |   |                       |   |    |   |   |   |   |
| Commercial               |   | $                      | 2,934  |   |                       | $      | 5,862   |   | $ | 8,796 |   |
| Real estate construction |   |                   |   |   |                       |   |    |   |   |   |   |
| Residential              |   |                   | 7,555  |   |                       |   | 20,107  |   |   | 27,662 |   |
| Commercial               |   |                   | 184    |   |                       |   | 13,769  |   |   | 13,953 |   |
| Real estate mortgage     |   |                   |   |   |                       |   |    |   |   |   |   |
| Residential              |   |                   | 35,199 |   |                       |   | 32,235  |   |   | 67,434 |   |
| Commercial               |   |                   | 29,915 |   |                       |   | 209,913 |   |   | 239,828 |   |
| Consumer                 |   |                   | 7,709  |   |                       |   | 418     |   |   | 8,127 |   |
| Total Loans              |   | $                      | 83,496 |   |                       | $      | 282,304 |   | $ | 365,800 |   |

 

***Commercial Loans.***The Bank originates secured loans for business purposes. Loans are made to provide working capital to businesses in the form of lines of credit, which may be secured by real estate, accounts receivable, inventory, equipment or other assets. The financial condition and cash flow of commercial borrowers are closely monitored by            means of corporate financial statements, personal financial statements and income tax returns. The frequency of submissions of required financial information depends on the size and complexity of the credit and the collateral that secures the loan. The Bank’s general policy is to obtain personal guarantees from the principals of the commercial loan borrowers. Such loans are made to businesses located in the Bank’s market area.

Commercial business loans generally involve a greater degree of risk than residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the mobility of collateral, the effects of general economic conditions and the increased difficulty of            evaluating and monitoring these

 

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types of loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of            the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the general economic environment. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired.

 

***Real Estate Development and Construction Loans.***The Bank has emphasized the origination of construction loans to individuals and real estate developers in its market area. The advantages of construction lending are that the market is typically less competitive than more standard mortgage products, the interest rate typically charged is a variable            rate, which permits the Bank to protect against sudden changes in its costs of funds, and the fees or “points” charged by the Bank to its customers can be amortized over the shorter term of a construction loan, typically, one to two years, which permits the Bank to recognize income received over a shorter period of time. The Bank from time to time structures construction loans in excess of the legal lending limit of the Bank, with respect to which the Bank sells            participation interests in the construction loans to other lenders, while maintaining and servicing the construction loan.

The Bank provides interim real estate acquisition development and construction loans to builders and developers. Real estate development and construction loans to provide interim financing on the property are based on acceptable percentages of the appraised value of the property securing the loan in each case. Real estate development and construction loan funds are disbursed            periodically at pre-specified stages of completion. Interest rates on these loans are generally adjustable. The Bank carefully monitors these loans with on-site inspections and control of disbursements. These loans are generally made on properties located in the Bank’s market area.

Development and construction loans are secured by the properties under development and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely in the value of the underlying property, the Bank considers the financial condition and reputation of the borrower and any guarantors, the amount of the borrower’s equity in the project,            independent appraisals, costs estimates and pre-construction sale information.

Loans to residential builders are for the construction of residential homes for which a binding sales contract exists and the prospective buyers have been pre-qualified for permanent mortgage financing. Loans to residential developers are made only to developers with a proven sales record. Generally, these loans are extended only when the borrower provides evidence that the lots            under development will be sold to potential buyers satisfactory to the Bank.

The Bank also originates loans to individuals for construction of single family dwellings. These loans are for the construction of the individual’s primary residence. They are typically secured by the property under construction, occasionally include additional collateral (such as second mortgage on the borrower’s present home), and commonly have maturities of six to            twelve months.

Construction financing is labor intensive for the Bank, requiring employees of the Bank to expend substantial time and resources in monitoring and servicing each construction loan to completion. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is            dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction and development, the accuracy of projections, such as the sales of homes or the future leasing of commercial space, and the accuracy of the estimated cost (including interest) of construction. Substantial deviations can occur in

 

5

 

 

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such projections. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity            of the loan, with a project having a value which is insufficient to assure full repayment. Also, a construction loan that is in default can cause problems for the Bank such as designating replacement builders for a project, considering alternate uses for the project and site and handling any structural and environmental issues that might arise.

 

***Commercial Real Estate Mortgage Loans.***The Bank originates mortgage loans secured by commercial real estate. Such loans are primarily secured by office buildings, retail buildings, warehouses and general purpose business space. Although terms may vary, the Bank’s commercial mortgages generally have maturities of twenty years, but re-price            within five years.

Loans secured by commercial real estate are generally larger and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in commercial and multi-family real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties are often            dependent on successful operation or management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy.

The Bank seeks to reduce the risks associated with commercial mortgage lending by generally lending in its primary market area and obtaining periodic financial statements and tax returns from borrowers. It is also the Bank’s general policy to obtain personal guarantees from the principals of the borrowers and assignments of all leases related to the collateral.

 

***Residential Real Estate Mortgage Loans.***The Bank originates adjustable and fixed-rate residential mortgage loans. Such mortgage loans are generally originated under terms, conditions and documentation acceptable to the secondary mortgage market. Although the Bank has placed all of these loans into its portfolio, a substantial majority of such            loans can be sold in the secondary market or pledged for potential borrowings.

 

***Consumer Loans.***The Bank offers a variety of consumer loans. These loans are typically secured by residential real estate or personal property, including automobiles. Home equity loans (closed-end and lines of credit) are typically made up to 80% of the appraised or assessed value of the property securing the loan in each case, less the amount of            any existing prior liens on the property, and generally have maximum terms of ten years, although the Bank does offer a 90% loan to value product if certain conditions related to the borrower and property are satisfied. The interest rates on second mortgages are generally fixed, while interest rates on home equity lines of credit are variable.

 

***Loans to One Borrower.***Federal regulations limit loans to one borrower in an amount equal to 15% of unimpaired capital and unimpaired surplus. At December 31, 2008, the Bank’s loan to one borrower limit was approximately $9.5 million and the Bank had no borrowers with loan balances in excess of $9.5 million. At December 31, 2008, the            Bank’s largest loan to one borrower was a loan for commercial real estate, with a balance of $8.0 million and was secured by real estate. At December 31, 2008, this loan was current and performing in accordance with the terms of the loan agreement.

The size of loans which the Bank can offer to potential borrowers is less than the size of loans which many of the Bank’s competitors with larger capitalization are able to offer. The Bank may engage in loan participations with other banks for loans in excess of the Bank’s legal lending limits. However, no

 

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assurance can be given that such participations will be available at all or on terms which are favorable to the Bank and its customers.

**Non-Performing and Problem Assets**

***Non-Performing Assets.***Non-accrual loans are those on which the accrual of interest has ceased. Loans are generally placed on non-accrual status if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more unless the collateral is considered sufficient to cover principal and interest and the            loan is in the process of collection. Interest accrued, but not collected at the date a loan is placed on non-accrual status, is reversed and charged against interest income. Subsequent cash receipts are applied either to the outstanding principal or recorded as interest income, depending on management’s assessment of ultimate collectibility of principal and interest. Loans are returned to an accrual status when the borrower’s ability to make periodic principal and            interest payments has returned to normal (i.e., brought current with respect to principal or interest or restructured) and the paying capacity of the borrower and/or the underlying collateral is deemed sufficient to cover principal and interest.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future discounted cash flows, the market price of the loan or the            fair value of the underlying collateral if the loan is collateral dependent. The recognition of interest income on impaired loans is the same as for non-accrual loans discussed above. Total impaired loans, which includes non-accrual loans, were $10.2 million, $2.0 million, $2.4 million, $500,000 and $241,000 at December 31 2008, 2007, 2006, 2005, and 2004, respectively.

The Company maintains interest reserves for the purpose of making periodic and timely interest payments for borrowers that qualify. Total loans with interest reserves were $120.8 million and $110.5 million at December 31, 2008 and December 31, 2007 respectively. Information for years prior to 2007 is not readily available. Management on a monthly basis reviews loans with interest            reserves to assess current and projected performance.

The following table sets forth information regarding non-accrual loans at the dates indicated. As of the dates indicated, the Bank did not have any troubled restructurings as defined in Statement of Financial Accounting Standards No. 15.

 

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|                                                | At December 31,                            |    |
|-----------------------------------------------------|--------------------------------------------|---------|
|                                                     | 2008                                       |         | 2007 |  | 2006 |  | 2005 |  | 2004 |  |
|                                                     | (Amounts in thousands, except percentages) |         |
| Loans accounted for on a non-accrual basis:         |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                          | $                                          | 41      |   | $ | 52 |   | $ | 91 |   | $ | 50 |   | $ | — |   |
| Real Estate Construction                            |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                         |                                       | 5,905   |   |   | — |   |   | — |   |   | — |   |   | 241 |   |
| Commercial                                          |                                       | — |   |   | 325 |   |   | — |   |   | — |   |   | — |   |
| Real Estate Mortgage                                |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                         |                                       | 897     |   |   | 7 |   |   | — |   |   | 20 |   |   | — |   |
| Commercial                                          |                                       | 1,380   |   |   | 367 |   |   | 687 |   |   | 1,865 |   |   | — |   |
| Consumer                                            |                                       | — |   |   | 54 |   |   | — |   |   | — |   |   | — |   |
| Total non-accrual loans                             |                                       | 8,223   |   |   | 805 |   |   | 789 |   |   | 1,935 |   |   | 241 |   |
|                                                |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accruing loans delinquent 90 days or more:          |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                          |                                       | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Real Estate Construction                            |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                         |                                       | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Commercial                                          |                                       | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Real Estate Mortgage                                |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                         |                                       | — |   |   | — |   |   | — |   |   | — |   |   | 55 |   |
| Commercial                                          |                                       | — |   |   | — |   |   | 267 |   |   | 655 |   |   | — |   |
| Consumer                                            |                                       | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Total                                               |                                       | — |   |   | — |   |   | 267 |   |   | 655 |   |   | 55 |   |
| Total non-performing loans                          | $                                          | 8,223   |   | $ | 805 |   | $ | 1,056 |   | $ | 2,600 |   | $ | 296 |   |
|                                                |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total non-performing loans as a percentage of loans |                                       | 1.50    | % |   | 0.20 | % |   | 0.34 | % |   | 1.00 | % |   | 0.16 | % |
|                                                |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

When a loan is more than 30 days delinquent, the borrower is contacted by mail or phone and payment is requested. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower. In certain instances, the Registrant may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize their financial affairs. If the            loan continues in a delinquent status for 90 days or more, the Registrant generally will initiate foreclosure proceedings.

Loans are generally placed on non-accrual status when either principal or interest is 90 days or more past due. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Such interest, when ultimately collected, is applied either to the outstanding principal or recorded as interest income, depending on management’s            assessment of ultimate collectibility of principal and interest. At December 31, 2008, the Bank had $8.2 million of loans that were on a non-accrual basis**.**Gross interest income of $300.0 thousand would have been recorded during the year ended December 31, 2008 if these loans had been performing in accordance with their terms. Interest income of $30.3 thousand was recorded on these loans during the year ended December 31, 2008. At            December 31, 2008, the Bank did not have any loans not classified as non-accrual, 90 days past due or restructured but where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and may result in disclosure as non-accrual, 90 days past due or restructured.

 

8

 

 

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***Classified Assets.***Federal Regulations provide for a classification system for problem assets of insured institutions. Under this classification system, problem assets of insured institutions are classified as substandard, doubtful or loss. An asset is considered “substandard” if it involves more than an acceptable level of risk due            to a deteriorating financial condition, unfavorable history of the borrower, inadequate payment capacity, insufficient security or other negative factors within the industry, market or management. Substandard loans have clearly defined weaknesses that can jeopardize the timely payments of the loan.

Assets classified as “doubtful” exhibit all of the weakness defined under the Substandard Category but with enough risk to present a high probability of some principal loss on the loan, although not yet fully ascertainable in amount. Assets classified as “loss” are those considered un-collectable or of little value, even though a collection effort may            continue after the classification and potential charge-off.

The Bank also internally classifies certain assets as “special mention;” such assets do not demonstrate a current potential for loss but are monitored in response to negative trends which, if not reversed, could lead to a substandard rating in the future.

When an insured institution classifies problem assets as either “substandard” or “doubtful,” it may establish specific allowances for loan losses in an amount deemed prudent by management. When an insured institution classifies problem assets as “loss,” it is required either to establish an allowance for losses equal to 100% of that portion of            the assets so classified or to charge off such amount.

At December 31, 2008, the Bank had assets classified as follows:

 

|            |   | **Loan Balance**       |
|-----------------|--------|------------------------|
|            |   | (Amounts in thousands) |
|            |   |                   |   |
| Special mention |   | $                      | 8,942 |
| Substandard     |   |                   | 8,515 |
| Doubtful        |   |                   | - |
| Loss            |   |                   | - |
|            |   | $                      | 17,457 |

 

***Foreclosed Real Estate.***Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time as it is sold. When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair value less disposal costs. Any            write-down of real estate owned is charged to operations. At December 31, 2008, the Bank had real estate owned totaling $858.9 thousand.

***Allowance for Losses on Loans and Real Estate Owned.***It is the policy of management to provide for possible losses on classified loans in its portfolio in addition to classified loans. A provision for loan losses is charged to operations based on management’s evaluation of the inherent losses that may be incurred in the Bank’s loan            portfolio. Management also periodically performs valuations of real estate owned and establishes allowances to reduce book values of the properties to their net realizable values when necessary.

Management’s judgment as to the level of probable losses on existing loans is based on its internal review of the loan portfolio, including an analysis of the borrowers’ current financial position; the level and trends in delinquencies, non-accruals and impaired loans; the consideration of national and local economic conditions and trends; concentrations of credit; the            impact of any changes in credit policy; the experience and depth of management and the lending staff; and any trends in loan volume and terms. In

 

9

 

 

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determining the collectibility of certain loans, management also considers the fair value of any underlying collateral. However, management’s determination of the appropriate allowance level which is based upon the factors outlined above, which are believed to be reasonable, may or may not prove to be valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the            allowance for loan losses or that additional increases in the allowance for loan losses will not be required.

The following table sets forth information with respect to the Bank’s allowance for losses on loans at the dates and for the periods indicated.

 

|                                                               |   | For the Year Ended December 31,            |    |
|--------------------------------------------------------------------|--------|--------------------------------------------|---------|
|                                                               |   | 2008                                       |    |   |   | 2007 |   |   |   | 2006 |   |   |   | 2005 |   |   |   | 2004 |   |
|                                                               |   | (Amounts in thousands, except percentages) |    |
|                                                               |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of the period                                 |   | $                                          | 5,706   |   |   |   | $ | 4,511 |   |   |   | $ | 3,574 |   |   |   | $ | 2,621 |   |   |   | $ | 2,256 |   |
| Charge-offs:                                                       |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                         |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Real estate construction                                           |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                        |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Commercial                                                         |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | (227 | ) |   |   |   | — |   |
| Real estate mortgage                                               |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                        |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | (461 | ) |
| Commercial                                                         |   |                                       | — |   |   |   |   | (200 | ) |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Consumer                                                           |   |                                       | (5)     |   |   |   |   | — |   |   |   |   | (3 | ) |   |   |   | — |   |   |   |   | — |   |
| Total charge-offs:                                                 |   |                                       | (5)     |   |   |   |   | (200 | ) |   |   |   | (3 | ) |   |   |   | (227 | ) |   |   |   | (461 | ) |
|                                                               |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recoveries:                                                        |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                         |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Real estate construction                                           |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                        |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Commercial                                                         |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Real estate mortgage                                               |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                        |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Commercial                                                         |   |                                       | — |   |   |   |   | 234 |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Consumer                                                           |   |                                       | 13      |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Total recoveries:                                                  |   |                                       | 13      |   |   |   |   | 234 |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
|                                                               |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net recoveries (charge-offs)                                       |   |                                       | 8       |   |   |   |   | 34 |   |   |   |   | (3 | ) |   |   |   | (227 | ) |   |   |   | (461 | ) |
| Provision for loan losses                                          |   |                                       | 2,063   |   |   |   |   | 1,161 |   |   |   |   | 940 |   |   |   |   | 1,180 |   |   |   |   | 825 |   |
| Balance at end of period                                           |   | $                                          | 7,777   |   |   |   | $ | 5,706 |   |   |   | $ | 4,511 |   |   |   | $ | 3,574 |   |   |   | $ | 2,620 |   |
| Period-end loans outstanding (net of deferred costs/fees)          |   | $                                          | 547,660 |   |   |   | $ | 408,389 |   |   |   | $ | 310,555 |   |   |   | $ | 295,035 |   |   |   | $ | 188,607 |   |
| Average loans outstanding                                          |   | $                                          | 476,994 |   |   |   | $ | 365,884 |   |   |   | $ | 286,691 |   |   |   | $ | 219,217 |   |   |   | $ | 154,794 |   |
| Allowance as a percentage of period end loans                      |   |                                       | 1.42    | % |   |   |   | 1.40 | % |   |   |   | 1.45 | % |   |   |   | 1.38 | % |   |   |   | 1.39 | % |
| Net loans charged off as a percentage of average loans outstanding |   |                                       | 0.00    | % |   |   |   | (0.01 | )% |   |   |   | 0.00 | % |   |   |   | 0.10 | % |   |   |   | 0.30 | % |
|                                                               |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

 

10

 

 

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***Allocation of Allowance for Loan Losses.***The following table sets forth the allocation of the Bank’s allowance for loan losses by loan category at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses that may occur within the loan category as the            total loan loss allowance is a valuation reserve applicable to the entire loan portfolio.

 

|                      |   | At December 31,                            |
|---------------------------|--------|--------------------------------------------|
|                      |   | 2008                                       |   | 2007 |   | 2006 |   | 2005 |   | 2004 |
|                      |   | Amount                                     |   | Percentage |   | Amount |   | Percentage |   | Amount |   | Percentage |   | Amount |   | Percentage |   | Amount |   | Percentage |
|                      |   | (Amounts in thousands, except percentages) |
|                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                |   | $                                          | 283 |   | 3.6 | % |   | $ | 209 |   | 3.7 | % |   | $ | 188 |   | 4.3 | % |   | $ | 154 |   | 4.3 | % |   | $ | 134 |   | 5.1 | % |
| Real estate construction: |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential               |   |                                       | 1,240 |   | 15.9 |   |   |   | 22 |   | 0.4 |   |   |   | 25 |   | 0.8 |   |   |   | 18 |   | 0.5 |   |   |   | 18 |   | 0.7 |   |
| Commercial                |   |                                       | 448 |   | 5.8 |   |   |   | 1,489 |   | 26.1 |   |   |   | 847 |   | 22.3 |   |   |   | 969 |   | 27.1 |   |   |   | 519 |   | 19.8 |   |
| Real estate mortgage:     |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential               |   |                                       | 1,281 |   | 16.5 |   |   |   | 257 |   | 4.5 |   |   |   | 218 |   | 6.4 |   |   |   | 239 |   | 6.7 |   |   |   | 228 |   | 8.7 |   |
| Commercial                |   |                                       | 4,381 |   | 56.3 |   |   |   | 3,568 |   | 62.5 |   |   |   | 3,185 |   | 64.0 |   |   |   | 2,130 |   | 59.6 |   |   |   | 1,667 |   | 63.6 |   |
| Consumer                  |   |                                       | 144 |   | 1.9 |   |   |   | 161 |   | 2.8 |   |   |   | 48 |   | 2.2 |   |   |   | 64 |   | 1.8 |   |   |   | 55 |   | 2.1 |   |
| Total Allowance           |   | $                                          | 7,777 |   | 100.0 | % |   | $ | 5,706 |   | 100.0 | % |   | $ | 4,511 |   | 100.0 | % |   | $ | 3,574 |   | 100.0 | % |   | $ | 2,621 |   | 100.0 | % |

 

 

 

11

 

 

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**Investment Activities**

***General.***The investment policy of the Bank is established by senior management and approved by the Board of Directors. It is based on asset and liability management goals and is designed to provide a portfolio of high quality investments that foster interest income within acceptable interest rate risk and liquidity guidelines. In accordance with            SFAS No. 115, the Bank classifies the majority of its portfolio of investment securities as “available for sale” with the remainder, which are municipal bonds, as “held to maturity.” At December 31, 2008, the Bank’s investment policy allowed investments in instruments such as: (i) U.S. Treasury obligations, (ii) U.S. government agency or government-sponsored agency obligations, (iii) local municipal obligations, (iv) mortgage-backed securities, (v)            certificates of deposit, and (vi) investment grade corporate bonds, trust preferred securities and mutual funds. The Board of Directors may authorize additional investments.

***Composition of Investment Securities Portfolio.***The following table sets forth the carrying value of the Bank’s investment securities portfolio at the dates indicated. For additional information, see Note 3 of the Notes to the Consolidated Financial Statements. At December 31, 2008, the Company did not hold investment securities of any one            issuer the book value of which exceeds 10% of its stockholders’ equity.

 

|                                        |   | At December 31,        |   |
|---------------------------------------------|--------|------------------------|--------|
|                                        |   | 2008                   |   |   |   | 2007 |   |   |   | 2006 |   |
|                                        |   | (Amounts in thousands) |   |
| Securities Held to Maturity:                |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Municipals                                  |   | $                      | 2,482  |   |   |   | $ | 2,456 |   |   |   | $ | 2,431 |   |
|                                        |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities Available for Sale:              |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government-sponsored entity securities |   |                   | 2,011  |   |   |   |   | 5,499 |   |   |   |   | 6,416 |   |
| Mortgage-backed securities                  |   |                   | 25,150 |   |   |   |   | 17,442 |   |   |   |   | 9,909 |   |
| Corporate and trust preferred securities    |   |                   | 4,769  |   |   |   |   | 6,841 |   |   |   |   | 8,205 |   |
| Total securities available for sale         |   |                   | 31,930 |   |   |   |   | 29,782 |   |   |   |   | 24,530 |   |
|                                        |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                       |   | $                      | 34,412 |   |   |   | $ | 32,238 |   |   |   | $ | 26,961 |   |

 

 

12

 

 

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***Investment Portfolio Maturities.***The following table sets forth information regarding the scheduled maturities, amortized costs, estimated fair values, and weighted average yields for the Bank’s investment securities portfolio at December 31, 2008 by contractual maturity. The following table does not take into consideration the effects of            scheduled repayments or the effects of possible prepayments.

 

|                                |   | At December 31, 2008                  |    |
|-------------------------------------|--------|---------------------------------------|---------|
|                                |   | One Year or Less                      |    |   | One to Five Years |   |   | Five to Ten Years |   |   | More Than Ten Years |   |   | Total Investment Securities |   |
|                                |   | Amort-ized Cost                       |    | AverageYield |   |   | Amort-ized Cost |   | AverageYield |   |   | Amort-ized Cost |   | AverageYield |   |   | Amort-ized Cost |   | AverageYield |   |   | Amort-ized Cost |   | AverageYield |   |   | FairValue |   |
|                                |   | (Amounts in thousands, except yields) |    |
|                                |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities Held to Maturity:        |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Municipals                          |   | $                                     | — |   | — | % |   |   | $ | 542 |   | 2.62 | % |   |   | $ | — |   | — | % |   |   | $ | 1,940 |   | 4.23 | % |   |   | $ | 2,482 |   | 3.88 | % |   | $ | 2,324 |   |
| Total securities held to maturity   |   |                                  | — |   | — |   |   |   |   | 542 |   | 2.62 |   |   |   |   | — |   | — |   |   |   |   | 1,940 |   | 4.23 |   |   |   |   | 2,482 |   | 3.88 |   |   |   | 2,324 |   |
|                                |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities Available for Sale:      |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government sponsored entity    |   |                                  | — |   | — | % |   |   |   | — |   | — | % |   |   |   | 1,988 |   | 5.12 | % |   |   |   | 6 |   | 3.88 | % |   |   |   | 1,994 |   | 5.12 | % |   |   | 2,011 |   |
| Mortgage-backed securities          |   |                                  | — |   | — |   |   |   |   | — |   | — |   |   |   |   | — |   | — |   |   |   |   | 24,960 |   | 5.16 |   |   |   |   | 24,960 |   | 5.16 |   |   |   | 25,150 |   |
| Corporate                           |   |                                  | 1,496   |   | 5.48 |   |   |   |   | — |   | — |   |   |   |   | — |   | — |   |   |   |   | 7,733 |   | 5.90 |   |   |   |   | 9,229 |   | 5.85 |   |   |   | 4,769 |   |
| Total securities available for sale |   |                                  | 1,496   |   | 5.48 |   |   |   |   | — |   | — |   |   |   |   | 1,988 |   | 5.12 |   |   |   |   | 32,699 |   | 5.38 |   |   |   |   | 36,183 |   | 5.37 |   |   |   | 31,930 |   |
| Total                               |   | $                                     | 1,496   |   | 5.48 | % |   |   | $ | 542 |   | 2.62 | % |   |   | $ | 1,988 |   | 5.12 | % |   |   | $ | 34,639 |   | 5.32 | % |   |   | $ | 38,665 |   | 5.28 | % |   | $ | 34,254 |   |

 

 

13

 

 

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**Sources of Funds**

***General.***Deposits are the major external source of the Bank’s funds for lending and other investment purposes. In addition to deposits, the Bank derives funds from the amortization, prepayment or sale of loans, maturities of investment securities and operations. Scheduled loan principal repayments are a relatively stable source of funds,            while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.

***Deposits.***The Bank offers individuals and businesses a wide variety of accounts, including checking, savings, money market accounts, individual retirement accounts and certificates of deposit. Deposits are obtained primarily from communities that the Bank serves, however, the Bank held brokered deposits of $176.1 million and $127.0 million at            December 31, 2008 and 2007, respectively. Brokered deposits are a more volatile source of funding than core deposits and do not increase the deposit franchise of the Bank. In a rising rate environment, the Bank may be unwilling or unable to pay a competitive rate. To the extent that such deposits do not remain with the Bank, they may need to be replaced with borrowings which could increase the Bank’s cost of funds and negatively impact its interest rate spread, financial            condition and results of operation. To mitigate the potential negative impact associated with brokered deposits, the Bank joined Promontory Interfinancial Network during 2007 to secure an additional alternative funding source. Promontory provides the Bank an additional source of external funds through their weekly CDARS settlement process. The rates are comparable to brokered deposits and can be obtained within a shorter period time than brokered deposits. The Bank’s CDARS            deposits included within the brokered deposit total amounted to $36.4 million and $38.3 million at December 31, 2008 and December 31, 2007, respectively.

The following tables detail the average amount, the average rate paid, and the percentage of each category to total deposits for the most recent three years ended December 31.

 

 

|                                 |   | 2008                                       |    |
|--------------------------------------|--------|--------------------------------------------|---------|
|                                 |   | AverageBalance                             |    | Yield/Rate |   | Percent ofTotal |   |
|                                 |   | (Amounts in thousands, except percentages) |    |
|                                 |   |                                       |    |   |   |   |   |   |   |
| NOWs                                 |   | $                                          | 11,730  |   | 2.35% |   |   | 2.7 | % |
| Money markets                        |   |                                       | 39,146  |   | 3.06% |   |   | 8.9 |   |
| Savings                              |   |                                       | 42,683  |   | 3.33% |   |   | 9.7 |   |
| Time deposits                        |   |                                       | 171,420 |   | 4.17% |   |   | 39.0 |   |
| Brokered CDs                         |   |                                       | 153,297 |   | 4.51% |   |   | 34.8 |   |
| Total interest-bearing deposits      |   |                                       | 418,276 |   | 4.05% |   |   | 95.1 |   |
|                                 |   |                                       |    |   |   |   |   |   |   |
| Non-interest bearing demand deposits |   |                                       | 21,658  |   |   |   |   | 4.9 |   |
|                                 |   |                                       |    |   |   |   |   |   |   |
| Total deposits                       |   | $                                          | 439,934 |   |   |   |   | 100.0 | % |

 

 

14

 

 

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|                                 |   | 2007                                       |    |
|--------------------------------------|--------|--------------------------------------------|---------|
|                                 |   | AverageBalance                             |    | Yield/Rate |   | Percent ofTotal |   |
|                                 |   | (Amounts in thousands, except percentages) |    |
|                                 |   |                                       |    |   |   |   |   |   |   |
| NOWs                                 |   | $                                          | 8,685   |   | 1.90% |   |   | 2.6 | % |
| Money markets                        |   |                                       | 26,080  |   | 4.36% |   |   | 7.7 |   |
| Savings                              |   |                                       | 27,774  |   | 3.74% |   |   | 8.2 |   |
| Time deposits                        |   |                                       | 155,284 |   | 5.09% |   |   | 46.0 |   |
| Brokered CDs                         |   |                                       | 100,097 |   | 5.17% |   |   | 29.7 |   |
| Total interest-bearing deposits      |   |                                       | 317,920 |   | 4.85% |   |   | 94.2 |   |
|                                 |   |                                       |    |   |   |   |   |   |   |
| Non-interest bearing demand deposits |   |                                       | 19,591  |   |   |   |   | 5.8 |   |
|                                 |   |                                       |    |   |   |   |   |   |   |
| Total deposits                       |   | $                                          | 337,511 |   |   |   |   | 100.0 | % |

 

|                                 |   | 2006                                       |    |
|--------------------------------------|--------|--------------------------------------------|---------|
|                                 |   | AverageBalance                             |    | Yield/Rate |   |   | Percent ofTotal |   |
|                                 |   | (Amounts in thousands, except percentages) |    |
|                                 |   |                                       |    |   |   |   |   |   |   |
| NOWs                                 |   | $                                          | 9,911   |   | 1.54% |   |   | 3.8 | % |
| Money markets                        |   |                                       | 16,657  |   | 3.59% |   |   | 6.4 |   |
| Savings                              |   |                                       | 28,991  |   | 3.49% |   |   | 11.1 |   |
| Time deposits                        |   |                                       | 111,666 |   | 4.49% |   |   | 42.6 |   |
| Brokered CDs                         |   |                                       | 76,374  |   | 4.52% |   |   | 29.2 |   |
| Total interest-bearing deposits      |   |                                       | 243,599 |   | 4.20% |   |   | 93.1 |   |
|                                 |   |                                       |    |   |   |   |   |   |   |
| Non-interest bearing demand deposits |   |                                       | 18,174  |   |   |   |   | 6.9 |   |
|                                 |   |                                       |    |   |   |   |   |   |   |
| Total deposits                       |   | $                                          | 261,773 |   |   |   |   | 100.0 | % |

 

The following table indicates the amount of the Bank’s certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2008.

 

| Maturity Period           |   | Certificates of Deposit    |
|---------------------------|--------|----------------------------|
|                      |   | **(Amounts in thousands)** |
| Within three months       |   | $                          | 24,407 |
| Three through six months  |   |                       | 37,580 |
| Six through twelve months |   |                       | 8,253 |
| Over twelve months        |   |                       | 677 |
| Total                     |   | $                          | 70,917 |
|                      |   |                       |   |

 

***Borrowings.***Borrowings consist of reverse repurchase agreements, subordinated debt and advances from the FHLB and other parties. Reverse repurchase agreements were priced at origination and are payable in four years or less. Borrowings from the FHLB outstanding during 2008, 2007, and 2006 had maturities of ten years or less and cannot be prepaid            without penalty.

 

15

 

 

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The following table sets forth information regarding the Bank’s borrowings:

 

|                                           |   |   |   | December 31,                             |   |
|------------------------------------------------|--------|--------|--------|------------------------------------------|--------|
|                                           |   |   |   | 2008                                     |   |   |   | 2007 |   |   |   | 2006 |   |
|                                           |   |   |   | **(Amounts in thousands, except rates)** |   |
| Amount outstanding at year end                 |   |   |   | $                                        | 61,943 |   |   |   | $ | 40,322 |   |   |   | $ | 34,851 |   |
| Weighted average interest rates at year end    |   |   |   |                                     | 4.05   | % |   |   |   | 5.43 | % |   |   |   | 5.50 | % |
| Maximum outstanding at any month end           |   |   |   | $                                        | 78,244 |   |   |   | $ | 49,209 |   |   |   | $ | 41,092 |   |
| Average outstanding                            |   |   |   | $                                        | 54,843 |   |   |   | $ | 39,502 |   |   |   | $ | 34,321 |   |
| Weighted average interest rate during the year |   |   |   |                                     | 4.25   | % |   |   |   | 5.51 | % |   |   |   | 5.22 | % |

 

**Subsidiary Activity**

The largest subsidiary of the Company is the Bank. The Bank has a subsidiary, Parke Capital Markets, a corporation, which was formed in 2001 to generate fee income from capital markets financing activities, which include term financings. Farm Folly, a corporation that is a subsidiary of the Bank, was formed in 2006 for real estate assets associated with a previous loan that were            repossessed by the Bank in 2006. At December 31, 2008, there were no assets in the subsidiary as a result of the sale of these repossessed assets during the second quarter of 2007. Taylor Glen LLC, another corporation that is a subsidiary of the Bank, was formed in 2008 for real estate assets associated with a previous loan that was repossessed by the Bank in 2008. At December 31, 2008, the subsidiary had a real estate asset that totaled $859,000, and is being reported as other            assets in the consolidated financial statements.

**Personnel**

At December 31, 2008, the Bank had 42 full-time and 9 part-time employees.

**Regulation**

***General.***Set forth below is a brief description of certain laws which relate to the regulation of the Bank and the Company. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

**Emergency Economic Stabilization Act of 2008**

In response to recent unprecedented market turmoil, the Emergency Economic Stabilization Act (“EESA”) was enacted on October 3, 2008. EESA authorizes the Secretary of the Treasury to purchase up to $700 billion in troubled assets from financial institutions under the Troubled Asset Relief Program or TARP. Troubled assets include residential or commercial mortgages and            related instruments originated prior to March 14, 2008 and any other financial instrument that the Secretary determines, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, the purchase of which is necessary to promote financial stability. If the Secretary exercises his authority under TARP, EESA directs the Secretary of Treasury to establish a program to guarantee troubled assets originated or issued prior to March 14, 2008. The Secretary            is authorized to purchase up to $250 billion in troubled assets immediately and up to $350 billion upon certification by the President that such authority is needed. The Secretary’s authority will be increased to $700 billion if the President submits a written report to Congress detailing the Secretary’s plans to use such authority unless Congress passes a joint resolution disapproving such amount within 15 days after receipt of the report. The Secretary’s            authority under TARP expires on December 31, 2009 unless the Secretary certifies to Congress that extension is necessary provided that his authority may not be extended beyond October 3, 2010.

 

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Institutions selling assets under TARP will be required to issue warrants for common or preferred stock or senior debt to the Secretary. If the Secretary purchases troubled assets directly from an institution without a bidding process and acquires a meaningful equity or debt position in the institution as a result or acquires more than $300 million in troubled assets from an            institution regardless of method, the institution will be required to meet certain standards for executive compensation and corporate governance, including a prohibition against incentives to take unnecessary and excessive risks, recovery of bonuses paid to senior executives based on materially inaccurate earnings or other statements and a prohibition against agreements for the payment of golden parachutes. Institutions that sell more than $300 million in assets under TARP auctions            will not be entitled to a tax deduction for compensation in excess of $500,000 paid to its chief executive or chief financial official or any its other three most highly compensated officers. In addition, any severance paid to such officers for involuntary termination or termination in connection with a bankruptcy or receivership will be subject to the golden parachute rules under the Internal Revenue Code.

EESA increases the maximum deposit insurance amount up to $250,000 until December 31, 2009 and removes the statutory limits on the FDIC’s ability to borrow from the Treasury during this period. The FDIC may not take the temporary increase in deposit insurance coverage into account when setting assessments. EESA allows financial institutions to treat any loss on the preferred            stock of the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation as an ordinary loss for tax purposes.

Pursuant to his authority under EESA, the Secretary of the Treasury has created the TARP Capital Purchase Plan under which the Treasury Department will invest up to $250 billion in senior preferred stock of U.S. banks and savings associations or their holding companies. Qualifying financial institutions may issue senior preferred stock with a value equal to not less than 1% of            risk-weighted assets and not more than the lesser of $25 billion or 3% of risk-weighted assets. The senior preferred stock will pay dividends at the rate of 5% per annum until the fifth anniversary of the investment and thereafter at the rate of 9% per annum. The senior preferred stock may not be redeemed for three years except with the proceeds from an offering common stock or preferred stock qualifying as Tier 1 capital in an amount equal to not less than 25% of the amount of the            senior preferred. After three years, the senior preferred may be redeemed at any time in whole or in part by the financial institution. No dividends may be paid on common stock unless dividends have been paid on the senior preferred stock. Until the third anniversary of the issuance of the senior preferred, the consent of the U.S. Treasury will be required for any increase in the dividends on the common stock or for any stock repurchases unless the senior preferred has been redeemed            in its entirety or the Treasury has transferred the senior preferred to third parties. The senior preferred will not have voting rights other than the right to vote as a class on the issuance of any preferred stock ranking senior, any change in its terms or any merger, exchange or similar transaction that would adversely affect its rights. The senior preferred will also have the right to elect two directors if dividends have not been paid for six periods. The senior preferred will            be freely transferable and participating institutions will be required to file a shelf registration statement covering the senior preferred. The issuing institution must grant the Treasury piggyback registration rights. Prior to issuance, the financial institution and its senior executive officers must modify or terminate all benefit plans and arrangements to comply with EESA. Senior executives must also waive any claims against the Department of Treasury.

In connection with the issuance of the senior preferred, participating institutions must issue to the Secretary immediately exercisable 10-year warrants to purchase common stock with an aggregate market price equal to 15% of the amount of senior preferred. The exercise price of the warrants will equal the market price of the common stock on the date of the investment. The            Secretary may only exercise or transfer one-half of the warrants prior to the earlier of December 31, 2009 or the date the issuing financial institution has received proceeds equal to the senior preferred investment form one or more offerings of

 

17

 

 

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common or preferred stock qualifying as Tier 1 capital. The Secretary will not exercise voting rights with respect to any shares of common stock acquired through exercise of the warrants. The financial institution must file a shelf registration statement covering the warrants and underlying common stock as soon as practicable after issuance and grant piggyback registration rights. The number of            warrants will be reduced by one-half if the financial institution raises capital equal to the amount of the senior preferred through one or more offerings of common stock or preferred stock qualifying a Tier 1 capital. If the financial institution does not have sufficient authorized shares of common stock available to satisfy the warrants or their issuance otherwise requires shareholder approval, the financial institution must call a meeting of shareholders for that purpose as soon            as practicable after the date of investment. The exercise price of the warrants will be reduced by 15% for each six months that lapse before shareholder approval subject to a maximum reduction of 45%.

On January 30, 2009, the Company entered into a Letter Agreement and Securities Purchase Agreement (collectively, the “Purchase Agreement”) with the United States Department of the Treasury (“Treasury”) under the TARP Capital Purchase Program, pursuant to which the Company sold (i) 16,288 shares of the Company’s Fixed Rate Cumulative Perpetual            Preferred Stock, Series A (the “Series A Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 299,779 shares of the Company’s common stock, par value $0.10 per share (the “Common Stock”), for an aggregate purchase price of $16.3 million in cash.

The Series A Preferred Stock will qualify as Tier 1 capital and will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Series A Preferred Stock may be redeemed by the Company at anytime without penalty, subject to Treasury’s consultation with the appropriate federal banking agency.

Pursuant to the terms of the Purchase Agreement, the ability of the Company to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its Junior Stock (as defined below) and Parity Stock (as defined below) will be subject to restrictions, including a restriction against increasing dividends from the last quarterly cash            dividend declared on the Common Stock prior to January 9, 2009. The redemption, purchase or other acquisition of trust preferred securities of the Company or its affiliates also will be restricted. These restrictions will terminate on the earlier of (a) the third anniversary of the date of issuance of the Series A Preferred Stock and (b) the date on which the Series A Preferred Stock has been redeemed in whole or Treasury has transferred all of the Series A Preferred Stock            to third parties. The restrictions described in this paragraph are set forth in the Purchase Agreement.

In addition, the ability of the Company to declare or pay dividends or distributions on, or repurchase, redeem or otherwise acquire for consideration, shares of its Junior Stock and Parity Stock will be subject to restrictions in the event that the Company fails to declare and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on its Series A            Preferred Stock.

“Junior Stock” means the Common Stock and any other class or series of stock of the Company the terms of which expressly provide that it ranks junior to the Series A Preferred Stock as to dividend rights and/or rights on liquidation, dissolution or winding up of the Company. “Parity Stock” means any class or series of stock of the Company the terms of which            do not expressly provide that such class or series will rank senior or junior to the Series A Preferred Stock as to dividend rights and/or rights on liquidation, dissolution or winding up of the Company (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $8.15 per share of the Common Stock.

 

18

 

 

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Treasury has agreed not to exercise voting power with respect to any shares of Common Stock issued upon exercise of the Warrant.

The Series A Preferred Stock and the Warrant were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Upon the request of Treasury at any time, the Company has agreed to promptly enter into a deposit arrangement pursuant to which the Series A Preferred Stock may be deposited and depositary shares            (“Depositary Shares”), representing fractional shares of Series A Preferred Stock, may be issued. The Company has agreed to register the Series A Preferred Stock, the Warrant, the shares of Common Stock underlying the Warrant (the “Warrant Shares”) and Depositary Shares, if any, as soon as practicable after the date of the issuance of the Series A Preferred Stock and the Warrant. Neither the Series A Preferred Stock nor the Warrant will be subject to any            contractual restrictions on transfer, except that Treasury may only transfer or exercise an aggregate of one-half of the Warrant Shares prior to the earlier of the redemption of 100% of the shares of Series A Preferred Stock and December 31, 2009.

The Purchase Agreement also subjects the Company to certain of the executive compensation limitations included in the EESA. In this connection, as a condition to the closing of the transaction, the Company’s Senior Executive Officers (as defined in the Purchase Agreement) (the “Senior Executive Officers”), (i) executed a waiver (the “Waiver”)            voluntarily waiving any claim against the Treasury or the Company for any changes to such Senior Executive Officer’s compensation or benefits that are required to comply with the regulation issued by the Treasury under the TARP Capital Purchase Program as published in the Federal Register on October 20, 2008 and acknowledging that the regulation may require modification of the compensation, bonus, incentive and other benefit plans, arrangements and policies and agreements            (including so-called “golden parachute” agreements) (collectively, “Benefit Plans”) as they relate to the period the Treasury holds any equity or debt securities of the Company acquired through the TARP Capital Purchase Program; and (ii) entered into a letter agreement (the “Letter Agreement”) with the Company amending the Benefit Plans with respect to such Senior Executive Officer as may be necessary, during the period that the Treasury owns            any debt or equity securities of the Company acquired pursuant to the Purchase Agreement or the Warrant, as necessary to comply with Section 111(b) of the EESA.

The foregoing description of the TARP, the CPP and securities covered thereby is qualified in its entirety by reference to the Summary of Senior Preferred Terms and other information regarding the TARP and CPP published on the Department’s website atwww.treasury.govand incorporated herein by reference.

**Holding Company Regulation**

***General.***The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHC Act”), and is regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Federal Reserve Board has enforcement authority over the Company and the Company’s            non-bank subsidiaries which also permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary bank. This regulation and oversight is intended primarily for the protection of the depositors of the Bank and not for shareholders of the Company.

As a bank holding company, the Company is required to file with the Federal Reserve Board an annual report and any additional information as the Federal Reserve Board may require under the BHC Act. The Federal Reserve Board will also examine the Company and its subsidiaries.

Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the BHC Act on extensions of credit to the bank holding company or any of its subsidiaries, on investments

 

19

 

 

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in the stock or other securities of the bank holding company or its subsidiaries, and on the taking of such stock or securities as collateral for loans to any borrower. Furthermore, under amendments to the BHC Act and regulations of the Federal Reserve Board, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of            credit or provision of credit or providing any property or services. Generally, this provision provides that a bank may not extend credit, lease or sell property, or furnish any service to a customer on the condition that the customer provide additional credit or service to the bank, to the bank holding company, or to any other subsidiary of the bank holding company or on the condition that the customer not obtain other credit or service from a competitor of the bank, the bank            holding company, or any subsidiary of the bank.

Extensions of credit by the Bank to executive officers, directors, and principal shareholders of the Bank or any affiliate thereof, including the Company, are subject to Section 22(h) of the Federal Reserve Act, which among other things, generally prohibits loans to any such individual where the aggregate amount exceeds an amount equal to 15% of a bank’s unimpaired capital            and surplus, plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral.

***Federal Securities Law.***The Company’s common stock is registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the Company is subject to the periodic reporting and other requirements of Section 12(g) of the 1934 Act, as amended.

***Sarbanes-Oxley Act of 2002.***The Sarbanes-Oxley Act of 2002 (the “SOX Act”) was enacted to address corporate and accounting fraud. The SEC has promulgated new regulations pursuant to the SOX Act and may continue to propose additional implementing or clarifying regulations as necessary in furtherance of the SOX Act. The passage of the            SOX Act by Congress and the implementation of new regulations by the SEC subject publicly-traded companies to additional and more cumbersome reporting, regulations, and disclosure. Compliance with the SOX Act and corresponding regulations may increase the Company’s expenses.

During 2008, the Company evaluated the effectiveness of the internal control over financial reporting based upon the framework in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon the evaluation performed by management in conjunction with an outside consultant, the Company concluded that the internal            control over financial reporting (Sarbanes-Oxley Section 404 certification) was effective as of December 31, 2008. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the            Company to provide only management’s report in this annual report.

**Regulation of the Bank**

The Bank operates in a highly regulated industry. This regulation and supervision establishes a comprehensive framework of activities in which a bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors and not shareholders of the Bank.

Any change in applicable statutory and regulatory requirements, whether by the New Jersey Department of Banking and Insurance, the Federal Deposit Insurance Corporation (the “FDIC”) or the United States Congress, could have a material adverse impact on the Bank, and its operations. The adoption of regulations or the enactment of laws that restrict the operations of the            Bank or impose

 

20

 

 

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burdensome requirements upon it could reduce its profitability and could impair the value of the Bank’s franchise which could hurt the trading price of the Bank’s stock.

As a New Jersey-chartered commercial bank, the Bank is subject to the regulation, supervision, and control of the New Jersey Department of Banking and Insurance. As an FDIC-insured institution, the Bank is subject to regulation, supervision and control of the FDIC, an agency of the federal government. The regulations of the FDIC and the New Jersey Department of Banking and            Insurance affect virtually all activities of the Bank, including the minimum level of capital the Bank must maintain, the ability of the Bank to pay dividends, the ability of the Bank to expand through new branches or acquisitions and various other matters.

***Insurance of Deposits.***The Bank’s deposits are insured up to a maximum of $100,000 per depositor under the Deposit Insurance Fund of the FDIC. The FDIC has established a risk-based assessment system for all insured depository institutions. Under the risk-based assessment system, deposit insurance premium rates range from 5-43 basis            points.

Pursuant to the Reform Act, the FDIC has determined to maintain the designated reserve ratio at its current 1.25%. The FDIC has also adopted a new risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on their examination ratings and capital ratios.

Due to recent bank failures, the FDIC has determined that the reserve ratio was 1.01% as of June 30, 2008. In accordance with the Reform Act, the FDIC was required to establish and implement a plan within 90 days to restore the reserve ratio to 1.15% within five years (subject to extension due to extraordinary circumstances). For the quarter beginning January 1, 2009, the FDIC has            raised the base annual assessment rate for institutions in Risk Category I to between 12 and 14 basis points while the base annual assessment rates for institutions in Risk Categories II, III and IV have been increased to 17, 35 and 50 basis points, respectively. For the quarter beginning April 1, 2009 the FDIC has set the base annual assessment rate for institutions in Risk Category I at between 12 and 16 basis points and the base annual assessment rates for institutions in Risk            Categories II, III and IV at 22, 32 and 45 basis points, respectively. An institution’s assessment rate could be lowered by as much as five basis points based on the ratio of its long-term unsecured debt to deposits or, for smaller institutions, the ratio of certain amounts of Tier 1 capital to deposits. The assessment rate would be adjusted for Risk Category I institutions that have a high level of brokered deposits and have experienced higher levels of asset growth (other            than through acquisitions) and could be increased by as much as ten basis points for institutions in Risk Categories II, III and IV whose ratio of brokered deposits to deposits exceeds 10% of assets. Reciprocal deposit arrangements like CDARS would count as brokered deposits for Risk Category II, III and IV institutions but not for institutions in Risk Category I. An institution’s base assessment rate would also be increased if an institution’s ratio of secured            liabilities (including FHLB advances and repurchase agreements) to deposits exceeds 25%. The maximum adjustment for secured liabilities for institutions in Risk Categories I, II, III and IV would be 8, 11, 16 and 22.5 basis points, respectively, provided that the adjustment may not increase the base assessment rate by more than 50%. The FDIC has further proposed to collect a special assessment of 20 basis points based on insured deposits as of June 30, 2009. The special assessment            would be payable on September 30, 2009.

In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to recapitalize the predecessor to the SAIF.  The FICO assessment rate, which is determined quarterly based upon rates, which are determined quarterly,            totaled 2% of insured deposits in fiscal 2008.  These assessments will continue until the FICO bonds mature in 2017.

 

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Pursuant to EESA, the maximum deposit insurance amount has been increased from $100,000 to $250,000 until December 31, 2009. On October 13, 2008, the FDIC established a Temporary Liquidity Guarantee Program under which the FDIC will fully guarantee all non-interest-bearing transaction accounts and all senior unsecured debt of insured depository institutions or their            qualified holding companies issued between October 14, 2008 and June 30, 2009. Senior unsecured debt would include federal funds purchased and certificates of deposit outstanding to the credit of the bank. All eligible institutions participate in the program without cost for the first 30 days of the program. After December 5, 2008, institutions will be assessed at the rate of ten basis points for transaction account balances in excess of $250,000 and at the rate of 75            basis points of the amount of debt issued. Institutions were required to opt out of the Temporary Liquidity Guarantee Program by December 5, 2008 if they do not wish to participate. The Bank did not opt out of either part.

***Capital Adequacy Guidelines.***Parke Bancorp (on a consolidated basis) and the Bank are subject to risk-based capital guidelines promulgated by the FDIC that are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks, to account for off-balance sheet exposure, and to minimize disincentives for            holding liquid assets. Under the guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) is 8%. At least 4% of the total capital is required to be “Tier I Capital,” consisting of common shareholders’ equity and qualifying preferred stock, less certain goodwill items and other intangible assets. The remainder            (“Tier II Capital”) may consist of (a) the allowance for loan losses of up to 1.25% of risk-weighted assets, (b) excess of qualifying preferred stock, (c) hybrid capital instruments, (d) perpetual debt, (e) mandatory convertible securities, and (f) qualifying subordinated debt and intermediate-term preferred stock up to 50% of Tier I capital. Total capital is the sum of Tier I and Tier II capital less reciprocal holdings of other banking organizations, capital            instruments, investments in unconsolidated subsidiaries and any other deductions as determined by the FDIC (determined on a case-by-case basis or as a matter of policy after formal rule-making).

In addition to the risk-based capital guidelines, the FDIC has adopted a minimum Tier I capital (leverage) ratio, under which a bank must maintain a minimum level of Tier I capital to average total consolidated assets of at least 3% in the case of a bank that has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other banks are            expected to maintain a leverage ratio of at least 100 to 200 basis points above the stated minimum.

At December 31, 2008, the Parke Bancorp and the Bank had the requisite capital levels to qualify as “well capitalized.”

| **Item 1A.** | **Risk Factors** |
|--------------|------------------|

|   | This item is not applicable as the Company is a “smaller reporting company.” |
|--------|------------------------------------------------------------------------------------------|

| **Item 1B.** | **Unresolved Staff Comments** |
|--------------|-------------------------------|

None.

 

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| **Item 2.** | **Properties** |
|-------------|----------------|

|   | **(a)** | **Properties.** |
|--------|---------|-----------------|

The Company’s and the Bank’s main office is located in Washington Township, Gloucester County, New Jersey, in an office building of approximately 13,000 square feet. The main office facilities include teller windows, a lobby area, drive-through windows, automated teller machine, a night depository, and executive and administrative offices. In December 2002, the Bank            executed its lease option to purchase the building for $1.5 million.

The Bank also conducts business from a full-service office in Northfield, New Jersey, a full-service office in Washington Township, Gloucester County, New Jersey, a full-service office in Philadelphia, Pennsylvania, and a loan production office in Havertown Pennsylvania. These offices were opened by the Bank in September 2002, February 2003, August 2006 and October 2007,            respectively. The Northfield office, the Philadelphia office and loan production office are leased. The Washington Township office was purchased in February 2003. The Bank closed its loan production office in Millville, New Jersey in January of 2008.

Management considers the physical condition of all offices to be good and adequate for the conduct of the Bank’s business. At December 31, 2008, net property and equipment totaled approximately $3.0 million.

|   | **(b)** | **Investment Policies.** |
|--------|---------|--------------------------|

See “Item 1. Business” above for a general description of the Company’s investment policies, which are implemented by the Bank. The Bank’s investments are primarily acquired to produce income, and to a lesser extent, possible capital gain.

|   | (1) | Investments in Real Estate or Interests in Real Estate. See “Item 1. Business - Lending Activities.” |
|--------|-----|------------------------------------------------------------------------------------------------------------------|

|   | (2) | Investments in Real Estate Mortgages. See “Item 1. Business - Lending Activities.” |
|--------|-----|------------------------------------------------------------------------------------------------|

|   | (3) | Investments in Securities of or Interests in Persons Primarily Engaged in Real Estate Activities. See “Item 1. Business - Lending Activities.” |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Description of Real Estate and Operating Data. |
|--------|-----|------------------------------------------------|

|   | Not Applicable. |
|--------|-----------------|

| **Item 3.** | **Legal Proceedings** |
|-------------|-----------------------|

At December 31, 2008, the Company was not a party to any material legal proceedings.

23

 

 

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| **Item 4.** | **Submission of Matters to a Vote of Security Holders** |
|-------------|---------------------------------------------------------|

There were no matters submitted to a vote of the security holders during the fourth quarter of fiscal year 2008.

 

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**PART II**

| **Item 5.** | **Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities** |
|-------------|-----------------------------------------------------------------------------------------------------|

|   | (a) | The information contained under the section captioned “Market Prices and Dividends” in the Company’s 2008 Annual Report is incorporated herein by reference. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Not applicable. |
|--------|-----|-----------------|

|   | (c) | Treasury stock repurchases during the fourth quarter of 2008 for Parke Bancorp, Inc. were as follows: |
|--------|-----|-------------------------------------------------------------------------------------------------------|

 

| Period         |   | Total number of shares purchased |   | Average price paid per share |   | Total number of shares purchased as part of publicly announced plans or programs |   | Maximum number of shares that may be purchased under the plans or programs |
|----------------|--------|----------------------------------|--------|------------------------------|--------|----------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|
|           |   |                             |   |                         |   |                                                                             |   |                                                                       |
| October, 2008  |   | -                                | $      | -                            |   | -                                                                                |   | 48,101                                                                     |
| November, 2008 |   | -                                |   | -                            |   | -                                                                                |   | 48,101                                                                     |
| December, 2008 |   | 3,700                            |   | 8.03                         |   | 3,700                                                                            |   | 44,401                                                                     |
|           |   |                             |   |                         |   |                                                                             |   |                                                                       |
| Total          |   | 3,700                            | $      | 8.03                         |   | 3,700                                                                            |   |                                                                       |

 

On November 9, 2005, the Board of Directors authorized 174,570 shares (adjusted for stock dividends), or approximately 5%, of the issued and outstanding common stock for repurchase by the Company. As of December 31, 2008, the Company has repurchased 130,270 of the authorized shares. The ability of the Company to repurchase additional shares will be subject to restrictions under the            TARP Capital Purchase Program as described in the section captioned “Emergency Economic Stabilization Act of 2008”.

| **Item 6.** | **Selected Financial Data** |
|-------------|-----------------------------|

The information contained under the section captioned “Selected Financial Data” in the 2008 Annual Report is incorporated herein by reference.

| **Item 7.** | **Management’s Discussion and Analysis of Financial Condition and Results of Operations** |
|-------------|-------------------------------------------------------------------------------------------------|

The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report is incorporated herein by reference.

| **Item 7A.** | **Quantitative and Qualitative Disclosures About Market Risk** |
|--------------|----------------------------------------------------------------|

 

25

 

 

----

The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity and Liquidity — Rate Sensitivity Analysis” in the Annual Report is incorporated herein by reference.

| **Item 8.** | **Financial Statements and Supplementary Data** |
|-------------|-------------------------------------------------|

The Company’s financial statements listed under Item 15 are incorporated herein by reference.

| **Item 9.** | **Changes in and Disagreements With Accountants on Accounting and Financial Disclosure** |
|-------------|------------------------------------------------------------------------------------------|

None.

| **Item 9A (T).** | **Controls and Procedures** |
|------------------|-----------------------------|

| **(a)** | **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 Annual Report on Form 10-K such disclosure            controls and procedures are effective.

| **(b)** | **Internal Control Over Financial Reporting** |
|---------|-----------------------------------------------|

**1. Management’s Annual Report on Internal Control Over Financial Reporting.**

Management’s report on the Company’s internal control over financial reporting appears in the Company’s financial statements that are contained in the 2008 Annual Report filed as Exhibit 13 to this Annual Report on Form 10-K. Such report is incorporated herein by reference.

**2. Report of Independent Registered Public Accounting Firm**

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to            provide only management’s report in this annual report.

**3.****Changes in internal control over financial reporting**.

During the last quarter of the year under report, 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.

| **Item 9B.** | **Other Information** |
|--------------|-----------------------|

Not applicable.

 

26

 

 

----

**PART III**

| **Item 10.** | **Directors, Executive Officers and Corporate Governance** |
|--------------|------------------------------------------------------------|

The information contained under the headings “Section 16(a) Beneficial Ownership Reporting Compliance”, “Proposal I - Election of Directors” and “Corporate Governance” in the Company’s Proxy Statement for its 2009 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Code of Ethics will be furnished without charge upon written request to the Chief Financial Officer, Parke Bancorp, Inc., 601 Delsea Drive, Washington Township, New            Jersey, 08080.

There have been no material changes to the procedures by which security holders may recommend nominees to the Registrant’s Board of Directors since the date of the Registrant’s last proxy statement mailed to its stockholders.

| **Item 11.** | **Executive Compensation** |
|--------------|----------------------------|

The information contained in the sections captioned “Executive Compensation” and “Director Compensation” in the Proxy Statement is incorporated herein by reference.

| **Item 12.** | **Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters** |
|--------------|----------------------------------------------------------------------------------------------------|

|   | (a) | Security Ownership of Certain Beneficial Owners |
|--------|-----|-------------------------------------------------|

The information contained in the section captioned “Principal Holders of our Common Stock” in the Proxy Statement is incorporated herein by reference.

|   | (b) | Security Ownership of Management |
|--------|-----|----------------------------------|

The information contained in the sections captioned “Principal Holders of our Common Stock” and “Proposal I – Election of Directors” in the Proxy Statement is incorporated herein by reference.

(c)        Management of the Registrant knows of no arrangements, including any pledge by any person of securities of the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.

|   | (d) | Securities Authorized for Issuance Under Equity Compensation Plans |
|--------|-----|--------------------------------------------------------------------|

 

27

 

 

----

Set forth below is information as of December 31, 2008 with respect to compensation plans under which equity securities of the Registrant are authorized for issuance.

 

|                                               |   | ( a )                                                                  |   | ( b )                                                |   | ( c )                                                                                                                                |
|----------------------------------------------------|--------|------------------------------------------------------------------------|--------|------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|                                               |   |                                                                   |   |                                                 |   |                                                                                                                                 |
|                                               |   | Number of Securities to be issued upon exercise of outstanding options |   | Weighted-averageexercise price ofoutstanding options |   | Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a)) |
|                                               |   |                                                                   |   |                                                 |   |                                                                                                                                 |
| Equity compensation plans approved by shareholders |   | 380,323                                                                |   | $10.90                                               |   | 162,457                                                                                                                              |
|                                               |   |                                                                   |   |                                                 |   |                                                                                                                                 |
| Total                                              |   | 380,323                                                                |   | $10.90                                               |   | 162,457                                                                                                                              |
|                                               |   |                                                                   |   |                                                 |   |                                                                                                                                 |

 

| **Item 13.** | **Certain Relationships and Related Transactions, and Director Independence** |
|--------------|-------------------------------------------------------------------------------|

The information contained in the sections captioned “Related Party Transactions” and “Corporate Governance” in the Proxy Statement is incorporated herein by reference.

| **Item 14.** | **Principal Accountant Fees and Services** |
|--------------|--------------------------------------------|

The information contained in the section captioned “Proposal II - Ratification of Appointment of Auditors” in the Proxy Statement is incorporated herein by reference.

**PART IV**

| **Item 15.** | **Exhibits and Financial Statement Schedules** |
|--------------|------------------------------------------------|

|   | (a) | Listed below are all financial statements and exhibits filed as part of this report. |
|--------|-----|--------------------------------------------------------------------------------------|

|   | 1. | The following financial statements and the independent auditors’ report included in the Annual Report are incorporated herein by reference: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Management’s Report on Internal Controls |
|--------|--------|------------------------------------------------|

|   | • | Report of Independent Registered Public Accounting Firm |
|--------|--------|---------------------------------------------------------|

|   | • | Consolidated Balance Sheets as of December 31, 2008 and 2007 |
|--------|--------|--------------------------------------------------------------|

|   | • | Consolidated Statements of Income For the Years Ended December 31, 2008, 2007 and 2006. |
|--------|--------|-----------------------------------------------------------------------------------------|

 

28

 

 

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|   | • | Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2008, 2007 and 2006 |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | • | Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006 |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | • | Notes to Consolidated Financial Statements |
|--------|--------|--------------------------------------------|

|   | 2. | Schedules omitted as they are not applicable. |
|--------|----|-----------------------------------------------|

|   | 3. | The following exhibits are included in this Report or incorporated herein by reference: |
|--------|----|-----------------------------------------------------------------------------------------|

 

|   | 3.1 | Certificate of Incorporation of Parke Bancorp, Inc.* |
|--------|-----|------------------------------------------------------|

|   | 3.2 | Certificate of Amendment setting forth the terms of the Registrant’s Fixed Rate, Cumulative Perpetual Preferred Stock, Series A** |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.3 | Bylaws of Parke Bancorp, Inc.* |
|--------|-----|--------------------------------|

|   | 4.1 | Specimen stock certificate of Parke Bancorp, Inc.* |
|--------|-----|----------------------------------------------------|

|   | 4.2 | Specimen common stock purchase warrant of Parke Bancorp, Inc.* |
|--------|-----|----------------------------------------------------------------|

|   | 4.3 | Warrant to Purchase shares of the Registrant’s common stock, dated January 30, 2009.** |
|--------|-----|----------------------------------------------------------------------------------------------|

|   | 4.4 | Letter Agreement (including Securities Purchase Agreement Standard Terms attached as Exhibit A) dated January 30, 2009 between the Registrant and the United States Department of the Treasury.** |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.1 | Amended Employment Agreement Between Bancorp, Bank and Vito S. Pantilione**** |
|--------|------|-------------------------------------------------------------------------------|

|   | 10.2 | Change in Control Agreement Between Bancorp, Bank and Elizabeth Milavsky, Paul Palmieri and David Middlebrook**** |
|--------|------|-------------------------------------------------------------------------------------------------------------------|

|   | 10.2 | Supplemental Executive Retirement Plan* |
|--------|------|-----------------------------------------|

|   | 10.3 | 1999 Stock Option Plan* |
|--------|------|-------------------------|

|   | 10.4 | 2002 Stock Option Plan* |
|--------|------|-------------------------|

|   | 10.5 | 2003 Stock Option Plan* |
|--------|------|-------------------------|

|   | 10.6 | 2005 Stock Option Plan*** |
|--------|------|---------------------------|

|   | 13 | Annual Report to Stockholders for the fiscal year ended December 31, 2008 |
|--------|----|---------------------------------------------------------------------------|

|   | 21 | Subsidiaries of the Registrant |
|--------|----|--------------------------------|

|   | 23 | Consent of McGladrey & Pullen, LLP |
|--------|----|----------------------------------------|

|   | 31 | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|--------|----|--------------------------------------------------------------------------|

|   | 32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|--------|----|--------------------------------------------------------------------------|

 

|   | * | Incorporated by reference to the Company’s Registration Statement on Form S-4 filed with the SEC on January 31, 2005. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------|

 

|   | ** | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 30, 2009. |
|--------|----|---------------------------------------------------------------------------------------------------------------------|

 

|   | ***  | Incorporated by reference to the Company’s Definitive Proxy Statement filed with the SEC on December 20, 2005.  |
|--------|------|-----------------------------------------------------------------------------------------------------------------------|
|        |      |                                                                                                                       |
|        | **** | Incorporated by reference to the Company’s Current Report on Form 8- K filed with the SEC on November 29, 2007. |

 

 

29

 

 

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| **SIGNATURES**                                                                                                                                                                                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                             |
| Pursuant to the requirements of Section 13 or 15(d) 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.** |
|                                                                                                                                                                                                             |   |   |   |
|                                                                                                                                                                                                             |   |   |   |
| Dated: March 30, 2009                                                                                                                                                                                            |   |   | /s/ Vito S. Pantilione |
|                                                                                                                                                                                                             |   | By: | Vito S. Pantilione

President, Chief Executive Officer and Director |
|                                                                                                                                                                                                             |
| Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 30, 2009.    |
|                                                                                                                                                                                                             |
| /s/ Celestino R. Pennoni                                                                                                                                                                                         |   | /s/ Vito S. Pantilione |
| Celestino R. Pennoni                                                                                                                                                                                             |   | Vito S. Pantilione |
| Chairman of the Board and Director                                                                                                                                                                               |   | President, Chief Executive Office and Director |
|                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                             |   |   |
| /s/ Fred G. Choate                                                                                                                                                                                               |   | /s/ Daniel J. Dalton |
| Fred G. Choate                                                                                                                                                                                                   |   | Daniel J. Dalton |
| Director                                                                                                                                                                                                         |   | Director |
|                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                             |   |   |
| Arret F. Dobson                                                                                                                                                                                                  |   | Thomas Hedenberg |
| Director                                                                                                                                                                                                         |   | Director |
|                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                             |   | /s/ Anthony J. Jannetti |
| Edward Infantolino                                                                                                                                                                                               |   | Anthony J. Jannetti |
| Director                                                                                                                                                                                                         |   | Director |
|                                                                                                                                                                                                             |   |   |
| /s/ Jeffrey H. Krippitz                                                                                                                                                                                          |   | /s/ Richard Phalines |
| Jeffrey H. Krippitz                                                                                                                                                                                              |   | Richard Phalines |
| Director                                                                                                                                                                                                         |   | Director |
|                                                                                                                                                                                                             |   |   |
| /s/ Jack C. Sheppard, Jr.                                                                                                                                                                                        |   | /s/ Ray H. Tresch |
| Jack C. Sheppard, Jr.                                                                                                                                                                                            |   | Ray H. Tresch |
| Director                                                                                                                                                                                                         |   | Director |
|                                                                                                                                                                                                             |   |   |
| /s/ F. Steven Meddick                                                                                                                                                                                            |   |   |
| F. Steven Meddick                                                                                                                                                                                                |   |   |
| Executive Vice President and Chief Financial Officer                                                                                                                                                             |   |   |
| (Principal Financial and Accounting Officer)                                                                                                                                                                     |   |   |
|                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                             |   |
| Date:                                                                                                                                                                                                            | March 30, 2009 |   |   |
|                                                                                                                                                                                                                  |  |  |  |  |  |  |  |