**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, 2007 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                            filer  o | Smaller reporting company                            x |
|------------------------------------------------------|------------------------------------------------|---------------------------------------------------------------|--------------------------------------------------------|

 

| 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, 2007, was approximately $25.4 million.

|   | As of March 14, 2008 there were issued and outstanding                            3,231,734 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, 2007. (Parts II and IV) |
|----|-----------------------------------------------------------------------------------------------------------------------------------------|

| 2. | Portions of the Proxy Statement for the 2008 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, 2007**

 

**INDEX**

 

|        |
|-------------|
| PART 1      |   |   |   | **Page** |
| Item 1.     |   | Business |   | 1 |
| Item 1A.    |   | Risk Factors |   | 19 |
| Item 1B.    |   | Unresolved Staff Comments |   | 21 |
| Item 2.     |   | Properties |   | 21 |
| Item 3.     |   | Legal Proceedings |   | 22 |
| Item 4.     |   | Submission of Matters to a Vote of Security                            Holders |   | 23 |
|        |   |   |   |   |
| PART II     |   |   |   |   |
| Item 5.     |   | Market for Registrant’s Common Equity, Related                            Stockholder Matters

and Issuer Purchases of Equity Securities |   | 23 |
| Item 6.     |   | Selected Financial Data |   | 23 |
| Item 7.     |   | Management’s Discussion and Analysis of Financial                            Condition

and Results of Operations |   | 23 |
| Item 7A.    |   | Quantitative and Qualitative Disclosures About Market                            Risk |   | 24 |
| Item 8.     |   | Financial Statements and Supplementary Data |   | 24 |
| Item 9.     |   | Changes in and Disagreements with Accountants on                            Accounting and

Financial Disclosure |   | 24 |
| Item 9A(T). |   | Controls and Procedures |   | 24 |
| Item 9B.    |   | Other Information |   | 24 |
|        |   |   |   |   |
| PART III    |   |   |   |   |
| Item 10.    |   | Directors, Executive Officers and Corporate                            Governance |   | 25 |
| Item 11.    |   | Executive Compensation |   | 25 |
| Item 12.    |   | Security Ownership of Certain Beneficial Owners and                            Management and

Related Stockholder Matters |   | 25 |
| Item 13.    |   | Certain Relationships and Related Transactions, and                            Director Independence |   | 26 |
| Item 14.    |   | Principal Accountant Fees and Services |   | 26 |
|        |   |   |   |   |
| PART IV     |   |   |   |   |
| Item 15.    |   | Exhibits and Financial Statement Schedules |   | 26 |
|        |   |   |   |   |

             

 

 

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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 new 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, 2007,

 

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the            Company had assets of $460.8 million, loans of $408.4 million, deposits of $379.5            million and shareholders’ equity of $36.4 million.

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 activity and wire transfer service, all at reduced rates as            well as the new merchant capture electronic check processing service.

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 loan 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.

 

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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 four            through six for descriptions of the loan categories presented.

 

|                     | At December 31,                            |    |
|--------------------------|--------------------------------------------|---------|
|                     | 2007                                       |    | 2006 |   | 2005 |   | 2004 |   | 2003 |   |
|                     |                                       |    | % Gross |   |   |   | % Gross |   |   |   | % Gross |   |   |   | % Gross |   |   |   | % Gross |   |
|                     | Amount                                     |    | Loans |   | Amount |   | Loans |   | Amount |   | Loans |   | Amount |   | Loans |   | Amount |   | :Loans |   |
|                     | (Amounts in thousands, except percentages) |    |
|                     |                                       |    |
| Commercial               | $                                          | 14,899  |   | 3.7 | % | $ | 13,436 |   | 4.3 | % | $ | 11,053 |   | 4.3 | % | $ | 9,708 |   | 5.1 | % | $ | 8,800 |   | 6.0 | % |
| Real estate construction |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential              |                                       | 2,091   |   | 0.5 |   |   | 2,465 |   | 0.8 |   |   | 1,174 |   | 0.5 |   |   | 1,253 |   | 0.7 |   |   | 2,165 |   | 1.5 |   |
| Commercial               |                                       | 106,320 |   | 26.0 |   |   | 69,254 |   | 22.3 |   |   | 70,157 |   | 27.1 |   |   | 37,270 |   | 19.8 |   |   | 29,896 |   | 20.4 |   |
| Real estate mortgage     |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential              |                                       | 24,488  |   | 6.0 |   |   | 19,727 |   | 6.4 |   |   | 17,309 |   | 6.7 |   |   | 16,360 |   | 8.7 |   |   | 18,013 |   | 12.3 |   |
| Commercial               |                                       | 242,668 |   | 59.4 |   |   | 198,668 |   | 64.0 |   |   | 154,288 |   | 59.6 |   |   | 120,052 |   | 63.6 |   |   | 84,054 |   | 57.5 |   |
| Consumer                 |                                       | 17,923  |   | 4.4 |   |   | 7,005 |   | 2.2 |   |   | 5,054 |   | 1.8 |   |   | 3,964 |   | 2.1 |   |   | 3,406 |   | 2.3 |   |
| Total Loans              | $                                          | 408,389 |   | 100.0 | % | $ | 310,555 |   | 100.0 | % | $ | 259,035 |   | 100.0 | % | $ | 188,607 |   | 100.0 | % | $ | 146,334 |   | 100.0 | % |

 

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

 

 

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**Loan Maturity.**The following table sets            forth the contractual maturity of certain loan categories at December 31,            2007.

 

|                     |   | Due withinone year     |    | Due after onethrough fiveyears |   | Due after fiveyears |   | Total  |
|--------------------------|--------|------------------------|---------|--------------------------------|--------|---------------------|--------|--------|
|                     |   | (Amounts in thousands) |
|                     |   |                   |    |                           |   |                |   |   |   |   |   |   |
| Commercial               |   | $                      | 11,504  |                           | $      | 3,395               |   | $      | — |   | $ | 14,899 |
| Real estate construction |   |                   |    |                           |   |                |   |   |   |   |   |   |
| Residential              |   |                   | 1,657   |                           |   | 434                 |   |   | — |   |   | 2,091 |
| Commercial               |   |                   | 77,379  |                           |   | 9,672               |   |   | 19,269 |   |   | 106,320 |
| Real estate mortgage     |   |                   |    |                           |   |                |   |   |   |   |   |   |
| Residential              |   |                   | — |                           |   | 33                  |   |   | 24,455 |   |   | 24,488 |
| Commercial               |   |                   | 71,615  |                           |   | 39,205              |   |   | 131,848 |   |   | 242,668 |
| Consumer                 |   |                   | 13      |                           |   | 873                 |   |   | 17,037 |   |   | 17,923 |
| Total Loans              |   | $                      | 162,168 |                           | $      | 53,612              |   | $      | 192,609 |   | $ | 408,389 |

             

The following table sets forth the dollar amount of loans in certain            loan categories due one year or more after December 31, 2007, which have predetermined            interest rates and which have floating or adjustable interest rates.

 

|                     |   | Fixed Rates            |    |   | Floating orAdjustableRates |   | Total   |   |
|--------------------------|--------|------------------------|---------|--------|----------------------------|--------|---------|--------|
|                     |   | (Amounts in thousands) |    |
|                     |   |                   |    |   |                       |   |    |   |   |   |   |
| Commercial               |   | $                      | 2,449   |   |                       | $      | 946     |   | $ | 3,395 |   |
| Real estate construction |   |                   |    |   |                       |   |    |   |   |   |   |
| Residential              |   |                   | — |   |                       |   | 434     |   |   | 434 |   |
| Commercial               |   |                   | 10,792  |   |                       |   | 18,149  |   |   | 28,941 |   |
| Real estate mortgage     |   |                   |    |   |                       |   |    |   |   |   |   |
| Residential              |   |                   | 15,086  |   |                       |   | 9,402   |   |   | 24,488 |   |
| Commercial               |   |                   | 64,857  |   |                       |   | 106,196 |   |   | 171,053 |   |
| Consumer                 |   |                   | 8,232   |   |                       |   | 9,678   |   |   | 17,910 |   |
| Total Loans              |   | $                      | 101,416 |   |                       | $      | 144,805 |   | $ | 246,221 |   |

             

***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 the submission            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

 

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accuracy of the estimated cost (including interest) of construction.            Substantial deviations can occur in 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, 2007, the Bank’s loan to one borrower            limit was approximately $8.3 million and the Bank had 21 borrowers with loan balances            in excess of $5.0 million. At December 31, 2007, the Bank’s largest loan to one            borrower was a loan for commercial real estate, with a balance of $10.1 million and was            secured by real estate. This loan balance for one borrower was a temporary occurrence            that was subsequently reduced to a $6.4 million loan to one borrower during the first            quarter of 2008. At December 31, 2007, this loan was current and performing in            accordance with the terms of the loan agreement.

 

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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            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.

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 $2.0 million, $2.4 million,            $500,000, $241,000, and $1.2 million at December 31 2007, 2006, 2005, 2004, and 2003,            respectively.

 

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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.

 

|                                                                           |   | At December 31,                            |    |
|--------------------------------------------------------------------------------|--------|--------------------------------------------|---------|
|                                                                           |   | 2007                                       |    |   | 2006 |   |   | 2005 |   |   |   | 2004 |   |   | 2003 |   |
|                                                                           |   | (Amounts in thousands, except percentages) |    |
| Loans accounted for on a non-accrual basis:                                    |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                     |   | $                                          | 52      |   |   | $ | 91 |   |   | $ | 50 |   |   |   | $ | — |   |   | $ | — |   |
| Real estate construction                                                       |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                    |   |                                       | — |   |   |   | — |   |   |   | — |   |   |   |   | 241 |   |   |   | 289 |   |
| Commercial                                                                     |   |                                       | 325     |   |   |   | — |   |   |   | — |   |   |   |   | — |   |   |   | — |   |
| Real estate mortgage                                                           |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                    |   |                                       | 7       |   |   |   | — |   |   |   | 20 |   |   |   |   | — |   |   |   | 505 |   |
| Commercial                                                                     |   |                                       | 367     |   |   |   | 687 |   |   |   | 1,865 |   |   |   |   | — |   |   |   | — |   |
| Consumer                                                                       |   |                                       | 54      |   |   |   | 11 |   |   |   | — |   |   |   |   | — |   |   |   | — |   |
| Total non-accrual loans                                                        |   |                                       | 805     |   |   |   | 789 |   |   |   | 1,935 |   |   |   |   | 241 |   |   |   | 794 |   |
|                                                                           |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accruing loans delinquent 90 days or more:                                     |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                     |   |                                       | — |   |   |   | — |   |   |   | — |   |   |   |   | — |   |   |   | — |   |
| Real estate construction                                                       |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                    |   |                                       | — |   |   |   | — |   |   |   | — |   |   |   |   | — |   |   |   | — |   |
| Commercial                                                                     |   |                                       | — |   |   |   | — |   |   |   | — |   |   |   |   | — |   |   |   | — |   |
| Real estate mortgage                                                           |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                    |   |                                       | — |   |   |   | — |   |   |   | — |   |   |   |   | 55 |   |   |   | — |   |
| Commercial                                                                     |   |                                       | — |   |   |   | 267 |   |   |   | 665 |   |   |   |   | — |   |   |   | — |   |
| Consumer                                                                       |   |                                       | — |   |   |   | — |   |   |   | — |   |   |   |   | — |   |   |   | — |   |
| Total                                                                          |   |                                       | — |   |   |   | 267 |   |   |   | 665 |   |   |   |   | 55 |   |   |   | — |   |
| Total non-performing loans                                                     |   | $                                          | 805     |   |   | $ | 1,056 |   |   | $ | 2,600 |   |   |   | $ | 296 |   |   | $ | 794 |   |
|                                                                           |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total non-performing loans as a percentage of                            loans |   |                                       | 0.20    | % |   |   | 0.34 | % |   |   | 1.00 | % |   |   |   | 0.16 | % |   |   | 0.54 | % |
|                                                                           |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

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, 2007, the Bank had $805 thousand of loans            that were held on a non-accrual basis**.**Gross interest income of $ 66,000 would have been recorded during the            year ended December 31, 2007 if these loans had been performing in accordance with            their terms. Interest income of $96,000 was recorded on these loans during the year            ended December 31, 2007. At December 31, 2007, the Bank did not have any loans not            classified as non-accrual, 90 days past due or restructured but where

 

9

 

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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.

***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 which 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, 2007, the Bank had assets classified as            follows:

 

|            |   | **Loan Balance**       |
|-----------------|--------|------------------------|
|            |   | (Amounts in thousands) |
|            |   |                   |   |
| Special mention |   | $                      | 938 |
| Substandard     |   |                   | 1,996 |
| Doubtful        |   |                   | 7 |
| Loss            |   |                   | — |
|            |   | $                      | 2,941 |

             

***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, 2006, the Bank had real estate owned totaling            $1.25 million. This real estate was sold in the second quarter of 2007 for a gain of            $205,000. The Bank did not own foreclosed real estate at December 31, 2007.

***Allowance for Losses on Loans and Real Estate            Owned.***It is the policy of management to provide for            losses on unidentified 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.

 

10

 

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Management’s judgment as to the level of future 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 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,            |    |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------|---------|
|                                                                                          |   | 2007                                       |    |   |   | 2006 |   |   |   | 2005 |   |   |   | 2004 |   |   |   | 2003 |   |
|                                                                                          |   | (Amounts in thousands, except percentages) |    |
|                                                                                          |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of the period                                                            |   | $                                          | 4,511   |   |   |   | $ | 3,574 |   |   |   | $ | 2,621 |   |   |   | $ | 2,256 |   |   |   | $ | 1,333 |   |
| Charge-offs:                                                                                  |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                                    |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Real estate construction                                                                      |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Residential                                                                |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
|     Commercial                                                                 |   |                                       | — |   |   |   |   | — |   |   |   |   | (227 | ) |   |   |   | — |   |   |   |   | — |   |
| Real estate mortgage                                                                          |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Residential                                                                |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | (461 | ) |   |   |   | — |   |
|     Commercial                                                                 |   |                                       | (200    | ) |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Consumer                                                                                      |   |                                       | — |   |   |   |   | (3 | ) |   |   |   | — |   |   |   |   | — |   |   |   |   | (1 | ) |
|         Total                            charge-offs:      |   |                                       | (200    | ) |   |   |   | (3 | ) |   |   |   | (227 | ) |   |   |   | (461 | ) |   |   |   | (1 | ) |
|                                                                                          |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recoveries:                                                                                   |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                                    |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Real estate construction                                                                      |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Residential                                                                |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
|     Commercial                                                                 |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Real estate mortgage                                                                          |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Residential                                                                |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
|     Commercial                                                                 |   |                                       | 234     |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |
| Consumer                                                                                      |   |                                       | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | 1 |   |
|         Total                            recoveries:       |   |                                       | 234     |   |   |   |   | — |   |   |   |   | — |   |   |   |   | — |   |   |   |   | 1 |   |
|                                                                                          |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net recoveries (charge-offs)                                                                  |   |                                       | 34      |   |   |   |   | (3 | ) |   |   |   | (227 | ) |   |   |   | (461 | ) |   |   |   | — |   |
| Provision for loan losses                                                                     |   |                                       | 1,161   |   |   |   |   | 940 |   |   |   |   | 1,180 |   |   |   |   | 825 |   |   |   |   | 923 |   |
| Balance at end of period                                                                      |   | $                                          | 5,706   |   |   |   | $ | 4,511 |   |   |   | $ | 3,574 |   |   |   | $ | 2,620 |   |   |   | $ | 2,256 |   |
| Period-end loans outstanding (net of deferred                            costs/fees)          |   | $                                          | 408,389 |   |   |   | $ | 310,555 |   |   |   | $ | 295,035 |   |   |   | $ | 188,607 |   |   |   | $ | 146,344 |   |
| Average loans outstanding                                                                     |   | $                                          | 365,884 |   |   |   | $ | 286,691 |   |   |   | $ | 219,217 |   |   |   | $ | 154,794 |   |   |   | $ | 120,797 |   |
| Allowance as a percentage of period end loans                                                 |   |                                       | 1.40    | % |   |   |   | 1.45 | % |   |   |   | 1.38 | % |   |   |   | 1.39 | % |   |   |   | 1.54 | % |
| Net loans charged off as a percentage of average loans                            outstanding |   |                                       | (0.01   | %) |   |   |   | 0.00 | % |   |   |   | 0.10 | % |   |   |   | 0.30 | % |   |   |   | 0.00 | % |

 

 

11

 

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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,                            |
|---------------------------|--------|--------------------------------------------|
|                      |   | 2007                                       |   | 2006 |   | 2005 |   | 2004 |   | 2003 |
|                      |   |                                       |   | % Gross |   |   |   | % Gross |   |   |   | % Gross |   |   |   | % Gross |   |   |   | % Gross |
|                      |   | Amount                                     |   | Loans |   | Amount |   | Loans |   | Amount |   | Loans |   | Amount |   | Loans |   | Amount |   | Loans |
|                      |   | (Amounts in thousands, except percentages) |
|                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                |   | $                                          | 209 |   | 3.7 | % |   | $ | 188 |   | 4.3 | % |   | $ | 154 |   | 4.3 | % |   | $ | 134 |   | 5.1 | % |   | $ | 135 |   | 6.0 | % |
| Real estate construction: |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential               |   |                                       | 22 |   | 0.5 |   |   |   | 25 |   | 0.8 |   |   |   | 18 |   | 0.5 |   |   |   | 18 |   | 0.7 |   |   |   | 34 |   | 1.5 |   |
| Commercial                |   |                                       | 1,489 |   | 26.0 |   |   |   | 847 |   | 22.3 |   |   |   | 969 |   | 27.1 |   |   |   | 519 |   | 19.8 |   |   |   | 460 |   | 20.4 |   |
| Real estate mortgage:     |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential               |   |                                       | 257 |   | 6.0 |   |   |   | 218 |   | 6.4 |   |   |   | 239 |   | 6.7 |   |   |   | 228 |   | 8.7 |   |   |   | 278 |   | 12.3 |   |
| Commercial                |   |                                       | 3,568 |   | 59.4 |   |   |   | 3,185 |   | 64.0 |   |   |   | 2,130 |   | 59.6 |   |   |   | 1,667 |   | 63.6 |   |   |   | 1,297 |   | 57.5 |   |
| Consumer                  |   |                                       | 161 |   | 4.4 |   |   |   | 48 |   | 2.2 |   |   |   | 64 |   | 1.8 |   |   |   | 55 |   | 2.1 |   |   |   | 52 |   | 2.3 |   |
| Total Loans               |   | $                                          | 5,706 |   | 100.0 | % |   | $ | 4,511 |   | 100.0 | % |   | $ | 3,574 |   | 100.0 | % |   | $ | 2,621 |   | 100.0 | % |   | $ | 2,256 |   | 100.0 | % |

             

12

 

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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, 2007, 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, 2007, 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,        |    |
|-----------------------------------------------------------|--------|------------------------|---------|
|                                                      |   | 2007                   |    |   |   | 2006 |   |   |   | 2005 |   |
|                                                      |   | (Amounts in thousands) |    |
| Securities Held to                            Maturity:   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |
| Municipals                                                |   | $                      | 2,456   |   |   |   | $ | 2,431 |   |   |   | $ | 2,406 |   |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |
| Securities Available for                            Sale: |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government-sponsored entity securities               |   |                   | 5,499   |   |   |   |   | 6,416 |   |   |   |   | 6,203 |   |
| Mortgage-backed securities                                |   |                   | 17,442  |   |   |   |   | 9,909 |   |   |   |   | 9,004 |   |
| Corporate and trust preferred securities                  |   |                   | 6,841   |   |   |   |   | 8,205 |   |   |   |   | 6,316 |   |
| Stock                                                     |   |                   | — |   |   |   |   | — |   |   |   |   | 500 |   |
| Total securities available for sale                       |   |                   | 29,782  |   |   |   |   | 24,530 |   |   |   |   | 22,023 |   |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                     |   | $                      | 32,238  |   |   |   | $ | 26,961 |   |   |   | $ | 24,429 |   |

             

13

 

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***Investment Portfolio Maturities.***The            following table sets forth information regarding the scheduled maturities, carrying            values, estimated fair values, and weighted average yields for the Bank’s            investments securities portfolio at December 31, 2007 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, 2007                  |    |
|---------------------------------------------------------|--------|---------------------------------------|---------|
|                                                    |   | Within One

Year or Less              |    |   | One to Five Years |   |   | Five to Ten Years |   |   | More Than Ten Years |   |   | Total Investment Securities |   |
|                                                    |   | CarryingValue                         |    | AverageYield |   |   | CarryingValue |   | AverageYield |   |   | CarryingValue |   | AverageYield |   |   | CarryingValue |   | AverageYield |   |   | CarryingValue |   | AverageYield |   |   | MarketValue |   |
|                                                    |   | (Amounts in thousands, except yields) |    |
|                                                    |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities Held to                            Maturity: |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Municipals                                              |   | $                                     | — |   | — | % |   |   | $ | 544 |   | 2.90 | % |   |   | $ | — |   | — | % |   |   | $ | 1,912 |   | 2.95 | % |   |   | $ | 2,456 |   | 2.94 | % |   | $ | 2,410 |   |
| Total securities held to maturity                       |   |                                  | — |   | — |   |   |   |   | 544 |   | 2.90 |   |   |   |   | — |   | — |   |   |   |   | 1,912 |   | 2.95 |   |   |   |   | 2,456 |   | 2.94 |   |   |   | 2,410 |   |
|                                                    |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities Available for Sale:                          |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government sponsored entity                        |   |                                  | 500     |   | 4.99 | % |   |   |   | 1,000 |   | 4.85 | % |   |   |   | 2,986 |   | 5.42 | % |   |   |   | 1,000 |   | 4.75 | % |   |   |   | 5,486 |   | 5.15 | % |   |   | 5,499 |   |
| Mortgage-backed securities                              |   |                                  | — |   | — |   |   |   |   | -- |   | -- |   |   |   |   | — |   | — |   |   |   |   | 17,885 |   | 5.16 |   |   |   |   | 17,885 |   | 5.16 |   |   |   | 17,442 |   |
| Corporate                                               |   |                                  | — |   | — |   |   |   |   | 512 |   | 5.75 |   |   |   |   | — |   | — |   |   |   |   | 6,766 |   | 5.52 |   |   |   |   | 7,278 |   | 5.54 |   |   |   | 6,481 |   |
| Total securities available for sale                     |   |                                  | 500     |   | 4.99 | % |   |   |   | 1,512 |   | 5.16 |   |   |   |   | 2,986 |   | 5.42 |   |   |   |   | 25,651 |   | 5.24 |   |   |   |   | 30,649 |   | 5.25 |   |   |   | 29,782 |   |
| Total                                                   |   | $                                     | 500     |   | 4.99 | % |   |   | $ | 2,056 |   | 4.88 | % |   |   | $ | 2,986 |   | 5.42 | % |   |   | $ | 27,563 |   | 5.08 | % |   |   | $ | 33,105 |   | 5.08 | % |   | $ | 32,192 |   |

 

 

14

 

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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 $127.0 million and $87.6 million at December 31, 2007            and 2006, 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, which was founded in part by a former            Controller of the Currency and a former Federal Reserve Vice Chairman, provides the            Bank an additional source of external funds through their weekly CDARS settlement            process. The rates paid are generally less expensive than brokered deposits and can be            obtained within one day versus the normal seven to ten days for brokered deposits. At            December 31, 2007, the Bank’s CDARS deposits included within the brokered deposit            total amounted to $38.1 million.

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.

 

 

|                                 |   | December 31, 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 | % |

 

 

15

 

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|                                 |   | December 31, 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 | % |

 

 

|                                 |   | December 31, 2005                          |    |
|--------------------------------------|--------|--------------------------------------------|---------|
|                                 |   | AverageBalance                             |    | Yield/Rate |   |   | Percent ofTotal |   |
|                                 |   | (Amounts in thousands, except percentages) |    |
|                                 |   |                                       |    |   |   |   |   |   |   |
| NOWs                                 |   | $                                          | 11,023  |   | 1.36 | % |   | 5.3 | % |
| Money markets                        |   |                                       | 12,706  |   | 3.59 | % |   | 6.1 |   |
| Savings                              |   |                                       | 29,200  |   | 2.73 | % |   | 14.0 |   |
| Time deposits                        |   |                                       | 77,802  |   | 3.31 | % |   | 37.3 |   |
| Brokered CDs                         |   |                                       | 60,785  |   | 3.33 | % |   | 29.2 |   |
| Total interest-bearing deposits      |   |                                       | 191,516 |   | 3.03 | % |   | 91.9 |   |
|                                 |   |                                       |    |   |   |   |   |   |   |
| Non-interest bearing demand deposits |   |                                       | 16,946  |   |   |   |   | 8.1 |   |
|                                 |   |                                       |    |   |   |   |   |   |   |
| Total deposits                       |   | $                                          | 208,462 |   |   |   |   | 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, 2007.

 

| Maturity Period           |   | Certificates of Deposit    |
|---------------------------|--------|----------------------------|
|                      |   | **(Amounts in thousands)** |
| Within three months       |   | $                          | 19,839 |
| Three through six months  |   |                       | 47,678 |
| Six through twelve months |   |                       | 3,166 |
| Over twelve months        |   |                       | 1,034 |
| Total                     |   | $                          | 71,717 |
|                      |   |                       |   |

             

***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

 

16

 

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are            payable in four years or less. Borrowings from FHLB outstanding during 2007, 2006, and            2005 had maturities of ten years or less and cannot be prepaid without            penalty.

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

 

|                                                                      |   |   |   | December 31,                                                        |   |
|---------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------|--------|
|                                                                      |   |   |   | 2007                                                                |   |   |   | 2006 |   |   |   | 2005 |   |
|                                                                      |   |   |   | **(Amounts in thousands, except                            rates)** |   |
| Amount outstanding at year end                                            |   |   |   | $                                                                   | 40,322 |   |   |   | $ | 34,851 |   |   |   | $ | 35,967 |   |
| Weighted average interest rates at year end                               |   |   |   |                                                                | 5.43   | % |   |   |   | 5.50 | % |   |   |   | 4.80 | % |
| Maximum outstanding at any month end                                      |   |   |   | $                                                                   | 49,209 |   |   |   | $ | 41,092 |   |   |   | $ | 35,967 |   |
| Average outstanding                                                       |   |   |   | $                                                                   | 39,502 |   |   |   | $ | 34,321 |   |   |   | $ | 22,376 |   |
| Weighted average interest rate during the                            year |   |   |   |                                                                | 5.51   | % |   |   |   | 5.22 | % |   |   |   | 3.90 | % |

 

**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, another 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, 2007, there were no assets in the subsidiary resulting            from a sale of these repossessed assets during the second quarter of 2007.

**Personnel**

At December 31, 2007, the Bank had 37 full-time and 11 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.

**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 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

 

17

 

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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(g) 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 2007, 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, 2007. 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 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.

 

18

 

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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. Currently, the            Bank’s deposit insurance premium has been assessed at five basis points of            deposits.

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. Beginning in 2007, well-capitalized institutions with the            CAMELS ratings of 1 or 2 will be grouped in Risk Category I and will be assessed for            deposit insurance at an annual rate of between five and seven basis points with the            assessment rate for an individual institution to be determined according to a formula            based on a weighted average of the institution’s individual CAMEL component            ratings plus either five financial ratios or the average ratings of its long-term debt.            Institutions in Risk Categories II, III and IV will be assessed at annual rates of 10,            28 and 43 basis points, respectively.

***Capital Adequacy Guidelines.***The            Bank is 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, 2007, the Bank had the requisite capital levels to            qualify as “well capitalized.”

 

19

 

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

*The following is a summary of the material risks related to an            investment in the Company’s securities.*

**A            significant amount of the Bank’s business is concentrated in real estate            development and construction lending.**

At December 31, 2007, approximately 26.5% of our loans are commercial            and residential real estate development and construction loans, which are secured by            the real estate under development. Construction lending involves extensive risks. In            addition to the risk that the market values of the real estate securing these loans may            deteriorate, these loans are also subject to the development risks that the projects            will not be completed in a timely manner or according to original specifications. Real            estate development and construction projects that are not completed in a timely manner            or according to original specifications are generally less marketable than projects            that are fully developed, and the loans underlying such projects may be subject to            greater losses in the event that the real estate collateral becomes the source of            repayment. Construction projects are commonly underwritten based upon projections, such            as the sales of homes or future leasing of commercial spaces, and substantial            deviations from such projections can occur. Construction lending is also labor            intensive for the Bank, requiring Bank employees to expend substantial time and            resources in monitoring and servicing each construction loan to completion. In            addition, a construction loan that is in default can create problems for the Bank, such            as designating replacement builders for a project, considering alternate users for the            project and site and handling any structural or environmental issues that might arise.            Such problems and the risks inherent in construction lending may have a material            adverse effect on the Company’s earnings and overall financial            condition.

**Most of the Bank’s loans are secured, in whole or in part, with            real estate collateral.**

In addition to the financial strength and cash flow characteristics of            the borrower in each case, the Bank often secures its loans with real estate            collateral. At December 31, 2007, approximately 95% of the Bank’s loans had real            estate as a primary, secondary or tertiary component of collateral. The real estate            collateral in each case provides an alternate source of repayment in the event of            default by the borrower, but such collateral may deteriorate in value during the time            the credit is extended. If we are required to liquidate the collateral securing a loan            during a period of reduced real estate values to satisfy the debt, our earnings and            capital could be adversely affected.

**Some of the Bank’s assets are classified as non-performing            assets that may lose further value.**

The Bank has non-performing assets, which at this time only include            non-accruing loans. At December 31, 2007, the Bank’s non-performing loans were            0.20% of outstanding net loans. There is a possibility that the Bank’s earnings            could be reduced in the event that the eventual values of these non-performing assets            are or become less than the values that we have assigned to them.

**The            Bank may experience loan losses in excess of its allowance.**

The risk of credit losses on loans varies with, among other things,            general economic conditions, the type of loan being made, the creditworthiness of the            borrower over the term of the loan and, in the case of a collateralized loan, the value            and marketability of the collateral for the loan. The Bank’s management maintains            an allowance for loan losses based upon, among other things, historical experience, an            evaluation of economic conditions and regular reviews of delinquencies and loan            portfolio

 

20

 

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quality. Based upon such factors, management makes various assumptions            and judgments about the ultimate collectibility of the loan portfolio and provides an            allowance for loan losses based upon a percentage of the outstanding balances and for            specific loans when their ultimate collectibility is considered questionable. If the            Bank’s management’s assumptions and judgments prove to be incorrect and the            allowance for loan losses is inadequate to absorb future losses, or if the bank            regulatory authorities require the Bank to increase the allowance for loan losses as a            part of their examination process, the Bank’s earnings and capital could be            significantly and adversely affected.

As of December 31, 2007, the allowance for loan losses was approximately            $5.7 million, which represented 1.40% of outstanding net loans. At such date, we had            non-accruing loans totaling $805,000. The Bank actively manages its non-accruing loans            in an effort to minimize credit losses. Although the Bank’s management believes            that its allowance for loan losses is adequate, there can be no assurance that the            allowance will prove sufficient to cover future loan losses. Further, although the            Bank’s management uses the best information available to make determinations with            respect to the allowance for loan losses, future adjustments may be necessary if            economic conditions differ substantially from the assumptions used or adverse            developments arise with respect to the Bank’s non-performing or performing loans.            Material additions to the Bank’s allowance for loan losses would result in a            decrease in the Bank’s net income and capital, and could have a material adverse            effect on the Company’s financial condition and results of operations.

**The            Bank operates in a competitive market.**

The Bank operates in a competitive environment, competing for deposits            and loans with commercial banks, savings associations and other financial entities.            Competition for deposits comes primarily from other commercial banks, savings            associations, credit unions, money market and mutual funds and other investment            alternatives. Competition for loans comes primarily from other commercial banks,            savings associations, mortgage banking firms, credit unions and other financial            intermediaries. Many of the financial intermediaries operating in our market area offer            certain services, such as trust investment and international banking services, which            the Bank does not offer. In addition, banks with a larger capitalization and financial            intermediaries not subject to bank regulatory restrictions have larger lending limits            and are thereby able to serve the needs of larger customers. Finally, the Bank’s            continued growth and profitability will depend upon its ability to attract and retain            skilled managerial, marketing and technical personnel. Competition for qualified            personnel in the banking industry is intense, and there can be no assurance that the            Bank will be successful in attracting and retaining such personnel.

**The            Bank is dependent on certain key personnel.**

The success of the Bank depends, to a great extent, upon the services of            Vito S. Pantilione, the Bank’s President and Chief Executive Officer, Robert A.            Kuehl, the Bank’s Senior Vice President and Chief Financial Officer, David O.            Middlebrook, the Bank’s Senior Vice President and Senior Loan Officer, and            Elizabeth A. Milavsky, the Bank’s Senior Vice President of Retail Operations,            Human Resources and Compliance. The Bank has been able to retain the services of            Mr. Pantilione since its inception and of Mr. Middlebrook since he joined the            Bank in 1999. The Bank has needed, from time to time, to recruit personnel to fill            vacant positions for experienced lending and credit administration officers. There can            be no assurance that the Bank will continue to be successful in recruiting and            retaining the necessary personnel for the Bank’s lending, operations, accounting            and administrative functions. The Bank’s inability to hire or retain key            personnel could have a material adverse effect on the Company’s results of            operations.

 

21

 

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**Changes in interest rates affect the Company’s profitability            and assets.**

The Company derives its income mainly from the difference, or            “spread,” between the interest earned by the Bank on loans, securities and            other interest-earning assets, and the interest paid by the Bank on deposits,            borrowings and other interest-bearing liabilities. If more interest-earning assets than            interest-bearing liabilities re-price or mature during a time when interest rates are            declining, then the Company’s net interest income may be reduced. If more            interest-bearing liabilities than interest-earning assets re-price or mature during a            time when interest rates are rising, then the Company’s net interest income may            be reduced. At December 31, 2007, the Bank’s total interest-bearing liabilities            maturing or re-pricing within one year exceeded interest-earning assets maturing or            re-pricing during the same time period by $21.6 million. As a result, the cost on its            interest-bearing liabilities should adjust to changes in interest rates at a faster            rate than the yield of its interest-earning assets within the one year period. However            the initial impact of the recent interest rate decline has resulted in interest            sensitive assets re-pricing more quickly than interest sensitive liabilities within a            three month period as interest-earning assets maturing or re-pricing within three            months at December 31, 2007, exceeded interest-bearing liabilities maturing or            re-pricing during the same time period by $135.1 million Therefore, net interest income            may be decreased initially when interest rates decline significantly, as they have            recently and are expected to continue to decline over the next few months. In addition,            the recent overall decline in interest sensitive assets has exceeded the overall            decline in interest sensitive liabilities due to competitive pricing by financial            institutions on retail deposits and liquidity issues within the credit            markets.

**The            Bank’s management controls a significant percentage of our common            stock.**

At March 14, 2008, the Company’s and the Bank’s directors            and executive officers beneficially owned 1,590,706 shares or exercisable warrants and            options, or 49.2%, of our common stock. Because of the large percentage of stock held            by the Company’s and the Bank’s directors and executive officers, these            persons could influence the outcome of any matter submitted to a vote of our            shareholders.

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

None.

| **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.

 

22

 

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Management considers the physical condition of all offices to be good            and adequate for the conduct of the Bank’s business. At December 31, 2007, net            property and equipment totaled approximately $3.2 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** |
|-------------|-----------------------|

On December 27, 2004, Republic First Bank filed an action captioned            Republic First Bank v. Parke Bank and Vito S. Pantilione in the Superior Court of New            Jersey Law Division, Gloucester County. The Bank believes that the action is without            merit and intends to vigorously defend against it. The suit alleges, among other            things, fraud, negligent misrepresentation, breach of fiduciary duty and breach of            contract in connection with certain loans to two Parke Bank customers in which Republic            First Bank became a participant. Republic First Bank is seeking unspecified damages and            requesting that a receivership be appointed for certain collateral. The complaint in            the action was served on us in January 2005. The Bank paid $100,000 to Republic First            in January of 2008 in connection with a settlement between the parties that was reached            in December of 2007.

In January, 2007, The Bank reached a final agreement with both Atlantic            Central Bankers Bank and New Century Bank in connection with their action filed against            the Bank in 2005 alleging breach of participation agreements and fraudulent            misrepresentation in connection with the plaintiffs’ participations in loans to            the same Parke Bank customers as the First Republic matter discussed above. Their            lawsuit against Parke Bank was dismissed in February, 2007. In connection with this            settlement, the Bank paid $150,000 and $60,000, respectively to Atlantic Central            Bankers Bank and New Century Bank in February and March of 2007,            respectively.

On November 4, 2004, Stephen P. Magenta and other parties filed an            action captioned Stephen P. Magenta, et. al. v. General Insulation Services, Inc., et.            al. in the Superior Court of New Jersey Law Division, Gloucester County, related to the            alleged embezzlement of over $1 million by an employee of one of our customers of funds            maintained in accounts at the Bank. All but one of the claims against the Bank has been            dismissed. The Bank believes that the action is without merit and intends to vigorously            defend against it. In addition, the Bank believes that this action is covered by its            insurance.

 

23

 

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Other than the foregoing, at December 31, 2007, the Company was not a            party to any material legal proceedings.

| **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 2007.

             

**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 2007                            Annual Report is incorporated herein by reference. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | (c) | Treasury stock repurchases during the fourth quarter of                            2007 for Parke Bancorp, Inc. were as follows: |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------|

             

|           |   |             |   |           |    | Total number of shares |    | Maximum number of   |
|----------------|--------|------------------|--------|----------------|---------|------------------------|---------|---------------------|
|           |   |             |   |           |    | Purchased as part of   |    | Shares that may be  |
|           |   | Total number of  |   | Average price  |    | Publicly announced     |    | Purchased under the |
| Period         |   | shares purchased |   | paid per share |    | plans or programs      |    | plans or programs   |
|           |   |             |   |           |    |                   |    |                |   |
| October, 2007  |   | —          |   | $              | — |                   | — |                | 69,286 |
| November, 2007 |   | 16,185           |   |           | 14.97   |                   | 16,185  |                | 53,101 |
| December, 2007 |   | 5,000            |   |           | 14.21   |                   | 5,000   |                | 48,101 |
|           |   |             |   |           |    |                   |    |                |   |
| Total          |   | 21,185           |   | $              | 12.66   |                   | 21,185  |                |   |

             

On November 9, 2005, the Board of Directors authorized 151,800 shares            (adjusted for stock dividends), or approximately 5%, of the issued and outstanding            common stock for repurchase by the Company. As of December 31, 2007, the Company has            repurchased 110,061 of the authorized shares.

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

The information contained under the section captioned “Selected            Financial Data” in the 2007 Annual Report is incorporated herein by            reference.

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

 

24

 

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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** |
|--------------|-------------------------------------------------------------------------------------------|

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 2007 Annual Report to Stockholders            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.

 

25

 

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

Not applicable.

**PART III**

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

The information contained under the headings “Section 16(a)            Beneficial Ownership Reporting Compliance” and “Proposal I - Election of            Directors” in the Company’s Proxy Statement for its 2008 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 section captioned “Executive            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 “Proposal I – Election of Directors” in the Proxy Statement            is incorporated herein by reference.

(b)                        Security Ownership of Management

The information contained in the section captioned “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 |
|--------|-----|-----------------------------------------------------------------------------------------------|

 

26

 

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Set forth below is information as of December 31, 2007 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-average exercise price of outstanding                            options |   | Number of securities remaining available for issuance                            under equity compensation plans (excluding securities reflected in                            column (a)) |
|                                                                          |   |                                                                                              |   |                                                                              |   |                                                                                                                                                                                       |
| Equity compensation plans approved by                            shareholders |   | 339,515                                                                                           |   | $ 12.66                                                                           |   | 162,457                                                                                                                                                                                    |
|                                                                          |   |                                                                                              |   |                                                                              |   |                                                                                                                                                                                       |
| Total                                                                         |   | 339,515                                                                                           |   | $ 12.66                                                                           |   | 162,457                                                                                                                                                                                    |
|                                                                          |   |                                                                                              |   |                                                                              |   |                                                                                                                                                                                       |

 

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

The information contained in the section captioned “Related Party            Transactions” in the Proxy Statement is incorporated herein by            reference.

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

The information contained in the section captioned “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, 2007 and                            2006 |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | • | Consolidated Statements of Income For the Years Ended                            December 31, 2007, 2006 and 2005 |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

 

27

 

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|   | • | Consolidated Statements of Stockholders’ Equity                            for the Years Ended December 31, 2007, 2006 and 2005 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Consolidated Statements of Cash Flows for the Years                            Ended December 31, 2007, 2006 and 2005 |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | • | 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(i) | Certificate of Incorporation of Parke Bancorp,                            Inc.* |
|--------|------|---------------------------------------------------------------------------------|

|   | 3(ii) | 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.* |
|--------|-----|-------------------------------------------------------------------------------------------|

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

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

|   | 10.3 | Supplemental Executive Retirement Plan* |
|--------|------|-----------------------------------------|

|   | 10.4 | 1999 Stock Option Plan* |
|--------|------|-------------------------|

|   | 10.5 | 2002 Stock Option Plan* |
|--------|------|-------------------------|

|   | 10.6 | 2003 Stock Option Plan* |
|--------|------|-------------------------|

|   | 10.7 | 2005 Stock Option Plan** |
|--------|------|--------------------------|

|   | 13 | Annual Report to Stockholders for the fiscal year ended                            December 31, 2007 |
|--------|----|------------------------------------------------------------------------------------------------------|

|   | 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                            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.                |

 

28

 

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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 28, 2008                                                                                                                                                                                                                                         |   |  

                                 

                                  | /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 28, 2008.    |
|  

/s/ Celestino R. Pennoni                                                                                                                                                                                                                                                                         |   | /s/ Vito S. Pantilione |
| Celestino R. Pennoni

Chairman                                                                                                                                                                                                                                                                                |   | Vito S. Pantilione

President, Chief Executive Officer and                                Director

(Principal Executive Officer) |
|  

/s/ Fred G. Choate                                                                                                                                                                                                                                                                                    |   |   |
| Fred G. Choate

Director                                                                                                                                                                                                                                                                                      |   | Daniel J. Dalton

Director |
|  

                                                                                                                                                                                                                                                                                                 |   | /s/ Thomas Hedenberg |
| Arret F. Dobson

Director                                                                                                                                                                                                                                                                                     |   | Thomas Hedenberg

Director |
|  

                                                                                                                                                                                                                                                                                                 |   |   |
| Edward Infantolino

Director                                                                                                                                                                                                                                                                                  |   | Anthony J. Jannetti

Director |
|  

/s/ Jeffrey H. Krippitz                                                                                                                                                                                                                                                                               |   | /s/ Richard Phalines |
| Jeffrey H. Krippitz

Director                                                                                                                                                                                                                                                                                 |   | Richard Phalines

Director |
|  

/s/ Jack C. Sheppard, Jr.                                                                                                                                                                                                                                                                             |   |   |
| Jack C. Sheppard, Jr.

Director                                                                                                                                                                                                                                                                               |   | Ray H. Tresch

Director |
|  

                                /s/Robert A. Kuehl                                                                                                                                                                                                                                                    |   |   |
| Robert A. Kuehl

Senior Vice President and Chief Financial                                Officer

(Principal Financial and Accounting                                Officer)                                                                                                                                |   |   |
|                                                                                                                                                                                                                                                                                                               |  |  |  |  |

 

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29