Attached files
PARKE
BANCORP, INC.
2009
ANNUAL REPORT TO SHAREHOLDERS
PARKE
BANCORP, INC.
2009
ANNUAL REPORT TO SHAREHOLDERS
TABLE
OF CONTENTS
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Page
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Section
One
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Letter
to Shareholders
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1
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Selected
Financial Data
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3
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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4
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Market
Prices and Dividends
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18
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Management’s
Report on Internal Control Over Financial Reporting
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20
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Section
Two
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Report
of Independent Registered Public Accounting Firm
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1
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Consolidated
Financial Statements
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2
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Notes
to Consolidated Financial Statements
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6
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Corporate
Information
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44
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Parke
Bancorp, Inc. (the “Company”) may from time to time make written or oral
“forward-looking statements” including statements contained in this Annual
Report and in other communications by the Company which are made in good faith
pursuant to the “Safe Harbor” provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements involve risks
and uncertainties, such as statements of the Company’s plans, objectives,
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 bank subsidiary, Parke 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 rate, market and monetary fluctuations;
increased competition from both banks and non-banks; legal and regulatory
developments; technological changes; mergers and acquisitions; changes in
consumer spending and saving habits; and the success of Parke Bank at managing
these risks.
To Our
Shareholders:
Parke
Bancorp generated record profits in 2009. For the year ended December 31, 2009,
net income was $6.1 million compared to $4.2 million for 2008, a 44% increase.
Net income available to common shareholders was $5.2 million, or $1.29 per
diluted common share, a 23% increase from 2008. We maintained a very
conservative loan loss reserve, adding $5.3 million in 2009 for a total of $12.4
million as of December 31, 2009. Additionally, we had a $1.7 million
other-than-temporary (“OTTI”) write down on our CMO and CDO investment
portfolio. We achieved strong growth for the eleventh consecutive year with
total assets of $654.2 million at December 31, 2009, an increase of $52.2
million from December 31, 2008.
ParkeBank’s
total deposits increased to $520.3 million as of December 31, 2009, an increase
of $25.0 million from December 31, 2008. It is important to note that we had
very strong retail deposit growth, which supported the reduction of our brokered
CDs from 36% of our deposit base to 18%. This was a critical factor in
substantially reducing our cost of funds and increasing our net interest margin.
The Company’s loan portfolio increased to $603.4 million as of December 31,
2009, an increase of $55.7 million from December 31, 2008. Our allowance for
loan losses increased to $12.4 million, 2.06% of our loan portfolio, as of
December 31, 2009, an increase of $4.6 million from December 31, 2008. We had
$25.5 million in non-performing loans, or 3.9% of total assets, as of December
31, 2009, an increase of $17.3 million from December 31, 2008.
The
struggling economy, identified by some as the “Great Recession”, showed little
improvement in 2009. The residential real estate market continued to decline in
both sales activity and value as the economy was further challenged by the
decline in the commercial real estate market and the struggles of the automotive
industry. Shopping centers experienced a rise in vacancies and reduced rental
rates due to the decline in retail sales and the many closures of “big box”
stores. Vacancy rates also increased in the multifamily industry. The banking
industry has the additional hurdle of a constantly changing regulatory
landscape. Capital requirements as well as levels of allowance for loan losses
are in constant question as the government consistently criticizes the banking
industry’s practices while simultaneously questioning why loans are not being
made. The FDIC has closed over 150 banks during the last two years, which has
created pressure on FDIC insurance reserves. This pressure was transferred to
the banking industry, requiring banks to pay three years of FDIC insurance
premiums in advance. The uncertainty in the economy, the potential of increased
taxes and the current regulatory environment has severely restricted the banking
industry’s ability to develop a sound business plan that supports loan funding
and strong growth. The government’s entry into the banking industry’s Board room
has created further uncertainty.
The
continued problems in the real estate market caused an increase in our
non-performing assets to $25.5 million as of December 31, 2009. The three
largest relationships in this category total over $15 million. All of our
non-performing loans have collateral and the risk of loss is reflected in our
allowance for loan losses. The primary hurdle in disposing of these assets is
the legal process required to get control of the collateral. Foreclosures in New
Jersey take almost two years regardless of whether it is a single family home,
a
1
construction
project or a commercial property. The time required in the courts to dispose of
an asset adds additional expenses such as legal fees, real estate taxes,
insurance and other maintenance costs. Fortunately, we believe the majority of
our non-performing assets have sufficient equity to absorb these additional
expenses caused by the delay. Unfortunately, though there are signs that the
real estate market may have bottomed out, the possibility of additional
non-performing loans exists. We continue to aggressively analyze and monitor our
loan portfolio, which enables us to take the steps necessary to preserve our
loan portfolio’s integrity.
A
community bank’s primary source of revenue is quality lending. Therefore,
community banks remain committed to originating quality loans, meeting the
community’s and customers’ needs. However, a critical responsibility to our
shareholders and depositors is evaluating the credit worthiness of the borrower.
We take that responsibility very seriously and carefully analyze the critical
criteria of the loan requests that we receive. The Company’s loan portfolio grew
10% in 2009, which reflects our commitment to our community and to our
customers. We also recognize the continued risk in the economy and
conservatively support our allowance for loan loss reserves, which as of
December 31, 2009 was 2.06% of our loan portfolio. This approach to lending
provides needed funding to our community while simultaneously establishing
strong reserves to protect our shareholders.
We
believe that we are closer to the end of this “Great Recession” than to the
beginning. The Company has maintained strong earnings and a strong capital
position during these challenging times. We remain disciplined in controlling
our costs, while remaining focused on opportunity. In August of 2009 we started
a company that specializes in SBA lending. In only four short months this
company was profitable and has already provided millions of dollars in loans to
quality customers in our lending area. Current SBA regulations provide a credit
enhancement by guarantying 90% of a qualified loan. As an approved preferred
lender for SBA, we are able to provide a prompt response to our customers, which
is critical to small business owners. We have also executed an agreement to
purchase a full service bank branch in Galloway Township, NJ. The location of
this new branch combined with the expertise and commitment of our personnel will
be a critical factor to the continued growth of our Company. We anticipate that
this branch will open by May 1st of 2010. The Company also executed a new data
processing contract that will provide enhanced services to our customers
including business cash management and online ATM access. We are a community
bank that offers the same convenience, products and account access as the “big
banks”, but with the personal touch and attention.
The
challenges to this great Country of ours are many, high unemployment, the real
estate market crisis and the political landscape are just a few. However, as in
the past, our Company will not only survive, but will continue to grow with a
commitment to our shareholders to provide a return on their investment that is
at the top of our peer group while maintaining a strong well capitalized
Company. We appreciate the loyalty of our customers and shareholders and we will
continue to provide quality banking services and work hard to enhance
shareholder value.
/s/ C. R. Pennoni |
/s/
Vito S. Pantilione
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C.R.
“Chuck” Pennoni
|
Vito
S. Pantilione
|
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Chairman
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President
and Chief Executive Officer
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2
Selected
Financial Data
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At
or for the Year Ended December, 31
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2009
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2008
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2007
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2006
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2005
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Balance Sheet Data:
(in
thousands)
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Assets
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$
|
654,198
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$
|
601,952
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$
|
460,795
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$
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359,997
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$
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297,810
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Loan
Net
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$
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590,997
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$
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539,883
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$
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402,683
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$
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306,044
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$
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255,461
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Securities
Available for Sale
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$
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29,420
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$
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31,930
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$
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29,782
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$
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24,530
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$
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22,023
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Securities
Held to Maturity
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$
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2,509
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$
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2,482
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$
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2,456
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$
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2,431
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$
|
2,406
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Cash
and Cash Equivalents
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$
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4,154
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$
|
7,270
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$
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9,178
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$
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11,261
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$
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4,380
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Deposits
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$
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520,313
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$
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495,327
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$
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379,480
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$
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289,929
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$
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232,056
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Borrowings
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$
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67,831
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$
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61,943
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$
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40,322
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$
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34,851
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$
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35,967
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Shareholders’
Equity
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$
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61,973
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$
|
40,301
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$
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36,417
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$
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30,709
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$
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27,193
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Operational Data: (in
thousands)
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Interest
Income
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$
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40,395
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$
|
36,909
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$
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33,186
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$
|
25,476
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$
|
17,336
|
||||
Interest
Expense
|
15,734
|
19,291
|
17,595
|
12,023
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6,684
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Net
Interest Income
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24,661
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17,618
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15,591
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13,453
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10,652
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|||||||||
Provision
for Loan Losses
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5,300
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2,063
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1,161
|
940
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1,180
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Net
Interest Income after Provision for Loan Losses
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19,361
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15,555
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14,430
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12,513
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9,472
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Noninterest
Income (Loss)
|
(540)
|
(1,251
|
) |
1,491
|
857
|
896
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||||||||
Noninterest
Expense
|
8,757
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7,209
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6,325
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5,827
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4,544
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Income
Before Income Tax Expense
|
10,064
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7,095
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9,596
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7,543
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5,824
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Income
Tax Expense
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3,964
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2,848
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3,744
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2,919
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2,330
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Net
Income
|
6,100
|
4,247
|
5,852
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4,624
|
3,494
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|||||||||
Preferred
Stock Dividend and Discount Accretion
|
899
|
—
|
—
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—
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—
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Net
Income Available to Common Shareholders
|
$
|
5,201
|
$
|
4,247
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$
|
5,852
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$
|
4,624
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$
|
3,494
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Per
Share Data:
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Basic
Earnings per Common Share
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$
|
1.29
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$
|
1.13
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$
|
1.61
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$
|
1.30
|
$
|
1.03
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Diluted
Earnings per Common Share
|
$
|
1.29
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$
|
1.05
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$
|
1.42
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$
|
1.10
|
$
|
0.87
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Book
Value per Common Share
|
$
|
11.33
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$
|
10.05
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$
|
9.90
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$
|
8.42
|
$
|
7.74
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Cash
Dividends Declared per Share
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
0.18
|
$
|
—
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Performance
Ratios:
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Return
on Average Assets
|
0.94%
|
0.79%
|
1.41%
|
1.41%
|
1.35%
|
|||||||||
Return
on Average Common Equity
|
11.82%
|
11.03%
|
17.17%
|
15.68%
|
13.91%
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|||||||||
Net
Interest Margin
|
3.97%
|
3.36%
|
3.88%
|
4.25%
|
4.33%
|
|||||||||
Efficiency
Ratio
|
33.88%
|
36.80%
|
38.70%
|
40.70%
|
39.40%
|
|||||||||
Capital
Ratios:
|
||||||||||||||
Equity
to Assets
|
9.47%
|
6.70%
|
7.91%
|
8.54%
|
10.96%
|
|||||||||
Dividend
Payout Ratio
|
0.00%
|
0.00%
|
0.00%
|
12.20%
|
0.00%
|
|||||||||
Tier
1 Risk-based Capital1
|
13.02%
|
9.89%
|
11.10%
|
13.30%
|
13.90%
|
|||||||||
Total
Risk-based Capital1
|
14.27%
|
11.14%
|
12.40%
|
14.50%
|
15.10%
|
|||||||||
Asset
Quality Ratios:
|
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Non-Performing
Loans/Total Loans
|
4.22%
|
1.50%
|
0.20%
|
0.34%
|
1.00%
|
|||||||||
Allowance
for Loan Losses/Total Loans
|
2.06%
|
1.42%
|
1.40%
|
1.45%
|
1.38%
|
|||||||||
Allowance
for Loan Losses/Non-Performing Loans
|
48.74%
|
94.61%
|
709.10%
|
571.90%
|
137.50%
|
|||||||||
1
Capital Ratios for Parke Bank
|
3
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
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 the Proxy
Statement and the Annual Report on Form 10-K, including the exhibits), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company.
These
forward-looking statements involve risks and uncertainties, such as statements
of the Company's plans, objectives, expectations, estimates and intentions,
which 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 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 Bank at managing the risks resulting from these
factors. The Company cautions that the listed factors are not
exclusive.
Overview
The
Company's results of operations are dependent primarily on the Bank's net
interest income, which is the difference between the interest income earned on
its interest-earning assets, such as loans and securities, and the interest
expense paid on its interest-bearing liabilities, such as deposits and
borrowings. The Bank also generates non-interest income such as service charges,
Bank Owned Life Insurance (BOLI) income and other fees. The Bank's non-interest
expenses primarily consist of employee compensation and benefits, occupancy
expenses, marketing expenses, professional services, FDIC insurance assessments,
data processing costs and other operating expenses. The Bank is also subject to
losses from its loan portfolio if borrowers fail to meet their obligations. The
Bank's results of operations are also significantly affected by general economic
and competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory agencies.
Results of Operation. The
Company recorded net income of $6.1 million for 2009. Net income available to
common shareholders was $5.2 million or $1.29 per diluted share, $4.2 million,
or $1.05 per diluted share for 2009 and 2008, respectively. Pre-tax earnings
amounted to $10.1 million for 2009 and $7.1 million for 2008.
Total
assets of $654.2 million at December 31, 2009 represented an increase of $52.2
million, or 8.7% from December 31, 2008. Total loans amounted to $603.4 million
at year end 2009 for an increase of $55.7 million, or 10.2% from December 31,
2008. Deposits grew by $25.0 million, an increase of 5.0%. The Company continues
to expand its balance sheet primarily through the generation of loan growth
through its
4
effective
business development of new and existing business relationships. Total capital
at December 31, 2009 amounted to $62.0 million and increased $21.7 million, or
53.8%, during the past year including the sale of preferred stock to the United
States Treasury.
The
principal objective of this financial review is to provide a discussion and an
overview of our consolidated financial condition and results of operations. This
discussion should be read in conjunction with the accompanying financial
statements and related notes.
5
Comparative Average Balances, Yields
and Rates. The
following table sets forth average balance sheets, average yields and costs, and
certain other information for the periods indicated. All average balances are
daily average balances. Non-accrual loans were included in the computation of
average balances, and have been reflected in the table as loans carrying a zero
yield. The yields set forth below include the effect of deferred fees, discounts
and premiums that are amortized or accreted to interest income or
expense.
For
the Years Ended December31,
|
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2009
|
2008
|
||||||||||||||||
Average
Balance |
Interest
Income/ Expense
|
Yield/
Cost |
Average
Balance |
Interest
Income/ Expense |
Yield/
Cost |
||||||||||||
(amounts
in thousands except Yield Cost data)
|
|||||||||||||||||
Assets
|
|||||||||||||||||
Loans
|
$
|
587,047
|
$
|
38,482
|
6.56
|
%
|
$
|
476,994
|
$
|
34,465
|
7.23
|
%
|
|||||
Investment
securities
|
34,384
|
1,912
|
5.56
|
%
|
39,296
|
2,250
|
5.73
|
%
|
|||||||||
Federal
funds sold and cash equivalents
|
188
|
1
|
0.53
|
%
|
7,513
|
194
|
2.58
|
%
|
|||||||||
Total
interest-earning assets
|
621,619
|
$
|
40,395
|
6.50
|
%
|
523,803
|
$
|
36,909
|
7.05
|
%
|
|||||||
Non-interest
earning assets
|
33,657
|
20,330
|
|||||||||||||||
Allowance
for loan losses
|
(9,616)
|
(6,643)
|
|||||||||||||||
Total
assets
|
$
|
645,660
|
$
|
537,490
|
|||||||||||||
Liabilities
and Shareholders’ Equity
|
|||||||||||||||||
Interest
bearing deposits
|
|||||||||||||||||
NOWs
|
$
|
10,945
|
154
|
1.41
|
%
|
$
|
11,730
|
276
|
2.35
|
%
|
|||||||
Money
markets
|
70,533
|
1,033
|
1.46
|
%
|
39,146
|
1,196
|
3.06
|
%
|
|||||||||
Savings
|
104,586
|
2,205
|
2.11
|
%
|
42,683
|
1,423
|
3.33
|
%
|
|||||||||
Time
deposits
|
181,866
|
5,711
|
3.14
|
%
|
171,420
|
7,155
|
4.17
|
%
|
|||||||||
Brokered
certificates of deposit
|
136,168
|
4,582
|
3.36
|
%
|
153,297
|
6,909
|
4.51
|
%
|
|||||||||
Total
interest-bearing deposits
|
504,098
|
13,685
|
2.71
|
%
|
418,276
|
16,959
|
4.05
|
%
|
|||||||||
Borrowings
|
58,351
|
2,049
|
3.51
|
%
|
54,843
|
2,332
|
4.25
|
%
|
|||||||||
Total
interest-bearing liabilities
|
562,449
|
$
|
15,734
|
2.80
|
%
|
473,119
|
$
|
19,291
|
4.08
|
%
|
|||||||
Non-interest
bearing deposits
|
20,068
|
21,658
|
|||||||||||||||
Other
liabilities
|
4,149
|
4,205
|
|||||||||||||||
Total
liabilities
|
586,666
|
498,982
|
|||||||||||||||
Shareholders’
equity
|
58,994
|
38,508
|
|||||||||||||||
Total
liabilities and shareholders’ equity
|
$
|
645,660
|
$
|
537,490
|
|||||||||||||
Net
interest income
|
$
|
24,661
|
$
|
17,618
|
|||||||||||||
Interest
rate spread
|
3.70
|
%
|
2.97
|
%
|
|||||||||||||
Net
interest margin
|
3.97
|
%
|
3.36
|
%
|
6
Rate/Volume Analysis. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e., changes in volume
multiplied by the old rate) and (ii) changes in rate (i.e., changes in rate
multiplied by old volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and the change due to
rate.
Years
ended December 31,
|
|||||||||||||||||
2009
vs. 2008
|
2008
vs. 2007
|
||||||||||||||||
Variance
due to change in
|
Variance
due to change in
|
||||||||||||||||
Average
Volume |
Average
Rate |
Net
Increase/ (Decrease) |
|
Average
Volume |
Average
Rate |
Net
Increase/ (Decrease)
|
|||||||||||
Interest
Income:
|
|||||||||||||||||
Loans
(net of deferred costs/fees)
|
$
|
7,585
|
$
|
(3,568
|
) |
$
|
4,017
|
$
|
9,484
|
$
|
(6,251
|
) |
$
|
3,233
|
|||
Investment
securities
|
(284
|
) |
(54
|
) |
(338
|
) |
439
|
103
|
542
|
||||||||
Federal
funds sold
|
(114
|
) |
(79
|
) |
(193
|
) |
140
|
(192
|
) |
(52)
|
|||||||
Total
interest income
|
7,187
|
(3,701
|
) |
3,486
|
10,063
|
(6,340
|
) |
3,723
|
|||||||||
Interest
Expense:
|
|||||||||||||||||
Deposits
|
2,903
|
(6,177
|
) |
(3,274
|
) |
4,755
|
(3,216
|
) |
1,539
|
||||||||
Borrowed
funds
|
136
|
(419
|
) |
(283
|
) |
844
|
(687
|
) |
157
|
||||||||
Total
interest expense
|
3,039
|
(6,596
|
) |
(3,557
|
) |
5,599
|
(3,903
|
) |
1,696
|
||||||||
Net
interest income
|
$
|
4,148
|
$
|
2,895
|
$
|
7,043
|
$
|
4,464
|
$
|
(2,437
|
) |
$
|
2,027
|
||||
Critical
Accounting Policies and Estimates
Allowance for Losses on
Loans. The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses. Loans that are determined to be
uncollectible are charged against the allowance account, and subsequent
recoveries, if any, are credited to the allowance. When evaluating the adequacy
of the allowance, an assessment of the loan portfolio will typically include
changes in the composition and volume of the loan portfolio, overall portfolio
quality and past loss experience, review of specific problem loans, current
economic conditions which may affect borrowers' ability to repay, and other
factors which may warrant current recognition. Such periodic assessments may, in
management's judgment, require the Company to recognize additions or reductions
to the allowance.
Various
regulatory agencies periodically review the adequacy of the Company’s allowance
for loan losses as an integral part of their examination
process. Such agencies may require the Company to recognize additions
or reductions to the allowance based on their evaluation of information
available to them at the time of their examination. It is reasonably
possible that the above factors may change significantly and, therefore, affect
management’s determination of the allowance for loan losses in the near
term.
7
Valuation of Investment
Securities. Available for Sale securities are reported at fair market
value with unrealized gains and losses reported, net of deferred taxes, as
comprehensive income, a component of stockholders’ equity. Although
Held to Maturity securities are reported at amortized cost, the valuation of all
securities is subject to impairment analysis at each reporting
date. Any credit related impairment that is deemed other than
temporary is charged to the income statement as a current period
charge. The current market volatility may have an impact on the
financial condition and the credit ratings of issuers and hence, the ability of
issuers to meet their payment obligations. Accordingly, these
conditions could adversely impact the credit quality of the securities, and
require an adjustment to the carrying value.
Operating
Results for the Years Ended December 31, 2009 and 2008
Net Interest Income/Margins.
The Company’s primary source of earnings is net interest income, which is
the difference between income earned on interest-earning assets, such as loans
and investment securities, and interest expense incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is determined primarily by the average level of balances (“volume”) and the
market rates associated with the interest-earning assets and interest-bearing
liabilities.
Net
interest income increased $7.0 million, or 40.0%, to $24.6 million for 2009,
from $17.6 million for 2008. We experienced an increase in our net interest rate
spread of 73 basis points, to 3.70% for 2009, from 2.97% for last year. Our net
interest margin increased 61 basis points, to 3.97% for 2009, from 3.36% for
last year. Our ability to lower our cost of deposits, a change in deposit mix to
lower cost core deposits and our practice of setting floors on commercial and
real estate loans has allowed for this growth in net interest rate
margin.
Interest
income increased $3.5 million, or 9.4%, to $40.4 million for 2009, from $36.9
million for 2008. The increase is attributable to higher loan volumes, offset by
a lower yield on loans. Average loans for the year were $587.0
million compared to $477.0 million for last year, while average loan yields were
6.56% for 2009 compared to 7.23% for 2008.
Interest
expense decreased $3.6 million, or 18.4%, to $15.7 million for 2009, from $19.3
million for 2008. The decrease is primarily attributable to an increase of core
deposits and a decline in the cost of funds. The average rate paid on deposits
for 2009 was 2.71% compared to 4.05% for last year. The Bank has been able to
re-price deposits due to the current, historically low, rate environment while
still maintaining strong deposit growth.
Provision for Loan Losses. We
establish provisions for loan losses, which are charged to operations, in order
to maintain the allowance for loan losses at a level we consider necessary to
absorb credit losses incurred in the loan portfolio that are both probable and
reasonably estimable at the balance sheet date. In determining the level of the
allowance for loan losses, we consider, among other things, past and current
loss experience, evaluations of real estate collateral, current economic
conditions, volume and type of lending, adverse situations that may affect a
borrower’s ability to repay a loan, the levels of delinquent loans and current
local and national industry and economic conditions. The amount of the allowance
is based on estimates, and the ultimate losses may vary from such estimates as
more information becomes available or conditions change. We assess the allowance
for loan losses and make provisions for loan losses on a monthly
basis.
At
December 31, 2009, the Company’s allowance for loans losses increased to $12.4
million from $7.8 million at December 31, 2008, an increase of $4.6 million or
59.5%. The allowance for loan loss ratio increased to 2.06% of gross loans at
December 31, 2009, from 1.42% of gross loans at December 31, 2008.
8
The
allowance for loan losses to non-performing loans coverage ratio declined to
48.7% at December 31, 2009, from 94.6% at December 31, 2008.
We
recorded a provision for loan losses of $5.3 million for 2009 compared to $2.1
million for 2008. The increase in the provision for losses over the prior year
correlates to the increase in credit deterioration within the loan portfolio and
management’s analysis of non-performing loans and credit risk inherent in the
portfolio.
Noninterest Income.
Noninterest income is principally derived
from fee income from loan services, service fees on deposits, BOLI (Bank-Owned
Life Insurance) income and gains/losses on the sale of investment securities.
Noninterest income aggregated to a loss of $540,000 in 2009 versus a loss of
$1.3 million in 2008.
The loss
resulted from the Company recognizing an other-than-temporary impairment charge
to non-interest income on investment securities totaling $1.7 million for 2009.
The 2008 period included an other-than-temporary impairment charge of $2.3
million.
Loan fees
of $241 thousand in 2009 decreased from $569 thousand in 2008. Loan fees consist
of “exit fees” that are charged on construction loans if the builder sells the
property prior to the completion of the construction project. Exit fees are
intended to discourage construction borrowers from starting projects and
“flipping out” of the project or selling before it is completed. These loan fees
are variable in nature and are dependent upon the borrower. Construction project
activity was significantly lower in 2009 compared with 2008.
BOLI
income of $180 thousand in 2009 decreased from $188 thousand in
2008.
Other
miscellaneous fee income, which includes ATM fees, debit card fees, early CD
withdrawal penalties, rental income and other miscellaneous income, amounted to
$249 thousand in 2009 and $83 thousand in 2008. The majority of the increase is
attributable to the reimbursement of legal fees previously charged to
expense.
In 2009,
the Company recognized a gain on the sale of the Small Business Administration
(SBA) guaranteed portion of loans in the amount of $313 thousand through an SBA
loan sale and servicing program initiated during the fourth quarter of
2009.
Noninterest Expense.
Noninterest expense, which amounted to $8.8 million in 2009, reflected an
increase of $1.5 million or 21.5% above the level of $7.2 million in
2008.
Compensation
and benefits expense for 2009 was $4.1 million, an increase of $675 thousand
over last year. The increase is attributable to routine salary increases, higher
benefits expense and increased staff as a result of the formation of the small
business lending joint venture.
Occupancy
and equipment expense were $848 thousand for 2009, an increase of $109 over
2008. The increase is a result a payment on $49 thousand for
previously unbilled real estate taxes for a leased branch facility and
additional expense related to the formation of the small business lending joint
venture.
Professional
services in 2009 amounted to $862 thousand, compared to $801 thousand in 2008.
The increase was primarily the result of increased legal cost related to loan
matters.
9
Other
operating expense of $2.6 million in 2009 increased $715 thousand above the
level of $1.9 million recorded in 2008. The majority of the increase is related
to FDIC insurance premiums, which have increased by $591,000. The increase
includes a special assessment levied on all banks during the 2nd
quarter of 2009 by the FDIC. The Company’s assessment amount was
$284,000.
Income Taxes. Income tax
expense amounted to $4.0 million for 2009, compared to $2.8 million for 2008,
resulting in effective tax rates of 39.4% and 40.1% for the respective
years.
10
Financial
Condition at December 31, 2009 and December 31, 2008
At
December 31, 2009, the Company’s total assets increased to $654.2 million from
$602.0 million at December 31, 2008, an increase of $52.2 million or
8.7%.
Cash and
cash equivalents decreased $3.1 million or 42.9%, to $4.1 million at December
31, 2009 from $7.3 million at December 31, 2008.
Total
investment securities decreased to $31.9 million at December 31, 2009 ($29.4
million classified as available for sale or 92.1%) from $34.4 million at
December 31, 2008, a decrease of $2.5 million or 7.2%. The Company received $9.4
million in cash flow from calls, maturities and principal payments, offset by
purchases of $8.6 million.
Management
evaluates the portfolio for other-than-temporary impairment (OTTI) on a
quarterly basis. Factors considered in the analysis include but are not limited
to whether an adverse change in cash flows has occurred, the length of time and
the extent to which the fair value has been less than cost, whether the Company
intends to sell, or will more likely than not be required to sell the investment
before recovery of its amortized cost basis, which may be maturity, credit
rating downgrades, the percentage of performing collateral that would need to
default or defer to cause a break in yield or a temporary interest shortfall,
and management’s assessment of the financial condition of the underlying
issuers. For the year 2009, the Company recognized a credit related OTTI charge
(pre-tax) of $1.7 million on three private-label CMOs and one CDO
issue.
Total
loans increased to $603.4 million at December 31, 2009 from $547.7 million at
December 31, 2008, an increase of $55.7 million or 10.2%, consistent with
management’s plan for loan growth.
At
December 31, 2009, the Bank’s total deposits increased to $520.3 million from
$495.3 million at December 31, 2008, an increase of $25.0 million or
5.0%. Non-interest bearing deposits decreased $773,000, or 3.5%, to
$21.5 million at December 31, 2009 from $22.3 million at December 31,
2008. NOW and money market accounts increased $25.6 million, or
36.7%, to $95.3 million at December 31, 2009 from $69.7 million at December 31,
2008. Savings accounts increased $84.3 million, or 146.8%, to $141.7
million at December 31, 2009 from $57.4 million at December 31,
2008. Retail certificate of deposits decreased $4.0 million, or 2.4%,
to $165.8 million at December 31, 2009 from $169.8 million at December 31,
2008. This growth, generated through a successful marketing campaign
and a cross selling program to increase core deposits, has allowed us to reduce
brokered deposits, which decreased $80.0 million, or 45.4%, to $96.1 million at
December 31, 2009 from $176.1 million at December 31, 2008.
Other
assets increased to $13.2 million at December 31, 2009 from $6.8 million at
December 31, 2008, an increase of $6.4 million or 93.4%. The increase is
primarily attributable to the prepayment of 3 years of FDIC insurance premiums.
All FDIC-insured banks were required to make this prepayment. This payment
totaled $3.8 million.
Borrowings
increased $5.9 million, or 9.5%, to $67.8 million at December 31, 2009 from
$61.9 million at December 31, 2008.
At
December 31, 2009, total shareholders’ equity increased to $62.0 million from
$40.3 million at December 31, 2008, an increase of $21.7 million or 53.8%. In
addition to net income of $6.1 million, perpetual
11
preferred
stock issued under the Treasury Capital Purchase Program (CPP) totaling $16.3
million contributed to the increase.
Loan
Quality
The
Company attempts to manage the risk characteristics of its loan portfolio
through various control processes, such as credit evaluation of borrowers,
establishment of lending limits and application of lending procedures, including
the holding of adequate collateral and the maintenance of compensating balances.
However, the Company seeks to rely primarily on the cash flow of its borrowers
as the principal source of repayment. Although credit policies are designed to
minimize risk, management recognizes that loan losses will occur and the amount
of these losses will fluctuate depending on the risk characteristics of the loan
portfolio as well as general and regional economic conditions.
The
allowance for loan losses represents a reserve for losses inherent in the loan
portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccrual loans, past due and other loans that management believes
require special attention.
For
significant problem loans, management's review consists of an evaluation of the
financial strengths of the borrower and the guarantor, the related collateral,
and the effects of economic conditions. A loan is considered impaired when,
based on current information and events, it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Impaired
loans would include loans identified as troubled debt restructurings (TDRs).
Impairment is measured on a loan by loan basis for commercial loans in order to
establish specific reserves by either the present value of expected future cash
flows discounted at the loans effective interest rate, the loan’s obtainable
market price, or the fair value of the collateral if the loan is collateral
dependent . General reserves against the remaining loan portfolio are based on
analysis of historical loan loss ratios, loan charge-offs, delinquency trends,
previous collection experience, and the risk rating on each individual loan
along with an assessment of the effects of external economic
conditions.
The
Company maintains interest reserves for the purpose of making periodic and
timely interest payments for borrowers that qualify. Management on a monthly
basis reviews loans with interest reserves to assess current and projected
performance.
Delinquent
loans increased $20.8 million to $32.8 million or 5.4% of total loans at
December 31, 2009 from $12.0 million or 2.2% of total loans at December 30,
2008. Delinquent loan balances by number of days delinquent were: 31 to 89 days
--- $7.3 and 90 days and greater --- $25.5 million. Loans 90 days and more past
due are no longer accruing interest.
At
December 31, 2009, the Company had $25.5 million in non-performing loans or 4.2%
of total loans, an increase from $8.2 million or 1.5% of total loans at December
31, 2008. The three largest relationships in non-performing loans are $5.4
million, $4.5 million, and $4.5 million. All three are comprised of residential
and multi-family construction loans.
The
provision for loan losses is a charge to earnings in the current year to
maintain an allowance at a level management has determined to be adequate based
upon the factors noted above. The provision for loan losses amounted to $5.3
million for 2009, compared to $2.1 million for 2008. Net loan
charge-offs/recoveries consisted of net charge-offs in the amount of $673
thousand in 2009 and net recoveries of $8 thousand in 2008.
12
At
December 31 2009, the Company’s allowance for loans losses increased to $12.4
million from $7.8 million at December 31, 2008, an increase of $4.6 million or
59.5%. The allowance for loan loss ratio increased to 2.06% of gross loans at
December 31, 2009, from 1.42% of gross loans at December 31, 2008. The allowance
for loan losses to non-performing loans coverage ratio declined to 48.7% at
December 31, 2009, from 94.6% at December 31, 2008.
We
believe we have appropriately established adequate loss reserves on problem
loans that we have identified and to cover credit risks that are inherent in the
portfolio as of December 31, 2009. However, we believe that non-performing and
delinquent loans will continue to increase as the current recession persists. We
are aggressively managing all loan relationships. Credit monitoring and tracking
systems have been instituted. Updated appraisals are being obtained, where
appropriate, to ensure that collateral values are sufficient to cover
outstanding loan balances. Cash flow dependent commercial real estate properties
are being visited to inspect current tenant lease status. Where necessary, we
will apply our loan work-out experience to protect our collateral position and
actively negotiate with borrowers to resolve these non-performing
loans.
Income
Taxes
The
Company accounts for income taxes according to the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using the
enacted tax rates applicable to taxable income for the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation reserves are
established against certain deferred tax assets when it is more likely than not
that the deferred tax assets will not be realized. Increases or decreases in the
valuation reserve are charged or credited to the income tax
provision.
When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that ultimately would be sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. The evaluation of a tax position taken is
considered by itself and not offset or aggregated with other positions. Tax
positions that meet the more likely than not recognition threshold are measured
as the largest amount of tax benefit that is more than 50 percent likely of
being realized upon settlement with the applicable taxing authority. The portion
of benefits associated with tax positions taken that exceeds the amount measured
as described above is reflected as a liability for unrecognized tax benefits in
the accompanying balance sheet along with any associated interest and penalties
that would be payable to the taxing authorities upon examination. Interest and
penalties associated with unrecognized tax benefits would be recognized in
income tax expense on the income statement.
For
additional information on income taxes, see Note 10 to the Consolidated
Financial Statements.
13
Interest
Rate Sensitivity and Liquidity
Interest
rate sensitivity is an important factor in the management of the composition and
maturity configurations of earning assets and funding sources. The primary
objective of asset/liability management is to ensure the steady growth of our
primary earnings component, net interest income. Net interest income can
fluctuate with significant interest rate movements. To lessen the impact of
interest rate movements, management endeavors to structure the balance sheet so
that re-pricing opportunities exist for both assets and liabilities in roughly
equivalent amounts at approximately the same time intervals. Imbalances in these
re-pricing opportunities at any point in time constitute interest rate
sensitivity.
The
measurement of our interest rate sensitivity, or "gap," is one of the principal
techniques used in asset/liability management. Interest sensitive gap is the
dollar difference between assets and liabilities that are subject to
interest-rate pricing within a given time period, including both floating rate
or adjustable rate instruments and instruments that are approaching
maturity.
Our
management and the Board of Directors oversee the asset/liability management
function through the asset/liability committee of the Board that meets
periodically to monitor and manage the balance sheet, control interest rate
exposure, and evaluate our pricing strategies. The asset mix of the balance
sheet is continually evaluated in terms of several variables: yield,
credit quality, appropriate funding sources and liquidity. Management of the
liability mix of the balance sheet focuses on expanding the various funding
sources.
In
theory, interest rate risk can be diminished by maintaining a nominal level of
interest rate sensitivity. In practice, this is made difficult by a number of
factors including cyclical variation in loan demand, different impacts on
interest-sensitive assets and liabilities when interest rates change, and the
availability of funding sources. Accordingly, we undertake to manage the
interest-rate sensitivity gap by adjusting the maturity of and establishing
rates on the earning asset portfolio and certain interest-bearing liabilities
commensurate with management's expectations relative to market interest rates.
Management generally attempts to maintain a balance between rate-sensitive
assets and liabilities as the exposure period is lengthened to minimize our
overall interest rate risk.
14
Rate Sensitivity
Analysis. The
interest rate sensitivity position as of December 31, 2009 is presented in the
table below. Assets and liabilities are scheduled based on maturity or
re-pricing data except for mortgage loans and mortgage-backed securities, which
are based on prevailing prepayment assumptions and expected maturities and
recent retention experience of core deposits. The difference between
rate-sensitive assets and rate-sensitive liabilities or the interest rate
sensitivity gap, is shown at the bottom of the table. As of December 31, 2009,
our interest sensitive liabilities exceeded interest sensitive assets within a
one year period by $5.3 million, or 0.81%, of total assets.
As
of December 31, 2009
|
|||||||||||||||||||
3
Months
or Less |
Over
3
Months Through 12 Months |
Over
1 Year
Through 3 Years |
|
Over
3
Years Through 5 Years |
Over
5
Years Through 30 Years |
Total
|
|||||||||||||
Interest-earning
assets:
|
|||||||||||||||||||
Loans
|
$
|
237,942
|
$
|
33,504
|
$
|
44,983
|
$
|
265,089
|
$
|
21,883
|
$
|
603,401
|
|||||||
Investment
securities
|
6,918
|
5,043
|
3,878
|
8,002
|
12,460
|
36,301
|
|||||||||||||
Federal
funds sold and cash equivalents
|
55
|
—
|
—
|
—
|
—
|
55
|
|||||||||||||
Total
interest-earning assets
|
$
|
244,915
|
$
|
38,547
|
$
|
48,861
|
$
|
273,091
|
$
|
34,343
|
$
|
639,757
|
|||||||
Interest-bearing
liabilities::
|
|||||||||||||||||||
Regular
savings deposits
|
$
|
74,386
|
$
|
10,626
|
$
|
14,169
|
$ |
28,337
|
$ |
14,169
|
$ |
141,687
|
|||||||
NOW and money market deposits |
16,321
|
20,387
|
27,183
|
29,274
|
2,091
|
95,256
|
|||||||||||||
Retail
time deposits
|
32,184
|
72,564
|
56,406
|
4,638
|
—
|
165,792
|
|||||||||||||
Brokered
time deposits
|
7,450
|
35,569
|
52,137
|
835
|
99
|
96,090
|
|||||||||||||
Borrowed
funds
|
7,061
|
1,608
|
35,052
|
10,506
|
13,604
|
67,831
|
|||||||||||||
Total
interest-bearing liabilities
|
$
|
137,402
|
$
|
140,754
|
$
|
184,947
|
$
|
73,590
|
$
|
29,963
|
$
|
566,656
|
|||||||
Interest
rate sensitive gap
|
$
|
107,513
|
$
|
(102,207)
|
$
|
(136,086)
|
$
|
199,501
|
$
|
4,380
|
$
|
73,101
|
|||||||
Cumulative
interest rate gap
|
$
|
107,513
|
$
|
5,306
|
$
|
(130,780)
|
$
|
68,721
|
$
|
73,101
|
|||||||||
Ratio
of rate-sensitive assets to rate-sensitive liabilities
|
178.25%
|
27.39%
|
26.42%
|
371.10%
|
114.62%
|
112.90%
|
Liquidity
describes our ability to meet the financial obligations that arise out of the
ordinary course of business. Liquidity addresses the Company's ability to meet
deposit withdrawals on demand or at contractual maturity, to repay borrowings as
they mature, and to fund current and planned expenditures. Liquidity is derived
from increased repayment and income from earning assets. Our loan to deposit
ratio was 116.2% and 110.6% at December 31, 2009 and December 31, 2008
respectively. Funds received from new and existing depositors provided a large
source of liquidity during 2009 and 2008. The Company seeks to rely primarily on
core deposits from customers to provide stable and cost-effective sources of
funding to support loan growth. The Bank also seeks to augment such deposits
with longer term and higher yielding certificates of deposit.
15
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 to secure an additional
alternative funding source. Promontory provides the Bank an additional source of
external funds through their weekly CDARS® settlement process. The rates are
comparable to brokered deposits and can be obtained within a shorter period time
than brokered deposits. The Bank’s CDARS deposits included within the brokered
deposit total amounted to $5.9 million and $36.4 million at December 31, 2009
and December 31, 2008, respectively. To the extent that retail
deposits are not adequate to fund customer loan demand, liquidity needs can be
met in the short-term funds market. Longer term funding requirements can be
obtained through advances from the Federal Home Loan Bank ("FHLB"). As of
December 31, 2009, the Bank maintained unused lines of credit with the FHLB
totaling $47.1 million. The Bank established lines of credit with other
financial institutions totaling $16.0 million. These lines were not utilized at
December 31, 2009.
As of
December 31, 2009, the Bank's investment securities portfolio included $19.1
million of mortgage-backed securities that provide significant cash flow each
month. The majority of the investment portfolio is classified as available for
sale, is readily marketable, and is available to meet liquidity needs. The
Bank's residential real estate portfolio includes loans, which are underwritten
to secondary market criteria, and provide an additional source of liquidity.
Presently the residential mortgage loan portfolio and certain qualifying
commercial real estate loans are pledged under a blanket lien to the FHLB as
collateral. Management is not aware of any known trends, demands, commitments or
uncertainties that are reasonably likely to result in material changes in
liquidity.
Off-Balance
Sheet Arrangements
The Bank
is a party to financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the consolidated balance sheet. The contract or
notional amounts of these instruments reflect the extent of the Bank's
involvement in these particular classes of financial instruments. The Bank's
exposure to credit loss in the event of nonperformance by the other party to the
financial instruments for commitments to extend credit and standby letters of
credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as they do for on-balance sheet
instruments.
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's credit-worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary upon
the extension of credit, is based on management's credit evaluation. Collateral
held varies but may include accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties. As of December 31, 2009
and 2008, commitments to extend credit amounted to approximately $59.6 million
and $112.8 million, respectively.
16
Standby
letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that
involved
in extending loan facilities to customers. As of December 31, 2009 and 2008,
standby letters of credit with customers were $8.6 million and $10.6 million,
respectively.Loan
commitments and standby letters of credit are issued in the ordinary course of
business to meet customer needs. Commitments to fund fixed-rate loans were
immaterial at December 31, 2008. Variable-rate commitments are generally issued
for less than one year and carry market rates of interest. Such instruments are
not likely to be affected by annual rate caps triggered by rising interest
rates. Management believes that off-balance sheet risk is not material to the
results of operations or financial condition.
The
following table sets forth information regarding the Bank’s contractual
obligations and commitments as of December 31, 2009.
Payments
Due by Period
|
|||||||||||||||
Amounts
in thousands
|
|||||||||||||||
Less
than
1 year |
1-3
Years
|
4-5
years
|
More
than
5 years |
Total
|
|||||||||||
Retail
time deposits
|
$
|
104,748
|
$
|
58,933
|
$ |
2,111
|
$ |
—
|
$ |
165,792
|
|||||
Brokered
time deposits
|
43,020
|
52,971
|
—
|
99
|
96,090
|
||||||||||
Borrowed
funds
|
8,525
|
39,900
|
5,000
|
14,406
|
67,831
|
||||||||||
Operating
lease obligations
|
176
|
327
|
165
|
121
|
789
|
||||||||||
Total
contractual obligations
|
$
|
156,469
|
$
|
152,131
|
$
|
7,276
|
$
|
14,626
|
$
|
330,502
|
|||||
Amount
of Commitments Expiring by Period
|
|||||||||||||||
Less
than
1 year |
1-3
Years
|
4-5
years
|
More
than 5 years
|
Total
|
|||||||||||
Loan
Commitments
|
$
|
10,791
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
10,791
|
|||||
Lines
of Credit
|
30,266
|
7,821
|
1,723
|
|
9,028
|
|
48,827
|
||||||||
Total
Commitments
|
$
|
41,046
|
$
|
7,821
|
$
|
1,723
|
$
|
9,028
|
$
|
59,618
|
|||||
Impact
of Inflation and Changing Prices
The
consolidated financial statements and notes have been prepared in accordance
with accounting principles generally accepted in the United States of America,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of our operations. Unlike most
industrial companies, nearly all of our assets are monetary in nature. As a
result, market interest rates have a greater impact on our performance than do
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.
17
MARKET
PRICES AND DIVIDENDS
General
The
Company's or the Bank's common stock has been listed on the Nasdaq Capital
Market under the trading symbol of "PKBK" since it commenced trading upon
completion of the Bank's public offering on November 26, 2002. The following
table reflects high and low sales prices as reported on www.nasdaq.com during
each quarter of the last two fiscal years. There were no cash dividends paid
during either 2008 or 2009.
2009
|
High
|
Low
|
||||
1st
Quarter
|
$
|
8.50
|
$
|
4.26
|
||
2nd
Quarter
|
$
|
9.85
|
$
|
6.10
|
||
3rd
Quarter
|
$
|
9.98
|
$
|
8.25
|
||
4th
Quarter
|
$
|
9.31
|
$
|
7.50
|
||
2008
|
High
|
Low
|
||||
1st
Quarter
|
$
|
15.47
|
$
|
12.36
|
||
2nd
Quarter
|
$
|
16.34
|
$
|
10.00
|
||
3rd
Quarter
|
$
|
12.92
|
$
|
8.97
|
||
4th
Quarter
|
$
|
9.48
|
$
|
7.25
|
The
number of stockholders of record of common stock as of March 18, 2010, was
approximately 380. This does not reflect the number of persons or
entities who held stock in nominee or "street" name through various brokerage
firms. At March 18, 2010, there were 4,034,639 shares of our common stock
outstanding.
Holders
of the Company's common stock are entitled to receive dividends when, and if
declared by the Board of Directors out of funds legally available therefore. The
timing and amount of future dividends will be within the discretion of the Board
of Directors and will depend on the consolidated earnings, financial condition,
liquidity, and capital requirements of the Company and its subsidiaries,
applicable governmental regulations and policies, and other factors deemed
relevant by the Board.
The
Company's ability to pay dividends is substantially dependent upon the dividends
it receives from the Bank. Under current regulations, the Bank's ability to pay
dividends is restricted as follows.
Under the
New Jersey Banking Act of 1948, a bank may declare and pay dividends only if
after payment of the dividend the capital stock of the bank will be unimpaired
and either the bank will have a surplus of not less than 50% of its capital
stock or the payment of the dividend will not reduce the bank's
surplus.
18
The
Federal Deposit Insurance Act generally prohibits all payments of dividends by
any insured bank that is in default of any assessment to the FDIC. Additionally,
because the FDIC may prohibit a bank from engaging in unsafe or unsound
practices, it is possible that under certain circumstances the FDIC could claim
that a dividend payment constitutes an unsafe or unsound practice. The New
Jersey Department of Banking and Insurance has similar power to issue cease and
desist orders to prohibit what might constitute unsafe or unsound practices. The
payment of dividends may also be affected by other factors (e.g., the need to
maintain adequate capital or to meet loan loss reserve
requirements).
The
Treasury Capital Purchase Program (CPP), more fully described in Note 19 of the
Notes to the Consolidated Financial Statements, restricts us from increasing
dividends from the last quarterly cash dividend declared on the Common Stock
prior to January 9, 2009.
19
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a- 15(f).
The Company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with
authorization of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.
Internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements prepared for external purposes in accordance with generally
accepted accounting principles. Because of inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies and procedures may
deteriorate.
Under
supervision and with the participation of management, including our principal
executive officer and principal financial officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the
framework in Internal Control
- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control-
Integrated Framework, management concluded that our internal control over
financial reporting was effective as of December 31, 2009.
Management’s
assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2009 has not been attested to by McGladrey & Pullen, LLP,
the Company’s independent registered public accounting firm, as stated in their
report which is included herein pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management’s
report in this annual report.
March 24,
2010
/s/
Vito S. Pantilione
|
/s/
John F. Hawkins
|
|
Vito
S. Pantilione
|
John
F. Hawkins
|
|
President
and Chief Executive Officer
|
Senior
Vice President and Chief Financial
Officer
|
20
Parke
Bancorp, Inc. and Subsidiaries
Consolidated
Financial Report
December
31, 2009
Parke
Bancorp, Inc. and Subsidiaries
Contents
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
1
|
Financial
Statements
|
|
Consolidated
Balance Sheets
|
2
|
Consolidated
Statements of Income
|
3
|
Consolidated
Statements of Shareholders’ Equity
|
4
|
Consolidated
Statements of Cash Flows
|
5
|
Notes
to Consolidated Financial Statements
|
6
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders
Parke
Bancorp, Inc.
We have
audited the consolidated balance sheets of Parke Bancorp, Inc. and Subsidiaries
(the “Company”) as of December 31, 2009 and 2008 and the related consolidated
statements of income, shareholders’ equity, and cash flows for the years there
ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Parke Bancorp, Inc. and
Subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for the years there ended, in conformity with
accounting principles generally accepted in the United States of
America.
We were
not engaged to examine management’s assertion about the effectiveness of Parke
Bancorp, Inc. and Subsidiaries’ internal control over financial reporting as of
December 31, 2009 included in the accompanying Management’s Report on Internal
Control Over Financial Reporting and, accordingly, we do not express an opinion
thereon.
Blue
Bell, Pennsylvania
March 24,
2010
McGladrey
& Pullen, LLP is a member firm of RSM International –
an
affiliation of separate and independent legal entities.
1
Parke
Bancorp, Inc. and Subsidiaries
|
|||||
Consolidated
Balance Sheets
|
|||||
December
31, 2009 and 2008
|
|||||
(in
thousands except share data)
|
|||||
December
31,
|
December
31,
|
||||
2009
|
2008
|
||||
Assets
|
|||||
Cash and
due from financial institutions
|
$
|
4,099
|
$
|
6,700
|
|
Federal
funds sold and cash equivalents
|
55
|
570
|
|||
Cash
and cash equivalents
|
4,154
|
7,270
|
|||
Investment
securities available for sale, at fair value
|
29,420
|
31,930
|
|||
Investment
securities held to maturity (fair value of $2,404 at
December 31, 2009 and $2,324 at December 31, 2008) |
2,509
|
2,482
|
|||
Total
investment securities
|
31,929
|
34,412
|
|||
Loans,
net of unearned income
|
603,401
|
547,660
|
|||
Less:
Allowance for loan and lease losses
|
12,404
|
7,777
|
|||
Net
loans and leases
|
590,997
|
539,883
|
|||
Accrued
interest receivable
|
2,808
|
2,976
|
|||
Premises
and equipment, net
|
2,861
|
3,014
|
|||
Restricted
stock, at cost
|
3,094
|
2,583
|
|||
Bank
owned life insurance (BOLI)
|
5,184
|
5,004
|
|||
Other
assets
|
13,171
|
6,810
|
|||
Total
Assets
|
$
|
654,198
|
$
|
601,952
|
|
Liabilities
and Shareholders’ Equity
|
|||||
Liabilities
|
|||||
Deposits
|
|||||
Noninterest-bearing
deposits
|
$
|
21,488
|
$
|
22,261
|
|
Interest-bearing
deposits
|
498,825
|
473,066
|
|||
Total
deposits
|
520,313
|
495,327
|
|||
FHLB
borrowings
|
44,428
|
38,540
|
|||
Other
borrowed funds
|
10,000
|
10,000
|
|||
Subordinated
debentures
|
13,403
|
13,403
|
|||
Accrued
interest payable
|
821
|
1,563
|
|||
Other
liabilities
|
3,260
|
2,818
|
|||
Total
liabilities
|
592,225
|
561,651
|
|||
Shareholders’
Equity
|
|||||
Preferred
stock, cumulative perpetual, $1,000 liquidation value;
authorized 1,000,000 shares; Issued: 16,288 shares at December 31, 2009; and 0 at December 31, 2008 |
15,508
|
—
|
|||
Common
stock, $.10 par value; authorized 10,000,000 shares; Issued:
4,224,867 shares at December 31, 2009; and 4,140,231 shares at December 31, 2008 |
421
|
414
|
|||
Additional
paid-in capital
|
37,020
|
35,656
|
|||
Retained
earnings
|
14,071
|
8,870
|
|||
Accumulated
other comprehensive loss
|
(2,867)
|
(2,791)
|
|||
Treasury
stock, 191,729 shares at
December 31, 2009; and 130,270
shares at December 31, 2008, at cost |
(2,180)
|
(1,848)
|
|||
Total
shareholders’ equity
|
61,973
|
40,301
|
|||
Total
liabilities and shareholders’ equity
|
$
|
654,198
|
$
|
601,952
|
|
See
accompanying notes to consolidated financial
statements
|
2
Parke
Bancorp, Inc. and Subsidiaries
Consolidated
Statements of Income
Years
Ended December 31, 2009 and 2008
(in
thousands except share data)
|
|
||||||
|
|||||||
2009
|
2008
|
||||||
Interest
income:
|
|||||||
Interest
and fees on loans
|
$
|
38,482
|
$
|
34,465
|
|||
Interest
and dividends on investments
|
1,912
|
2,250
|
|||||
Interest
on federal funds sold and cash equivalents
|
1
|
194
|
|||||
Total
interest income
|
40,395
|
36,909
|
|||||
Interest
expense:
|
|||||||
Interest
on deposits
|
13,685
|
16,959
|
|||||
Interest
on borrowings
|
2,049
|
2,332
|
|||||
Total
interest expense
|
15,734
|
19,291
|
|||||
Net
interest income
|
24,661
|
17,618
|
|||||
Provision
for loan losses
|
5,300
|
2,063
|
|||||
Net
interest income after provision for loan losses
|
19,361
|
15,555
|
|||||
Noninterest
income (loss)
|
|||||||
Loan
fees
|
241
|
569
|
|||||
Net
income from BOLI
|
180
|
188
|
|||||
Service
fees on deposit accounts
|
187
|
188
|
|||||
Gain
on sale of SBA loans
|
313
|
—
|
|||||
Other
than temporary impairment losses
|
(2,482
|
) |
(2,279
|
) | |||
Portion of loss recognized in other comprehensive income (OCI) (before taxes) |
753
|
—
|
|||||
Net
impairment losses recognized in earnings
|
(1,729
|
) |
(2,279
|
) | |||
Gain
on sale of real estate owned
|
19
|
—
|
|||||
Other
|
249
|
83
|
|||||
Total
noninterest income (loss)
|
(540
|
) |
(1,251
|
) | |||
Noninterest
expense
|
|||||||
Compensation
and benefits
|
4,114
|
3,439
|
|||||
Professional
services
|
862
|
801
|
|||||
Occupancy
and equipment
|
848
|
739
|
|||||
Data
processing
|
292
|
304
|
|||||
FDIC insurance
|
835
|
244
|
|||||
Other
operating expense
|
1,806
|
1,682
|
|||||
Total
noninterest expense
|
8,757
|
7,209
|
|||||
Income
before income tax expense
|
10,064
|
7,095
|
|||||
Income
tax expense
|
3,964
|
2,848
|
|||||
Net income | 6,011 | 4,247 | |||||
Preferred
stock dividend and discount accretion
|
899 |
—
|
|||||
Net
income available to common shareholders
|
$
|
5,201
|
$
|
4,247
|
|||
Earnings
per common share
|
|||||||
Basic
|
$
|
1.29
|
$
|
1.13
|
|||
Diluted
|
$
|
1.29
|
$
|
1.05
|
|||
Weighted
average shares outstanding
|
|||||||
Basic
|
4,031,355
|
3,746,447
|
|||||
Diluted
|
4,036,960
|
4,038,258
|
|||||
|
See
accompanying notes to consolidated financial statements
3
Parke
Bancorp, Inc. and Subsidiaries
|
|||||||||||||||||||||
Consolidated
Statements of Change in Shareholders’ Equity
|
|||||||||||||||||||||
Years
Ended December 31, 2009 and 2008
|
|||||||||||||||||||||
(in
thousands)
|
|||||||||||||||||||||
Preferred
Stock |
Common Stock
|
Additional Paid-In
Capital
|
Retained
Earnings
|
Accumulated
Other Comprehensive Income (Loss)
|
Treasury
Stock |
Total
Shareholders' Equity
|
|||||||||||||||
Balance,
December 31, 2007
|
$
|
—
|
$
|
331
|
$
|
26,798
|
$
|
11,897
|
$
|
(790)
|
$
|
(1,819)
|
$
|
36,417
|
|||||||
Stock
warrants exercised
|
35
|
1,647
|
1,682
|
||||||||||||||||||
Stock
compensation
|
(11)
|
(11)
|
|||||||||||||||||||
15%
common stock dividend
|
48
|
7,222
|
(7,274)
|
(4)
|
|||||||||||||||||
Treasury
stock purchased (20,209 shares)
|
(29)
|
(29)
|
|||||||||||||||||||
Comprehensive
income (loss):
|
|||||||||||||||||||||
Net
income
|
4,247
|
4,247
|
|||||||||||||||||||
Change
in unrealized loss on securities available for sale, net of
tax
|
(2,032)
|
(2,032)
|
|||||||||||||||||||
Pension
liability adjustments, net of tax
|
31
|
31
|
|||||||||||||||||||
Total
comprehensive income
|
2,246
|
||||||||||||||||||||
Balance,
December 31, 2008
|
—
|
414
|
35,656
|
8,870
|
(2,791)
|
(1,848)
|
40,301
|
||||||||||||||
Stock
warrants exercised
|
7
|
415
|
422
|
||||||||||||||||||
Stock
compensation
|
19
|
19
|
|||||||||||||||||||
Treasury
stock purchased (61,459 shares)
|
(332)
|
(332)
|
|||||||||||||||||||
Comprehensive
income (loss):
|
|||||||||||||||||||||
Net
income
|
6,100
|
6,100
|
|||||||||||||||||||
Non-credit
unrealized losses on debt securities with OTTI, net of
taxes
|
(451)
|
(451)
|
|||||||||||||||||||
Net
unrealized gains on available for sale securities without OTTI, net of
taxes
|
380
|
380
|
|||||||||||||||||||
Pension
liability adjustments, net of taxes
|
(5)
|
(5)
|
|||||||||||||||||||
Total
comprehensive income
|
6,024
|
||||||||||||||||||||
Preferred
stock issued
|
15,358
|
930
|
16,288
|
||||||||||||||||||
Dividend
on preferred stock (5% annually)
|
(749)
|
(749)
|
|||||||||||||||||||
Accretion
of discount on preferred stock
|
150
|
(150)
|
0
|
||||||||||||||||||
Balance,
December 31, 2009
|
$
|
15,508
|
$
|
421
|
$
|
37,020
|
$
|
14,071
|
$
|
(2,867)
|
$
|
(2,180)
|
$
|
61,973
|
|||||||
See
accompanying notes to consolidated financial
statements
|
4
Parke
Bancorp, Inc. and Subsidiaries
|
|||||
Consolidated
Statements of Cash Flows
|
|||||
Years
Ended December 31, 2009 and 2008
|
|||||
(in
thousands)
|
|||||
2009
|
2008
|
||||
Cash
Flows from Operating Activities
|
|||||
Net
income
|
$
|
6,100
|
$
|
4,247
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||
Depreciation
and amortization
|
312
|
306
|
|||
Provision
for loan losses
|
5,300
|
2,063
|
|||
Stock
compensation
|
19
|
(11)
|
|||
Bank
owned life insurance
|
(180)
|
(189)
|
|||
Supplemental
executive retirement plan
|
384
|
326
|
|||
Gain
on sale of SBA loans
|
(313)
|
—
|
|||
SBA
loans originated for sale
|
(3,552)
|
—
|
|||
Proceeds
from sale of SBA loans originated for sale
|
3,197
|
—
|
|||
Gain
on sale of other real estate owned
|
(19)
|
—
|
|||
Loss
on write down of foreclosed assets
|
228
|
350
|
|||
Other
than temporary decline in value of investments
|
1,729
|
2,279
|
|||
Net
accretion of purchase premiums and discounts on securities
|
(109)
|
(119)
|
|||
Deferred
income tax benefit
|
(2,825)
|
(1,506)
|
|||
Changes
in operating assets and liabilities:
|
|||||
Increase
in accrued interest receivable and other assets
|
(3,813)
|
(34)
|
|||
Increase
in accrued interest payable and other accrued liabilities
|
300
|
189
|
|||
Net
cash provided by operating activities
|
6,758
|
7,901
|
|||
Cash
Flows from Investing Activities
|
|||||
Purchases
of investment securities available for sale
|
(8,636)
|
(13,947)
|
|||
Purchases
of restricted stock
|
(511)
|
(1,110)
|
|||
Proceeds
from maturities of investment securities available for
sale
|
3,500
|
3,500
|
|||
Principal
payments on mortgage-backed securities
|
5,880
|
2,727
|
|||
Proceeds
from sale of other real estate owned
|
505
|
—
|
|||
Net
increase in loans
|
(57,060)
|
(140,122)
|
|||
Purchases
of bank premises and equipment
|
(159)
|
(103)
|
|||
Net
cash used in investing activities
|
(56,481)
|
(149,055)
|
|||
Cash
Flows from Financing Activities
|
|||||
Proceeds
from issuance of preferred stock
|
16,288
|
—
|
|||
Payment
of dividend on preferred stock
|
(645)
|
—
|
|||
Proceeds
from exercise of stock options and warrants
|
422
|
1,678
|
|||
Purchase
of treasury stock
|
(332)
|
(29)
|
|||
Net
increase in Federal Home Loan Bank short term borrowings
|
2,025
|
11,750
|
|||
Proceeds
from Federal Home Loan Bank advances
|
29,500
|
10,000
|
|||
Payments
of Federal Home Loan Bank advances
|
(25,637)
|
—
|
|||
Net
(decrease) increase in noninterest-bearing deposits
|
(773)
|
4,392
|
|||
Net
increase in interest-bearing deposits
|
25,759
|
111,455
|
|||
Net
cash provided by financing activities
|
46,607
|
139,246
|
|||
Decrease
in cash and cash equivalents
|
(3,116)
|
(1,908)
|
|||
Cash
and Cash Equivalents, January 1,
|
7,270
|
9,178
|
|||
Cash
and Cash Equivalents, December 31,
|
$
|
4,154
|
$
|
7,270
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|||||
Cash
paid during the year for:
|
|||||
Interest
on deposits and borrowed funds
|
$
|
16,435
|
$
|
19,719
|
|
Income
taxes
|
$
|
6,701
|
$
|
3,607
|
|
Supplemental
Schedule of Noncash Activities:
|
|||||
Real
estate acquired in settlement of loans
|
$
|
430
|
$
|
859
|
|
See
accompanying notes to consolidated financial
statements
|
5
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 1. Description
of Business and Summary of Significant Accounting Policies
Description of
Business: Parke Bancorp, Inc. (the “Company”) is a bank
holding company headquartered in Sewell, New Jersey. Through
subsidiaries, the Company provides individuals, corporations and other
businesses, and institutions with commercial and retail banking services,
principally loans and deposits. Parke Bancorp was incorporated in
January 2005 under the laws of the State of New Jersey for the sole purpose of
becoming the holding company of Parke Bank (the "Bank").
Parke
Bank is a commercial bank, which was incorporated on August 25, 1998, and
commenced operations on January 28, 1999. The Bank is chartered by
the New Jersey Department of Banking and Insurance and insured by the Federal
Deposit Insurance Corporation. The Bank maintains its principal
office at 601 Delsea Drive, Washington Township, New Jersey, and three
additional branch office locations, one at 501 Tilton Road, Northfield, New
Jersey, one at 567 Egg Harbor Road, Washington Township, New Jersey, and one at
1610 Spruce Street in Philadelphia, Pennsylvania.
The
accounting and financial reporting policies of the Company and Subsidiaries
conform to accounting principles generally accepted in the United States of
America (“GAAP”) and to general practices within the banking
industry. The policies that materially affect the determination of
financial position, results of operations and cash flows are summarized
below.
Principles of
Consolidation: The accompanying consolidated financial
statements include the accounts of Parke Bancorp, Inc. and its wholly-owned
subsidiaries Parke Bank, Parke Capital Markets, Farm Folly, Inc. and Taylors
Glen LLC. Also included are the accounts of 44 Business Capital Partners LLC, a
joint venture formed in 2009 to originate and service SBA loans. Parke Bank has
a 51% ownership interest in the joint venture; the non-controlling interest was
not material as of December 31, 2009. Parke Capital Trust I, Parke Capital Trust
II and Parke Capital Trust III are wholly-owned subsidiaries but are not
consolidated because they do not meet the requirements under FIN 46R,
Consolidation of Variable Interest Entities. All significant
inter-company balances and transactions have been eliminated.
Accounting Standards
Codification (ASC): On July 1, 2009, the Financial Accounting
Standards Board (FASB) officially launched the FASB Accounting Standards
Codification™ (ASC), which has become the single official source of
authoritative, nongovernmental U.S. Generally Accepted Accounting Principles
(GAAP), superseding all prior FASB, American Institute of Certified Public
Accountants (AICPA), Emerging Issues Task Force (EITF), and related
literature. The Codification is effective for interim and annual
periods ending on or after September 15, 2009. Accordingly, the
Company’s accounting policies, which are consistent with prior periods and
detailed below are now in accordance with ASC and no longer contain references
to Statements on Financial Accounting Standards (SFAS), or related
literature.
Investment
Securities: Investment securities are classified under one of
the following categories: “held to maturity” and accounted for at historical
cost, adjusted for accretion of discounts and amortization of premiums;
“available for sale” and accounted for at fair market value, with unrealized
gains and losses reported within accumulated other comprehensive income, a
separate component of shareholders’ equity; or “trading” and accounted for at
fair market value, with unrealized gains and losses reported as a component of
net income. The Company does not hold trading
securities.
6
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
At
December 31, 2009 and 2008, the Company held investment securities that
would be held for indefinite periods of time, including securities that
would be used as part of the Company’s asset/liability management strategy
and possibly sold in response to changes in interest rates, prepayments
and similar factors. These securities are classified as
“available for sale” and are carried at fair value, with any temporary
unrealized gains or losses reported as a separate component of other
comprehensive income, net of the related income tax
effect.
|
At
December 31, 2009 and 2008, the Company also reported investments in securities
that were carried at cost, adjusted for amortization of premium and accretion of
discount. The Company has the intent and ability to hold these
investment securities to maturity considering all reasonably foreseeable events
or conditions. These securities are classified as “held to
maturity.”
Declines
in the fair value of individual debt securities below their cost that are deemed
to be other-than-temporary result in write-downs of the individual securities to
their fair value. Debt securities that are deemed to be other-than-temporarily
impaired are reflected in earnings as realized losses to the extent impairment
is related to credit losses. The amount of the impairment for debt securities
related to other factors is recognized in other comprehensive income (loss). In
evaluating other-than-temporary impairment losses, management considers (1) the
length of time and the extent to which the fair value has been less than cost,
(2) the reasons for the decline in value, (3) the financial position and access
to capital of the issuer, including the current and future impact of any
specific events, and (4) for fixed maturity securities, whether the Company
intends to sell the security, or it is more likely than not that the Company
will be required to sell the security before recovery of the cost basis, which
may be maturity.
The
amortization of premiums and accretion of discounts over the contractual lives
of the related securities are recognized in interest income using the interest
method. Gains and losses on the sale of such securities are accounted
for using the specific identification method.
Restricted
Stock: Restricted stock includes investments in the common
stock of the Federal Home Loan Bank of New York (“FHLBNY”) and the Atlantic
Central Bankers Bank for which no market exists and, accordingly, is carried at
cost. FHLB stock has no quoted market value and is subject to redemption
restrictions. Management reviews for impairment based on the ultimate
recoverability of the cost basis in the stock. The
stock’s value is determined by the ultimate recoverability of the par value
rather than by recognizing temporary declines. Management considers such
criteria as the significance of the decline in net assets, if any, of the FHLB,
the length of time this situation has persisted, commitments by the FHLB to make
payments required by law or regulation, the impact of legislative and regulatory
changes on the customer base of the FHLB and the liquidity position of the
FHLB.
Loans: The
Company makes commercial, real estate and consumer loans to
customers. A substantial portion of the loan portfolio is represented
by loans in the Southern New Jersey and Philadelphia, Pennsylvania
markets. The ability of the Company’s debtors to honor their
contracts is dependent upon the real estate and general economic conditions in
this area. Loans that management has the intent and ability to hold
for the foreseeable future or until maturity or pay-off generally are reported
at their outstanding unpaid principal amount, adjusted for charge-offs, the
allowance for loan losses and any unamortized deferred fees or costs on
originated loans. Interest income on loans is recognized as earned
based on contractual interest rates applied to daily principal amounts
outstanding.
7
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Loans-Nonaccrual: Loans
are placed on nonaccrual status and the accrual of interest income ceases when a
default of principal or interest exists for a period of ninety days except when,
in management’s judgment, the collection of principal and interest is reasonably
anticipated (i.e. the loan is well secured and in the process of
collection). Interest receivable on nonaccrual loans previously
credited to income is reversed, and subsequently recognized as income only as
received if the collection of principal is reasonably assured. Loans
are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
Loans Held for
Sale: Loans held for sale are the guaranteed portion of
SBA loans and are included in Loans at the lower of aggregate cost or
market value. The net amount of loan origination fees on loans sold is
included in the carrying value and in the gain or loss on the sale. The
Company originates loans to customers under an SBA program that generally
provides for SBA guarantees of up to 90 percent of each
loan. When the sale of the guaranteed portion of an SBA loan
occurs, the premium received on the sale and the present value of future
cash flows of the servicing assets are recognized in income over the
estimated life of the loan. As of December 31, 2009, $630,000 in loans
held for sale are included in total
loans.
|
Concentration of Credit
Risk: The Company’s loans are generally to diversified
customers in Southern New Jersey and the Philadelphia area of
Pennsylvania. Loans to general building contractors, general
merchandise stores, restaurants, motels, warehouse space, and real estate
ventures (including construction loans) constitute a majority of commercial
loans. The concentrations of credit by type of loan are set forth in
Note 4. Generally, loans are collateralized by assets of the borrower
and are expected to be repaid from the borrower’s cash flow or proceeds from the
sale of selected assets of the borrower.
Loan
Fees: Loan fees and direct costs associated with loan
originations are netted and deferred. The deferred amount is
recognized as an adjustment to loan interest over the term of the related loans
using the interest method. Loan brokerage fees, which represent
commissions earned for facilitating loans between borrowers and other companies,
are recorded in income as earned.
Allowance for Loan
Losses: The allowance for loan losses is maintained through
charges to the provision for loan losses in the Consolidated Statements of
Income as losses are estimated to have occurred. Loans that are
determined to be uncollectible are charged against the allowance, and subsequent
recoveries, if any, are credited to the allowance. The allowance is
an amount that management believes will be adequate to absorb estimated losses
relating to specifically identified loans, as well as probable credit losses in
the balance of the loan portfolio, based on an evaluation of collectibility of
existing loans and prior loss experience. When evaluating the
adequacy of the allowance, an assessment of the loan portfolio will typically
include changes in the composition and volume of the loan portfolio, overall
portfolio quality and past loss experience, review of specific problem loans,
current economic conditions which may affect borrowers’ ability to repay, and
other factors which may warrant current recognition. Such periodic
assessments may, in management’s judgment, require the Company to recognize
additions or reductions to the allowance.
Various
regulatory agencies periodically review the adequacy of the Company’s allowance
for loan losses as an integral part of their examination
process. Such agencies may require the Company to recognize additions
or reductions to the allowance based on their evaluation of information
available to them at the
8
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
The
allowance consists of allocated and general components. The allocated
component relates to loans that are classified as impaired. For those
loans that are classified impaired, an allowance is established when the
discounted cash flows (or collateral value or observable market price) of the
impaired loan is lower than the carrying value of that loan. The general
component covers non-classified loans and is based on historical charge-off
experience and expected losses given the Company’s internal risk rating process.
Other adjustments may be made to the allowance for pools of loans after an
assessment of internal or external influences on credit quality that are not
reflected in the historical loss or risk rating data.
A loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Loans that experience insignificant payment delays and
payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrower’s prior payment record, and
the amount of the shortfall in relation to the principal and interest
owed. Factors considered by management when evaluating impaired loans
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Impairment is
measured on a loan by loan basis for commercial loans by either the present
value of expected future cash flows discounted at the loans effective interest
rate, the loan’s obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.
Large
groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Company does not separately evaluate
individual consumer and residential loans for impairment.
Other Real Estate Owned
(OREO): Real estate acquired through foreclosure or other
proceedings is carried at estimated fair value less estimated costs of disposal
and is included in other assets on the Consolidated Balance Sheets. Costs of
improving OREO are capitalized to the extent that the carrying value does not
exceed its fair value less estimated selling costs. Subsequent valuation
adjustments, if any, are recognized as a charge against current earnings.
Holding costs are charged to expense. Gains and losses on sales are recognized
in noninterest income as they occur. There was no OREO as of December 31, 2009
and $859,000 at December 31, 2008.
Interest Rate
Risk: The Company is principally engaged in the business of
attracting deposits from the general public and using these deposits, together
with other borrowed and brokered funds, to make commercial, commercial mortgage,
residential mortgage, and consumer loans, and to invest in overnight
and term
investment securities. Inherent in such activities is interest rate
risk that results from differences in the
maturities and re-pricing characteristics of these assets and
liabilities. For this reason, management regularly monitors the level
of interest rate risk and the potential impact on net income.
Bank Premises and
Equipment: Bank premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed
and charged to expense using the straight-line method over the estimated useful
lives of the assets, generally three to forty years. Leasehold
improvements
are amortized to expense over the shorter of the term of the respective lease or
the estimated useful life of the improvements.
9
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Income
Taxes: Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
difference between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. Realization of deferred tax assets is
dependent on generating sufficient taxable income in the future.
When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that ultimately would be sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more-likely-than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. The evaluation of a tax position taken is
considered by itself and not offset or aggregated with other positions. Tax
positions that meet the more likely-than not recognition threshold are measured
as the largest amount of tax benefit that is more than 50 percent likely of
being realized upon settlement with the applicable taxing authority. The portion
of benefits associated with tax positions taken that exceeds the amount measured
as described above is reflected as a liability for unrecognized tax benefits in
the accompanying balance sheet along with any associated interest and penalties
that would be payable to the taxing authorities upon examination.
Interest
and penalties associated with unrecognized tax benefits would be recognized in
income tax expense on the income statement.
The
Company did not recognize any interest or penalties related to income tax during
the years ended December 31, 2009 or 2008 and did not accrue interest or
penalties. The Company does not have an accrual for uncertain tax
positions as of December 31, 2009 or 2008, as deductions taken and benefits
accrued are based on widely understood administrative practices and procedures
and are based on clear and unambiguous tax law. Tax returns for all
years 2006 and thereafter are subject to further examination by tax
authorities.
Use of
Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term include the
allowance for loan losses, other than temporary impairment losses on investment
securities and the valuation of deferred income taxes.
10
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Segment
Reporting: The Company operates one reportable segment of
business, “community banking”. Through its community banking segment,
the Company provides a broad range of retail and community banking
services.
Reclassifications: Certain
items in the 2008 financial statements have been reclassified to conform to the
2009 presentation. Such reclassifications have no impact on
earnings.
Comprehensive
Income: Comprehensive income consists of net income and other
gains and losses affecting shareholders' equity that, under GAAP, are excluded
from net income, including unrealized gains and losses on available for sale
securities and gains or losses, prior service costs or credits, and transition
assets or obligations associated with pension or other postretirement benefits
that have not been recognized as components of net periodic benefit
cost.
The
Company recognizes the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or a liability in the statement of financial
position and changes in that funded status through comprehensive income in the
year the changes occur. The accounting guidance related to
compensation-retirement benefits also requires an employer to measure the funded
status of a plan as of the date of the employer's year-end statement of
financial position. The Company has recorded expense for the unfunded
status of $322,000 and $450,000 for the years ended December 31, 2009 and 2008,
respectively, relating to a Supplemental Executive Retirement Plan ("SERP")
(Note 11).
The
Company’s comprehensive income is presented in the following table:
2009
|
2008
|
|||||
(amounts
in thousands)
|
||||||
Net
Income:
|
$
|
6,100
|
$
|
4,247
|
||
Non-credit
unrealized losses on debt securities with OTTI:
|
||||||
Available
for sale
|
753
|
—
|
||||
Unrealized
gains (losses) on available for sale securities without
OTTI
|
(2,601)
|
(5,665)
|
||||
Reclassification
adjustment for net losses realized in income
|
1,729
|
2,279
|
||||
Minimum
pension liability
|
(9)
|
52
|
||||
Tax
impact
|
52
|
1,333
|
||||
$
|
6,024
|
$
|
2,246
|
11
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Accumulated
other comprehensive loss
consisted of the following at December 31, 2009 and 2008:
2009
|
2008
|
||||
(amounts
in thousands)
|
|||||
Securities
|
|||||
Non-credit
unrealized losses on debt securities with OTTI:
|
|||||
Available
for sale
|
$
|
(753)
|
$
|
—
|
|
Unrealized
gains (losses) on available for sale securities without
OTTI
|
(3,619)
|
(4,253)
|
|||
Minimum
pension liability
|
(407)
|
(398)
|
|||
Tax
impact
|
1,912
|
1,860
|
|||
$
|
(2,867)
|
$
|
(2,791)
|
Earnings Per Common
Share: Basic earnings per common share is computed by dividing
net income by the weighted average number of common shares outstanding during
the period. Diluted earnings per common share considers common stock
equivalents (when dilutive) outstanding during the period such as options and
warrants outstanding. To the extent that stock equivalents are
anti-dilutive, they have been excluded from the earnings per share calculation.
Both basic and diluted earnings per share computations give retroactive effect
to stock dividends declared in 2008 and 2007 (Note 13). Earnings per
common share have been computed based on the following for 2009 and
2008:
2009
|
2008
|
|
Average
number of common shares outstanding
|
4,031,355
|
3,746,447
|
Effect
of dilutive warrants
|
5,605
|
291,811
|
Average
number of common shares outstanding used to calculate diluted earnings per
common share |
4,036,960
|
4,038,258
|
Statement of Cash
Flows: Cash and cash equivalents include cash and due from
financial institutions and federal funds sold. For the purposes of
the statement of cash flows, changes in loans and deposits are shown on a net
basis.
Stock-based
Compensation: Stock-based compensation accounting guidance
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements. That cost will be measured
based on the grant date fair value of the equity or liability instruments
issued. The stock compensation accounting guidance covers a wide
range of share-based compensation arrangements including stock options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans.
The stock
compensation accounting guidance requires that compensation cost for all stock
awards be calculated and recognized over the employees’ service period,
generally defined as the vesting period. A Black-Scholes option
pricing model is used to estimate the fair value of stock options at the date of
grant.
12
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Recently Issued Accounting
Pronouncements:
FASB
ASC Topic 820, Fair Value Measurements and Disclosures
ASC Topic
820 provides a list of factors that a reporting entity should evaluate to
determine whether there has been a significant decrease in the volume and level
of activity for the asset or liability in relation to normal market activity for
the asset or liability. When the reporting entity concludes there has
been a significant decrease in the volume and level of activity for the asset or
liability, further analysis of the information from that market is needed and
significant adjustments to the related prices may be necessary to estimate fair
value in accordance with FASB ASC Topic 820.
This new
accounting guidance clarifies that when there has been a significant decrease in
the volume and level of activity for the asset or liability, some transactions
may not be orderly. In those situations, the entity must evaluate the
weight of the evidence to determine whether the transaction is orderly. The
guidance provides a list of circumstances that may indicate that a transaction
is not orderly. A transaction price that is not associated with
an orderly transaction is given little, if any, weight when estimating fair
value. Adoption of the new guidance has had a significant impact on
the manner in which management determines fair value of illiquid investments in
the Company’s portfolio as described in Note 3.
Fair
value of non-financial assets and liabilities: Effective January 1,
2009, the Company measures non-recurring nonfinancial assets and liabilities
recognized or disclosed at fair value and has included these disclosures at Note
16. Accordingly, the fair value of OREO balances, if any, would be
included in the fair value disclosures.
FASB
ASC Topic 320, Investments – Debt and Equity Securities
ASC Topic
320 clarifies the interaction of the factors that should be considered when
determining whether a debt security is other-than-temporarily
impaired. For debt securities, management must assess whether (a) it
has the intent to sell the security and (b) it is more likely than not that it
will be required to sell the security prior to its anticipated recovery. These
steps are done before assessing whether the entity will recover the cost basis
of the investment. Previously, this assessment required management to
assert it had both the intent and the ability to hold a security for a period of
time sufficient to allow for an anticipated recovery in fair value to avoid
recognizing an other-than-temporary impairment. This change does not affect the
need to forecast recovery of the value of the security through either cash flows
or market price.
In
instances when a determination is made that an other-than-temporary impairment
exists but the investor does not intend to sell the debt security or it is not
more likely than not that it will not be required to sell the debt security
prior to its anticipated recovery, ASC Topic 320 changes the presentation and
amount of the other-than-temporary impairment recognized in the income
statement. The other-than-temporary impairment is separated into (a)
the amount of the total other-than-temporary impairment related to a decrease in
cash flows expected to be collected from the debt security (the credit loss) and
(b) the amount of the total other-than-temporary impairment related to all other
factors. The amount of the total other-than-temporary impairment related to the
credit loss is recognized in earnings. The amount of the total
other-than-temporary impairment related to all other factors is recognized in
other comprehensive income.
13
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Accordingly,
management has expanded the presentation and disclosure of OTTI of investment
securities as more fully described in Note 3.
FASB
ASC Topic 855, Subsequent Events
The
Company adopted ASC Topic 855, Subsequent Events, as of June 30,
2009. This new accounting guidance establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued (i.e.,
complete in a form and format that complies with GAAP and approved for
issuance). However, this guidance does not apply to subsequent events
or transactions that are within the scope of other applicable GAAP that provide
different guidance on the accounting treatment for subsequent events or
transactions. There are two types of subsequent events to be
evaluated under this guidance:
Recognized
subsequent events - An entity must recognize in the financial statements the
effects of all subsequent events that provide additional evidence about
conditions that existed at the date of the balance sheet, including the
estimates inherent in the process of preparing financial
statements.
Non-recognized
subsequent events - An entity must not recognize subsequent events that provide
evidence about conditions that did not exist at the date of the balance sheet
but that arose after the balance sheet date but before financial statements are
issued or are available to be issued. Some non-recognized subsequent
events may be of such a nature that they must be disclosed to keep the financial
statements from being misleading. For such events, an entity must
disclose the nature of the event and an estimate of its financial effect or a
statement that such an estimate cannot be made.
Accordingly,
management has evaluated subsequent events through the date the financial
statements were issued and has determined that no recognized or non-recognized
subsequent events, except as disclosed in Note 19, warranted inclusion or
disclosure in the financial statements as of December 31, 2009.
14
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 2. Cash
and Due from Banks
The
Company maintains various deposit accounts with other banks to meet normal funds
transaction requirements, to satisfy deposit reserve requirements, and to
compensate other banks for certain correspondent services. Management
is responsible for assessing the credit risk of its correspondent
banks. The withdrawal or usage restrictions of these balances did not
have a significant impact on the operations of the Company as of December 31,
2009 or 2008, because reserve requirements were covered by vault
cash.
Note 3. Investment
Securities
The
following is a summary of the Company's investment in available for sale and
held to maturity securities as of December 31, 2009 and 2008:
As
of December 31, 2009
|
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Other-than-
temporary
impairments
in
OCI
|
Fair
value
|
|||||||||||||
Available
for sale:
|
(amounts
in thousands)
|
|||||||||||||||||
U.S.
Government sponsored entities
|
$
|
3,273
|
$
|
—
|
$
|
41
|
$
|
—
|
$
|
3,232
|
||||||||
Corporate
debt obligations
|
2,000
|
17
|
47
|
—
|
1,970
|
|||||||||||||
Residential
mortgage-backed securities
|
19,098
|
679
|
79
|
—
|
19,698
|
|||||||||||||
Collateralized
mortgage obligations
|
3,859
|
68
|
50
|
68
|
3,809
|
|||||||||||||
Collateralized
debt obligations
|
5,562
|
—
|
4,166
|
685
|
711
|
|||||||||||||
Total
available for sale
|
$
|
33,792
|
$
|
764
|
$
|
4,383
|
$
|
753
|
$
|
29,420
|
||||||||
Held
to maturity:
|
||||||||||||||||||
States
and political subdivisions
|
$
|
2,509
|
$
|
10
|
$
|
115
|
$
|
—
|
$
|
2,404
|
15
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
As
of December 31, 2008
|
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Other-than-
temporary
impairments
in
OCI
|
Fair
value
|
|||||||||||||
Available
for sale:
|
(amounts
in thousands)
|
|||||||||||||||||
U.S.
Government sponsored entities
|
$
|
1,994
|
$
|
17
|
$
|
—
|
$
|
—
|
$
|
2,011
|
||||||||
Corporate
debt obligations
|
3,496
|
—
|
425
|
—
|
3,071
|
|||||||||||||
Residential
mortgage-backed securities
|
20,939
|
632
|
10
|
—
|
21,561
|
|||||||||||||
Collateralized
mortgage obligations
|
4,021
|
65
|
498
|
—
|
3,588
|
|||||||||||||
Collateralized
debt obligations
|
5,733
|
—
|
4,034
|
—
|
1,699
|
|||||||||||||
Total
available for sale
|
$
|
36,183
|
$
|
714
|
$
|
4,967
|
$
|
—
|
$
|
31,930
|
||||||||
Held
to maturity:
|
||||||||||||||||||
States
and political subdivisions
|
$
|
2,482
|
$
|
6
|
$
|
164
|
$
|
—
|
$
|
2,324
|
The
amortized cost and fair value of debt securities classified as available for
sale and held to maturity, by contractual maturity, as of December 31, 2009, are
as follows:
Amortized
Cost
|
Fair
Value
|
||||
(amounts
in thousands)
|
|||||
Available
for sale:
|
|||||
Due
within one year
|
$
|
—
|
$
|
—
|
|
Due
after one year through three years
|
—
|
—
|
|||
Due
after three years through five years
|
998
|
996
|
|||
Due
after five years
|
9,837
|
4,917
|
|||
Residential
mortgage-backed securities and collateralized mortgage
obligations
|
22,957
|
23,507
|
|||
Total available
for sale
|
$
|
33,792
|
$
|
29,420
|
Held
to maturity:
|
|||||
Due
within one year
|
$
|
541
|
$
|
548
|
|
Due
after one year through three years
|
—
|
—
|
|||
Due
after three years through five years
|
—
|
—
|
|||
Due
after five years
|
1,968
|
1,856
|
|||
Total
held to maturity
|
$
|
2,509
|
$
|
2,404
|
Expected
maturities will differ from contractual maturities for mortgage related
securities because the issuers of certain debt securities do have the right to
call or prepay their obligations without any penalties.
There
were no sales of investment securities in 2009 and 2008.
16
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
As of
December 31, 2009 and 2008, approximately $10.7 million and $15.8 million,
respectively, of investment securities are pledged as collateral for borrowed
funds (Note 9). In addition, securities with a carrying value of
$16.3 million and $10.8 million, respectively, were pledged to secure public
deposits at December 31, 2009 and 2008.
The
following tables show the gross unrealized losses and fair value of the
Company's investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss
position, at December 31, 2009 and December 31, 2008:
As
of December 31 ,2009
|
Less
Than 12 Months
|
12
Months or Greater
|
Total
|
|||||||||||||||
Description
of Securities
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||
(amounts
in thousands)
|
||||||||||||||||||
Available
for sale:
|
||||||||||||||||||
U.S.
Government sponsored entities
|
$
|
3,225
|
$
|
41
|
$
|
—
|
$
|
—
|
$
|
3,225
|
$
|
41
|
||||||
Corporate
debt obligations
|
—
|
—
|
653
|
47
|
653
|
47
|
||||||||||||
Residential
mortgage-backed securities and collateralized mortgage
obligations
|
6,289
|
129
|
—
|
—
|
6,289
|
129
|
||||||||||||
Collateralized
debt obligations
|
—
|
—
|
585
|
4,166
|
585
|
4,166
|
||||||||||||
Total
available for sale
|
$
|
9,514
|
$
|
170
|
$
|
1,238
|
$
|
4,213
|
$
|
10,752
|
$
|
4,383
|
||||||
Held
to maturity:
|
||||||||||||||||||
States
and political subdivisions
|
$
|
—
|
$
|
—
|
$
|
610
|
$
|
115
|
$
|
610
|
$
|
115
|
17
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
As
of December 31, 2008
|
Less
Than 12 Months
|
12
Months or Greater
|
Total
|
|||||||||||||||
Description
of Securities
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||
(amounts
in thousands)
|
||||||||||||||||||
Available
for sale:
|
||||||||||||||||||
U.S.
Government sponsored entities
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
Corporate
debt obligations
|
3,071
|
425
|
—
|
—
|
3,071
|
425
|
||||||||||||
Residential
mortgage-backed securities and collateralized mortgage
obligations
|
1,234
|
181
|
1,220
|
327
|
2,454
|
508
|
||||||||||||
Collateralized
debt obligations
|
1,679
|
4,034
|
—
|
—
|
1,679
|
4,034
|
||||||||||||
Total
available for sale
|
$
|
5,984
|
$
|
4,640
|
$
|
1,220
|
$
|
327
|
$
|
7,204
|
$
|
4,967
|
||||||
Held
to maturity:
|
||||||||||||||||||
States
and political subdivisions
|
$
|
1,775
|
$
|
164
|
$
|
—
|
$
|
—
|
$
|
1,775
|
$
|
164
|
U.S.
Government Sponsored Entities: The unrealized losses on the
Company’s investment in U.S. Government sponsored entities were caused by
movement in interest rates. Because the Company does not intend to sell the
investment and it is not more likely than not that the Company will be required
to sell the investment before recovery of its amortized cost basis, which may be
maturity, it does not consider the investment in these securities to be
other-than-temporarily impaired at December 31, 2009.
Corporate
Debt Obligations: The Company’s
unrealized loss on investments in corporate bonds relates to three trust
preferred securities (TruPS) issued by financial institutions, totaling $2.0
million at December 31, 2009. The unrealized loss was primarily caused by an
illiquid market for this sector of security. All three issues have
been rated A or above by Moody’s. Because the Company does not intend
to sell the investment and it is not more likely than not that the Company will
be required to sell the investment before recovery of its amortized cost basis,
which may be maturity, it does not consider the investment to be
other-than-temporarily impaired at December 31, 2009.
Residential
Mortgage-Backed Securities: The unrealized losses on the
Company’s investment in mortgage-backed securities were caused by movement in
interest rates. The securities were issued by FNMA and FHLMC, government
sponsored entities. It is expected that the U.S. government will guarantee all
contractual cash flows. Because the Company does not intend to sell the
investment and it is not more likely than not that the Company will be required
to sell the investment before recovery of its amortized cost basis, which may be
maturity, it does not consider the investment in these securities to be
other-than-temporarily impaired at December 31, 2009 or December 31,
2008.
Collateralized
Debt Obligations: The Company’s
unrealized loss on investments in collateralized debt obligations (CDOs) relates
to three securities issued by financial institutions, totaling $4.8
million. CDOs are pooled securities primarily secured by trust preferred
securities (TruPS), subordinated debt and surplus notes issued by small and
mid-sized banks and insurance companies. These securities are generally floating
rate instruments with 30-year maturities, and are callable at par by the issuer
after five years. The current economic downturn has had a significant adverse
impact on the financial services industry, consequently,
18
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
TruPS
CDOs do not have an active trading market. With the assistance of competent
third-party valuation specialists, the Company utilized the following
methodology to determine the fair value:
Cash
flows were developed based on the estimated speeds at which the trust preferred
securities are expected to prepay, the estimated rates at which the trust
preferred securities are expected to defer payments, the estimated rates at
which the trust preferred securities are expected to default, and the severity
of the losses on securities which default. Trust preferred securities generally
allow for prepayment by the issuer without a prepayment penalty any time after
five years. Due to the lack of new trust preferred issuances and the relatively
poor conditions of the financial institution industry, a relatively modest rate
of prepayment was assumed going forward. Estimates for conditional default rates
are based on the payment characteristics of the trust preferred securities
themselves (e.g. current, deferred, or defaulted) as well as the financial
condition of the trust preferred issuers in the pool. Estimates for the
near-term rates of deferral and CDR are based on key financial ratios relating
to the financial institutions’ capitalization, asset quality, profitability and
liquidity. Finally, we consider whether or not the financial institution has
received TARP funding, and if it has, the amount. Longer-term rates of deferral
and defaults on based on historical averages. The estimated cash flows were then
discounted. The fair value of each bond was assessed by discounting their
projected cash flows by a discount rate. The discount rates were
based on the yields of publicly traded TruPS and preferred stock issued by
comparably rated banks. The fair value for previous reporting periods
was based on indicative market bids and resulted in much lower values due to the
inactive trading market.
The
underlying issuers have been analyzed, and projections have been made regarding
the future performance, considering factors including defaults and interest
deferrals. The analysis indicates that the Company should expect to
receive all contractual cash flows. Because the Company does not
intend to sell the investment and it is not more likely than not that the
Company will be required to sell the investment before recovery of its amortized
cost basis, which may be maturity, it does not consider these investments to be
other-than-temporarily impaired at December 31, 2009 or December 31,
2008.
Other-Than-Temporarily
Impaired Debt Securities
We assess
whether we intend to sell or it is more likely than not that we will be required
to sell a security before recovery of its amortized cost basis less any
current-period credit losses. For debt securities that are considered
other-than-temporarily impaired and that we do not intend to sell and will not
be required to sell prior to recovery of our amortized cost basis, we separate
the amount of the impairment into the amount that is credit related (credit loss
component) and the amount due to all other factors. The credit loss component is
recognized in earnings and is the difference between the security’s amortized
cost basis and the present value of its expected future cash flows. The
remaining difference between the security’s fair value and the present value of
future expected cash flows is due to factors that are not credit related and is
recognized in other comprehensive income.
The
present value of expected future cash flows is determined using the best
estimate cash flows discounted at the effective interest rate implicit to the
security at the date of purchase or the current yield to accrete an asset-backed
or floating rate security. The methodology and assumptions for establishing the
best estimate cash flows vary depending on the type of security. The
asset-backed securities cash flow estimates are based on bond specific facts and
circumstances that may include collateral characteristics, expectations of
delinquency and default rates, loss severity and prepayment speeds and
structural support, including
19
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
subordination
and guarantees. The corporate bond cash flow estimates are derived from
scenario-based outcomes of expected corporate restructurings or the disposition
of assets using bond specific facts and circumstances including timing, security
interests and loss severity.
We have a
process in place to identify debt securities that could potentially have a
credit impairment that is other than temporary. This process involves
monitoring late payments, pricing levels, downgrades by rating agencies, key
financial ratios, financial statements, revenue forecasts and cash flow
projections as indicators of credit issues. On a quarterly basis, we
review all securities to determine whether an other-than-temporary decline in
value exists and whether losses should be recognized. We consider relevant facts
and circumstances in evaluating whether a credit or interest rate-related
impairment of a security is other than temporary. Relevant facts and
circumstances considered include: (1) the extent and length of time the
fair value has been below cost; (2) the reasons for the decline in value;
(3) the financial position and access to capital of the issuer, including
the current and future impact of any specific events and (4) for fixed
maturity securities, our intent to sell a security or whether it is more likely
than not we will be required to sell the security before the recovery of its
amortized cost which, in some cases, may extend to maturity and for equity
securities, our ability and intent to hold the security for a period of time
that allows for the recovery in value.
The
following table presents a roll-forward of the credit loss component of the
amortized cost of debt securities that we have written down for OTTI and the
credit component of the loss that is recognized in earnings. The beginning
balance represents the credit loss component for debt securities for which OTTI
occurred prior to adoption of the guidance of ASC Topic 320 on April 1, 2009.
OTTI recognized in earnings subsequent to adoption in 2009 for credit-impaired
debt securities is presented as additions in two components based upon whether
the current period is the first time the debt security was credit-impaired
(initial credit impairment) or is not the first time the debt security was
credit impaired (subsequent credit impairments). The credit loss component is
reduced if we sell, intend to sell or believe we will be required to sell
previously credit-impaired debt securities. Additionally, the credit loss
component is reduced if we receive cash flows in excess of what we expected to
receive over the remaining life of the credit-impaired debt security, the
security matures or is fully written down. Changes in the credit loss component
of credit-impaired debt securities was as follows for the year ended December
31, 2009.
(in
thousands)
|
||
Beginning
balance
|
$
|
2,279
|
Initial
credit impairment
|
1,105
|
|
Subsequent
credit impairments
|
624
|
|
Reductions
for amounts recognized in earnings due to intent or requirement to
sell
|
—
|
|
Reductions
for securities sold
|
—
|
|
Reductions
for increases in cash flows expected to be collected
|
—
|
|
Ending
balance
|
$
|
4,008
|
20
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
A summary
of investment gains and losses recognized in income during the year ended
December 31, 2009 are as follows:
(amounts
in thousands)
|
||
Available
for sale securities:
|
||
Realized
gains
|
$
|
—
|
Realized
(losses)
|
—
|
|
Other
than temporary impairment
|
(1,729)
|
|
Total
available for sale securities
|
$
|
(1,729)
|
Held
to maturity securities:
|
||
Realized
gains
|
$
|
—
|
Realized
(losses)
|
—
|
|
Other
than temporary impairment
|
—
|
|
Total
held to maturity securities
|
$
|
0
|
During
2009, the Company recognized $1.7 million of other-than-temporary impairment
losses on available for sale securities, attributable to impairment charges
recognized on $1.9 million of privately issued CMOs and a $978,000 CDO
issue.
The
impairment charges for the CMOs were recognized in light of significant
deterioration of housing values in the residential real estate market, the
significant rise in delinquencies and charge-offs of underlying mortgage loans
and resulting decline in market value of the securities.
With the
assistance of competent third-party valuation specialists, the Company utilized
the following methodologies to quantify the other-than-temporary-impairment. The
underlying mortgage collateral was analyzed in order to project future cash
flows and to calculate the credit component of the OTTI. Four major assumptions
were utilized; prepayment (CPR), constant default rate (CDR), loss severity and
risk adjusted discount rate. The methodologies for the four assumptions
are:
CPR
assumptions were based on evaluation of the lifetime conditional prepayment
rates; 3 month CPR over the most recent period, past 6 months and past 12
months; estimated prepayment rates provided by the Securities Industry &
Financial Markets Association (SIFMA), forecasts from other industry experts,
and judgment given recent deterioration in credit conditions and declines in
property values
CDR
estimates were based on the status of the loans – current, 30-59 days
delinquent, 60-89 days delinquent, 90+ days delinquent, foreclosure or REO – and
proprietary loss migration models (i.e. percentage of 30 day delinquents that
will ultimately migrate to default, percentage of 60 day delinquents that will
ultimately migrate to default, etc.). The model assumes that the 60 day plus
population will move to repossession inventory subject to the loss migration
assumptions and liquidate over the next 36 months. Defaults vector from month 37
to month 48 to the month 49 CDR value and ultimately vector to zero over an
extended period of time of at least 15 years.
Loss
severity estimates are based on the initial loan to value ratio, the loan’s lien
position, private mortgage insurance proceeds available (if any), and the
estimated change in the price of the property since
origination.
21
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
The loss
severity assumption is static for twelve months then decreases monthly based on
future market appreciation. Our annual market appreciation assumption is 3.5%
after 12 months. Our loss severity is subject to a floor value of
23.0%.
The risk
adjusted discount rate was derived based on the spread from the most recent
active market indication for either the instrument in question or a proxy of the
instrument. The resulting spread was then used in conjunction with the swap
curve to discount the expected cash flow stream.
The
impairment charge on the CDO is driven by the current economic downturn that has
had a significant adverse impact on the financial services industry. With the
assistance of competent third-party valuation specialists, the Company utilized
the following methodology to determine the existence of OTTI:
The
aggregated cash flows are primarily dependent on the estimated speeds at which
the trust preferred securities are expected to prepay, the estimated rates at
which the trust preferred securities are expected to defer payments, the
estimated rates at which the trust preferred securities are expected to default,
and the severity of the losses on securities which default.
Trust
preferred securities generally allow for prepayment by the issuer without a
prepayment penalty any time after five years. Due to the lack of new trust
preferred issuances and the relatively poor conditions of the financial
institution industry, a relatively modest rate of prepayment was assumed going
forward.
Estimates
for conditional default rates are based on the payment characteristics of the
trust preferred securities themselves (e.g. current, deferred, or defaulted) as
well as the financial condition of the trust preferred issuers in the pool.
Estimates for the near-term rates of deferral and CDR are based on key financial
ratios relating to the financial institutions’ capitalization, asset quality,
profitability and liquidity. Finally, we consider whether or not the financial
institution has received TARP funding, and if it has, the amount. Longer-term
rates of deferral and defaults on based on historical averages.
The
discount rate estimates come from conversations with major financial
institutions regarding assumptions they are using for highly rated assets, from
opportunistic hedge funds regarding assumptions they are using to bid on lower
and unrated assets, and other industry experts.
22
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 4. Loans
The
composition of net loans as of December 31, 2009 and 2008 was as
follows:
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Commercial
|
$
|
20,174
|
$
|
19,935
|
|
Real
estate construction:
|
|||||
Residential
|
89,006
|
87,327
|
|||
Commercial
|
27,327
|
31,582
|
|||
Real
estate mortgage:
|
|||||
Residential
|
143,385
|
90,226
|
|||
Commercial
|
310,484
|
308,457
|
|||
Consumer
|
13,025
|
10,133
|
|||
Total
Loans
|
603,401
|
547,660
|
|||
Less:
allowance for loan losses
|
(12,404)
|
(7,777)
|
|||
Net
loans
|
$
|
590,997
|
$
|
539,883
|
The
Company maintains interest reserves for the purpose of making periodic and
timely interest payments for borrowers that qualify. Total loans with
interest reserves were $74.8 million and $120.8 million at December 31, 2009 and
December 31, 2008 respectively. On a monthly basis management reviews loans with
interest reserves to assess current and projected performance.
At
December 31, 2009 and 2008, approximately $148.5 million and $134.1 million,
respectively, of loans were pledged to the FHLB of New York on borrowings (Note
9). This pledge consists of a blanket lien on residential mortgages and certain
qualifying commercial real estate loans.
Note 5. Loans
to Related Parties
In the
normal course of business, the Company has granted loans to officers, directors
and their affiliates (related parties). In the opinion of management,
the terms of these loans, including interest rates and collateral, are similar
to those prevailing for comparable transactions with other customers and do not
involve more than a normal risk of collectibility.
An
analysis of the activity of such related party loans for 2009 and 2008 is as
follows:
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Balance,
beginning of year
|
$
|
20,500
|
$
|
17,663
|
|
Advances
|
3,230
|
5,182
|
|||
Less:
repayments
|
(86)
|
(2,345)
|
|||
Balance,
end of year
|
$
|
23,644
|
$
|
20,500
|
23
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 6. Allowance
for Loan Losses
An
analysis of the allowance for loan losses for 2009 and 2008 is as
follows:
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Balance,
beginning of year
|
$
|
7,777
|
$
|
5,706
|
|
Provision
for loan losses
|
5,300
|
2,063
|
|||
Charge
offs
|
(673)
|
(5)
|
|||
Recoveries
|
—
|
13
|
|||
Balance,
end of year
|
$
|
12,404
|
$
|
7,777
|
Information
about impaired loans and nonaccrual loans as of and for the years ended December
31, 2009 and 2008 is as follows:
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Impaired
loans with a valuation allowance
|
$
|
22,681
|
$
|
809
|
|
Impaired
loans without a valuation allowance
|
28,208
|
9,391
|
|||
Total
impaired loans
|
$
|
50,889
|
$
|
10,200
|
|
Related
allowance for loan losses for impaired loans
|
$
|
3,555
|
$
|
222
|
|
Nonaccrual
loans
|
$
|
25,452
|
$
|
8,223
|
|
Average
monthly balance of impaired loans
|
$
|
34,601
|
$
|
3,280
|
|
Interest
income recognized on cash basis on impaired loans
|
$
|
10
|
$
|
30
|
Interest
income of $1.3 million and $300,000 would have been recorded on non-accrual
loans had those loans paid in accordance with their original terms in 2009 and
2008, respectively. There were no loans greater than 90 days delinquent and
still accruing interest at December 31, 2009 or 2008.
24
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 7. Bank
Premises and Equipment
A summary
of the cost and accumulated depreciation and amortization of Company premises
and equipment as of December 31, 2009 and 2008 is as follows:
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Land
|
$
|
470
|
$
|
470
|
|
Building
and improvements
|
3,028
|
3,028
|
|||
Furniture
and equipment
|
1,224
|
1,064
|
|||
Total
premises and equipment
|
4,722
|
4,562
|
|||
Less:
accumulated depreciation and amortization
|
(1,861)
|
(1,548)
|
|||
Premises
and equipment, net
|
$
|
2,861
|
$
|
3,014
|
Depreciation
and amortization expense was $313,000 and $306,000 in 2009 and 2008,
respectively.
|
The
Company has non-cancelable operating lease agreements related to its Northfield
and Philadelphia branch offices. The term of the Northfield lease is for 10
years through March 2011 with two 5-year renewal options. The term of
the Philadelphia lease is for 10 years through June 2016. The Company
is responsible for its pro-rata share of real estate taxes, and all insurance,
utilities, maintenance and repair costs for the benefit of the branch
offices. At December 31, 2008, the required future rental payments
under these leases and other equipment operating leases are as
follows:
Years
Ending December 31,
|
(Amounts
in thousands)
|
||
2010
|
$
|
176
|
|
2011
|
186
|
||
2012
|
141
|
||
2013
|
82
|
||
2014
|
83
|
||
Thereafter
|
121
|
||
Total
minimum lease payments
|
$
|
789
|
Rent
expense was approximately $290,000 in 2009 and $185,000 in 2008.
25
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 8. Deposits
Deposits
at December 31, 2009 and 2008 consisted of the following:
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Demand
deposits, noninterest-bearing
|
$
|
21,488
|
$
|
22,261
|
|
Demand
deposits, interest-bearing
|
11,616
|
10,638
|
|||
Money
market deposits
|
83,640
|
59,053
|
|||
Savings
deposits
|
141,687
|
57,401
|
|||
Time
deposits of $100,000 or more
|
71,100
|
70,917
|
|||
Other
time deposits
|
94,692
|
98,910
|
|||
Brokered
time deposits
|
96,090
|
176,147
|
|||
Total
deposits
|
$
|
520,313
|
$
|
495,327
|
Scheduled
maturities of certificates of deposit at December 31, 2009 are as
follows:
Years
Ending December 31,
|
(Amounts
in thousands)
|
||
2010
|
$
|
147,768
|
|
2011
|
108,542
|
||
2012
|
3,362
|
||
2013
|
717
|
||
2014
|
1,394
|
||
Thereafter
|
99
|
||
Total
|
$
|
261,882
|
Deposits
from related parties totaled approximately $6,999,000 and $6,955,000 at December
31, 2009 and 2008, respectively.
26
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 9. Borrowings
An
analysis of borrowings as of December 31, 2009 and 2008 is as
follows:
2009
|
2008
|
|||||||||||
Maturity
Date or Range
|
Amount
|
Weighted
Average Rate
|
Amount
|
Weighted
Average Rate
|
||||||||
(Amounts
in thousands, except rates)
|
||||||||||||
Borrowed
funds:
|
||||||||||||
Federal
Home Loan Bank repurchase agreements
|
May
2013
|
$
|
5,000
|
2.65%
|
$
|
5,000
|
2.65%
|
|||||
Other
repurchase agreements
|
July
2012
|
$
|
5,000
|
4.91%
|
$
|
5,000
|
4.91%
|
|||||
Federal
Home Loan Bank advances
|
Less
than one year
|
$
|
8,525
|
2.71%
|
$
|
25,500
|
3.73%
|
|||||
One
to three years
|
34,900
|
2.08%
|
11,900
|
4.19%
|
||||||||
Three
to five years
|
1,003
|
5.02%
|
—
|
—
|
||||||||
Five
to ten years
|
—
|
—
|
1,140
|
5.02%
|
||||||||
Total
|
$
|
44,428
|
$
|
38,540
|
||||||||
Subordinated
debentures, capital trusts
|
November
2035
|
$
|
5,155
|
1.93%
|
$
|
5,155
|
3.81%
|
|||||
November
2035
|
5,155
|
6.25%
|
5,155
|
6.25%
|
||||||||
September
2037
|
3,093
|
1.75%
|
3,093
|
3.50%
|
||||||||
Total
|
$
|
13,403
|
$
|
13,403
|
||||||||
At
December 31, 2009, the Company had a $91.5 million line of credit from the FHLB
of New York, of which $44.4 million, as detailed above, was outstanding. The
Bank has established lines of credit with other financial institutions totaling
$16.0 million. These lines were not utilized at December 31, 2009.
Certain
investment securities (Note 3), loans (Note 4), and FHLB of New York stock are
pledged as collateral for borrowings.
Subordinated Debentures –
Capital Trusts: On August 23, 2005, Parke Capital Trust I, a
Delaware statutory business trust and a wholly-owned subsidiary of the Company,
issued $5,000,000 of variable rate capital trust pass-through securities to
investors. The variable interest rate re-prices quarterly at the three-month
LIBOR plus 1.66% and was 1.93% at December 31, 2009. Parke Capital Trust I
purchased $5,155,000 of variable rate junior subordinated deferrable interest
debentures from the Company. The debentures are the sole asset of the Trust. The
terms of the junior subordinated debentures are the same as the terms of the
capital securities. The Company has also fully and unconditionally guaranteed
the obligations of the Trust under the capital securities. The capital
securities are redeemable by the Company on or after November 23, 2010, at par,
or earlier if the deduction of related interest for federal income taxes is
prohibited, classification as Tier 1 Capital is no longer allowed, or certain
other contingencies arise. The capital securities
27
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
must be
redeemed upon final maturity of the subordinated debentures on November 23,
2035. Proceeds of approximately $4,200,000 were contributed to paid-in capital
at the Bank. The remaining $955,000 was retained at the Company for future
use.
On August
23, 2005, Parke Capital Trust II, a Delaware statutory business trust and a
wholly-owned subsidiary of the Company, issued $5,000,000 of fixed/variable rate
capital trust pass-through securities to investors. Currently, the interest rate
is fixed at 6.25%. The fixed/variable interest rate re-prices quarterly at the
three-month LIBOR plus 1.66% beginning November 23, 2010. Parke Capital Trust II
purchased $5,155,000 of variable rate junior subordinated deferrable interest
debentures from the Company. The debentures are the sole asset of the Trust. The
terms of the junior subordinated debentures are the same as the terms of the
capital securities. The Company has also fully and unconditionally guaranteed
the obligations of the Trust under the capital securities. The capital
securities are redeemable by the Company on or after November 23, 2010, at par,
or earlier if the deduction of related interest for federal income taxes is
prohibited, classification as Tier 1 Capital is no longer allowed, or certain
other contingencies arise. The capital securities must be redeemed upon final
maturity of the subordinated debentures on November 23, 2035. Proceeds of
approximately $4,200,000 were contributed to paid-in capital at the Bank. The
remaining $955,000 was retained at the Company for future use.
On June
21, 2007, Parke Capital Trust III, a Delaware statutory business trust and a
wholly-owned subsidiary of the Company, issued $3,000,000 of variable rate
capital trust pass-through securities to investors. The variable interest rate
re-prices quarterly at the three-month LIBOR plus 1.50% and was 1.75% at
December 31, 2009. Parke Capital Trust III purchased $3,093,000 of variable rate
junior subordinated deferrable interest debentures from the Company. The
debentures are the sole asset of the Trust. The terms of the junior subordinated
debentures are the same as the terms of the capital securities. The Company has
also fully and unconditionally guaranteed the obligations of the Trust under the
capital securities. The capital securities are redeemable by the Company on or
after December 15, 2012, at par, or earlier if the deduction of related interest
for federal income taxes is prohibited, classification as Tier 1 Capital is no
longer allowed, or certain other contingencies arise. The capital securities
must be redeemed upon final maturity of the subordinated debentures on September
15, 2037. The proceeds were contributed to paid-in capital at
the Bank.
28
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 10. Income
Taxes
Income
tax expense for 2009 and 2008 consisted of the following:
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Current
tax expense:
|
|||||
Federal
|
$
|
5,169
|
$
|
3,395
|
|
State
|
1,620
|
1,034
|
|||
6,789
|
4,429
|
||||
Deferred
tax benefit
|
(2,825)
|
(1,581)
|
|||
Income
tax expense
|
$
|
3,964
|
$
|
2,848
|
The
components of the net deferred tax asset at December 31, 2009 and 2008 are as
follows:
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Deferred
tax assets
|
|||||
Allowance
for loan losses
|
$
|
4,903
|
$
|
3,033
|
|
Investment
securities available for sale
|
1,748
|
893
|
|||
Minimum
pension liability
|
1,405
|
976
|
|||
Stock
compensation
|
29
|
23
|
|||
Depreciation
|
224
|
135
|
|||
Other
|
21
|
41
|
|||
OTTI
writedown on securities
|
1,603
|
912
|
|||
9,933
|
6,013
|
||||
Deferred
tax liabilities:
|
|||||
Discount
accretion
|
(118)
|
(150)
|
|||
Deferred
loan costs
|
(513)
|
(459)
|
|||
BOLI
|
(454)
|
(393)
|
|||
(1,085)
|
(1,002)
|
||||
Net
deferred tax asset
|
$
|
8,848
|
$
|
5,011
|
A
reconciliation of the Company’s effective income tax rate with the statutory
federal rate for 2009 and 2008 is as follows:
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
At
Federal statutory rate
|
$
|
3,422
|
$
|
2,412
|
|
Adjustments
resulting from:
|
|||||
State
income taxes, net of Federal tax benefit
|
641
|
449
|
|||
Other
|
(99)
|
(13)
|
|||
$
|
3,964
|
$
|
2,848
|
29
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Management
has evaluated the Company’s tax positions and concluded that the Company has
taken no uncertain tax positions that require adjustments to the financial
statements. With few exceptions, the Company is no longer subject to income tax
examinations by the U.S. federal, state or local tax authorities for years
before 2006.
Note 11. Retirement
Plans
Supplemental Executive
Retirement Plan: The Company has a Supplemental Executive
Retirement Plan (“SERP”) covering certain members of management. The
net periodic SERP pension cost was approximately $418,000 in 2008 and $326,000
in 2008. The unfunded benefit obligation, which was included in other
accrued liabilities, was approximately $2,237,000 at December 31, 2009 and
$1,845,000 at December 31, 2008.
The
benefit obligation at December 31, 2009 and December 31, 2008 was calculated as
follows:
2009
|
2008
|
||||
(amounts
in thousands)
|
|||||
Benefit
obligation, January 1
|
$
|
1,845
|
$
|
1,569
|
|
Service
cost
|
207
|
196
|
|||
Interest
cost
|
106
|
90
|
|||
(Gain)
loss
|
79
|
(10)
|
|||
Benefit
obligation, December 31
|
$
|
2,237
|
$
|
1,845
|
The net
periodic pension cost for 2009 and 2008 was calculated as follows:
2009
|
2008
|
||||
(amounts
in thousands)
|
|||||
Service
cost
|
$
|
207
|
$
|
196
|
|
Interest
cost
|
106
|
90
|
|||
(Gain)
loss
|
79
|
16
|
|||
Prior
service cost recognized
|
26
|
24
|
|||
$
|
418
|
$
|
326
|
The
discount rate used in determining the actuarial present value of the projected
benefit obligation was 5.5% for both 2009 and 2008. The expected rate
of compensation increase was 4.0% for both 2009 and 2008.
In
January 2008, the Company eliminated the SIMPLE IRA Plan and replaced it with a
401k Plan. Under the new Plan, the Company is required to contribute
3% of all qualifying employees’ eligible salary to the Plan. The Plan expense in
2009 was $86,000 and $74,000 in 2008.
30
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 12. Regulatory
Matters
Capital
Ratios: Parke Bancorp (on a consolidated basis) and the Bank
are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of its assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Parke Bancorp and
the Bank’s capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth in the following table) of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined), and of Tier I capital (as defined) to average assets (as
defined). Management believes, as of December 31, 2009 and 2008, that
the Company and the Bank met all capital adequacy requirements to which they are
subject.
As of
December 31, 2009 and 2008, the Bank was categorized as “well-capitalized” under
the regulatory framework for prompt corrective action. Prompt
correction action provisions are not applicable to bank holding companies. There
are no conditions or events since December 31, 2009 that management believes
have changed the Bank's capital category.
To be
categorized as well capitalized, the Bank must maintain minimum total risk
based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the
following tables.
31
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Actual
|
For
Capital Adequacy Purposes
|
To
be Well- Capitalized Under Prompt Corrective Action
Provisions
|
|||||||||
Parke
Bancorp, Inc.
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||
As of December 31, 2009
|
(amounts
in thousands except ratios)
|
||||||||||
Total
Risk Based Capital
|
$
|
85,394
|
14.3%
|
$
|
47,892
|
8%
|
N/A
|
N/A
|
|||
(to
Risk Weighted Assets)
|
|||||||||||
Tier
1 Capital
|
$
|
77,840
|
13.7%
|
$
|
22,674
|
4%
|
N/A
|
N/A
|
|||
(to
Risk Weighted Assets)
|
|||||||||||
Tier
1 Capital
|
$
|
77,840
|
11.9%
|
$
|
26,108
|
4%
|
N/A
|
N/A
|
|||
(to
Average Assets)
|
|||||||||||
As of December 31, 2008
|
|||||||||||
Total
Risk Based Capital
|
$
|
63,609
|
11.2%
|
$
|
45,474
|
8%
|
N/A
|
N/A
|
|||
(to
Risk Weighted Assets)
|
|||||||||||
Tier
1 Capital
|
$
|
56,495
|
9.9%
|
$
|
22,737
|
4%
|
N/A
|
N/A
|
|||
(to
Risk Weighted Assets)
|
|||||||||||
Tier
1 Capital
|
$
|
56,495
|
9.5%
|
$
|
23,761
|
4%
|
N/A
|
N/A
|
|||
(to
Average Assets)
|
|||||||||||
Parke
Bank
|
|||||||||||
As of December 31, 2009
|
|||||||||||
Total
Risk Based Capital
|
$
|
85,448
|
14.3%
|
$
|
47,890
|
8%
|
$
|
59,863
|
10%
|
||
(to
Risk Weighted Assets)
|
|||||||||||
Tier
1 Capital
|
$
|
77,922
|
13.0%
|
$
|
23,945
|
4%
|
$
|
35,918
|
6%
|
||
(to
Risk Weighted Assets)
|
|||||||||||
Tier
1 Capital
|
$
|
77,922
|
11.9%
|
$
|
26,124
|
4%
|
$
|
32,655
|
5%
|
||
(to
Average Assets)
|
|||||||||||
As of December 31, 2008
|
|||||||||||
Total
Risk Based Capital
|
$
|
63,325
|
11.1%
|
$
|
45,474
|
8%
|
$
|
56,843
|
10%
|
||
(to
Risk Weighted Assets)
|
|||||||||||
Tier
1 Capital
|
$
|
56,211
|
9.9%
|
$
|
22,737
|
4%
|
$
|
34,106
|
6%
|
||
(to
Risk Weighted Assets)
|
|||||||||||
Tier
1 Capital
|
$
|
56,211
|
9.5%
|
$
|
23,761
|
4%
|
$
|
29,701
|
5%
|
||
(to
Average Assets)
|
32
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 13. Shareholders’
Equity
Common Stock
Dividend: In April 2008 the Company paid a 15% common stock
dividend to shareholders (484,723 shares). No dividend was paid during 2009. All
share and per share information has been retroactively adjusted.
Treasury
Stock: During 2009 and 2008, the Company repurchased 61,459
and 20,209, respectively, shares of the Company's common stock.
Stock
Options: In 1999, 2002 and 2003, the shareholders approved the
Company’s Employee Stock Option Plans and in 2005 the shareholders approved the
Company’s Directors and Employee Stock Option Plan (the “Plans”). The Plans are
“non-qualified” stock option plans. Reserved for issuance upon the
exercise of options granted or to be granted by the Board of Directors is an
aggregate of 576,913 shares of common stock. All options issued under
the Plans through December 31, 2005 were fully vested upon
issuance. All directors and certain officers and employees of the
Company have been granted options under the Plans. All stock option
amounts and prices included in the following discussions have been adjusted for
stock dividends.
Net
compensation expense recognized during 2009 and 2008 amounted to $19,000 and
$(11,000), respectively. There is no remaining unrecognized compensation expense
as of December 31, 2009.
Option
awards are granted with an exercise price equal to the market price of the
Company’s stock at the date of the grant. No options were awarded or
exercised in 2009. Options issued in 2006 generally vest over four to
five years. Options awarded prior to December 31, 2005 vested upon
issuance. All options issued have 10 year contractual terms and were
fully vested as of December 31, 2009.
At
December 31, 2009, there were 148,181 shares available for grant under the
Plans.
The
following table summarizes stock option activity for the year ended December 31,
2009.
Options
|
Shares
|
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Life |
Aggregate
Intrinsic Value |
|||||
Outstanding
at January 1, 2009
|
380,323
|
$
|
11.69
|
||||||
Granted
|
—
|
$
|
—
|
||||||
Exercised
|
—
|
$
|
—
|
||||||
Expired/terminated
|
60,142
|
$
|
10.00
|
||||||
Outstanding
at December 31, 2009
|
320,181
|
$
|
12.01
|
5.2
|
$
|
—
|
|||
Exercisable
at December 31, 2009
|
320,181
|
$
|
12.01
|
5.2
|
$
|
—
|
|||
33
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Stock
options outstanding and exercisable at December 31, 2009:
Range
of Exercise Prices
|
Number
Outstanding |
Weighted
Average Remaining Contractual Life |
Weighted
Average Exercise Price |
|||
$4.99
|
22,464
|
2.1
|
$
|
4.99
|
||
$6.99
|
43,549
|
3.4
|
$
|
6.99
|
||
$9.88
|
8,281
|
4.3
|
$
|
9.88
|
||
$11.86
- $15.02
|
245,887
|
5.9
|
$
|
13.61
|
||
320,181
|
5.2
|
$
|
12.01
|
Warrants: In
connection with the Company’s initial stock offering in 1998, warrants were
issued, expiring in 2009. During 2009 and 2008, warrants exercised were 82,132
and 331,430 respectively. There are none outstanding at December 31,
2009.
Preferred Stock: On
October 3, 2008 Congress passed the Emergency Economic Stabilization Act of 2008
(EESA), which provides the U.S. Secretary of the Treasury with broad authority
to implement certain actions to help restore stability and liquidity to the U.S.
markets. One of the provisions resulting from the Act is the Treasury Capital
Purchase Program (CPP) which provides for the direct equity investment of
perpetual preferred stock by the U.S. Treasury in qualified financial
institutions. This program is voluntary and requires an institution to comply
with several restrictions and provisions, including limits on executive
compensation, stock redemptions, and declaration of dividends. The CPP provides
for a minimum investment of 1% of Risk-Weighted-Assets, with a maximum
investment of the lesser of 3% of Risk-Weighted Assets or $25
billion. The perpetual preferred stock has a dividend rate of 5% per
year until the fifth anniversary of the Treasury investment and a dividend of
9%, thereafter. The CPP also requires the Treasury to receive warrants for
common stock equal to 15% of the capital invested by the U.S.
Treasury.
The
Company received an investment in cumulative perpetual preferred stock of
$16,288,000 on January 30, 2009. These proceeds were allocated
between the preferred stock and warrants based on relative fair value in
accordance with FASB ASC Topic 470, Debt with Conversion and Other
Options. The allocation of proceeds resulted in a discount on the
preferred stock that will be accreted over five years. The Company issued
299,779 common stock warrants to the U.S. Treasury and $930,000 of those
proceeds were allocated to the warrants. The warrants are accounted for as
equity securities. The warrants have a contractual life of 10 years and an
exercise price of $8.15 per share of common stock.
The
preferred stock may not be redeemed for three years except with the proceeds
from an offering common stock or preferred stock qualifying as Tier 1
capital. After three years, the preferred stock may be redeemed at
any time in whole or in part by the Company.
The
Company has recorded dividends in the approximate amount of $749,000 through
December 31, 2009. All dividend amounts billed by the U.S. Treasury through
December 31, 2009 have been paid. The preferred
34
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
qualifies
for and is accounted for as equity securities and is included in the Company’s
Tier I capital on the date of receipt.
Note 14. Other
Related Party Transactions
A member
of the Board of Directors is a principal of a commercial insurance agency that
provides all the insurance coverage for the Company. The cost of the
insurance was approximately $116,000 in 2009 and $92,000 in 2008. An
insurance agency owned by another Board Member provides employee benefits
(medical insurance, life insurance, and disability insurance). The
cost of these employee benefits totaled $470,000 in 2009 and $443,000 in
2008.
|
Note 15. Commitments
and Contingencies
The
Company has entered into an employment contract with the President of the
Company, which provides for continued payment of certain employment salaries and
benefits in the event of a change in control, as defined.
The
Company is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated balance sheet. The contract or notional amounts of
these instruments reflect the extent of the Company’s involvement in these
particular classes of financial instruments. The Company’s exposure
to credit loss in the event of nonperformance by the other party to the
financial instruments for commitments to extend credit and standby letters of
credit is represented by the contractual or notional amount of those
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as they do for on-balance sheet
instruments.
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates
each customer’s credit-worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary upon extension of credit, is based
on management’s credit evaluation. Collateral held varies but may
include accounts receivable; inventory; property, plant and equipment and
income-producing commercial properties. As of December 31, 2009 and
2008, commitments to extend credit amounted to approximately $59.6 million and
$112.8 million, respectively.
Standby
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. As of December 31, 2009
and 2008, standby letters of credit with customers were $8.6 million and $10.6
million respectively.
Loan
commitments and standby letters of credit are issued in the ordinary course of
business to meet customer needs. Commitments to fund fixed-rate loans
were immaterial at December 31, 2008. Variable-rate commitments are
generally issued for less than one year and carry market rates of
interest. Such
35
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
instruments
are not likely to be affected by annual rate caps triggered by rising interest
rates. Management believes that off-balance sheet risk is not
material to the results of operations or financial condition.
In the
normal course of business, there are outstanding various contingent liabilities
such as claims and legal action, which are not reflected in the financial
statements. In the opinion of management, no material losses are
anticipated as a result of these actions or claims.
Note 16. Fair
Value
The
Company uses fair value measurements to record fair value adjustments to certain
assets and liabilities and to determine fair value disclosures. In accordance
with the Fair Value Measurements and Disclosures Topic 820 of FASB ASC, the fair
value of a financial instrument is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value is best determined based upon
quoted market prices. However, in many instances, there are no quoted market
prices for the Company's various financial instruments. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. Accordingly, the fair value estimates may not be realized in
an immediate settlement of the instrument.
The
recent fair value guidance provides a consistent definition of fair value, which
focuses on exit price in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. If there has been a significant decrease
in the volume and level of activity for the asset or liability, a change in
valuation technique or the use of multiple valuation techniques may be
appropriate. In such instances, determining the price at which willing market
participants would transact at the measurement date under current market
conditions depends on the facts and circumstances and requires the use of
significant judgment. The fair value is a reasonable point within the range that
is most representative of fair value under current market conditions. In
accordance with this guidance, the Company groups its assets and liabilities
carried at fair value in three levels as follows:
Level 1
Inputs:
|
1)
|
Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or
liabilities.
|
|
2)
|
Generally,
this includes debt and equity securities and derivative contracts that are
traded in an active exchange market (i.e. New York Stock Exchange), as
well as certain U.S. Treasury and U.S. Government and agency
mortgage-backed securities that are highly liquid and are actively traded
in over-the-counter markets.
|
Level 2
Inputs:
1) Quoted
prices for similar assets or liabilities in active markets.
2) Quoted
prices for identical or similar assets or liabilities in markets that are not
active.
|
3)
|
Inputs
other than quoted prices that are observable, either directly or
indirectly, for the term of the asset or liability (e.g., interest rates,
yield curves, credit risks, prepayment speeds or volatilities) or “market
corroborated inputs.”
|
36
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
|
4)
|
Generally,
this includes U.S. Government and agency mortgage-backed securities and
preferred stocks, corporate debt securities, derivative contracts and
loans held for sale.
|
Level 3
Inputs:
|
1)
|
Prices
or valuation techniques that require inputs that are both unobservable
(i.e. supported by little or no market activity) and that are significant
to the fair value of the assets or
liabilities.
|
|
2)
|
These
assets and liabilities include financial instruments whose value is
determined using pricing models, discounted cash flow methodologies, or
similar techniques, as well as instruments for which the determination of
fair value requires significant management judgment or
estimation.
|
|
3)
|
Generally,
this includes trust preferred
securities.
|
The
following is a description of the valuation methodologies used for instruments
measured at fair value:
Fair Value on a Recurring
Basis
The table
below presents the balances of assets and liabilities measured at fair value on
a recurring basis.
Financial
Assets
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||
(amounts
in thousands)
|
||||||||||||
Securities
Available for Sale
|
||||||||||||
As
of December 31, 2009
|
||||||||||||
U.S.
Government sponsored entities
|
$
|
—
|
$
|
3,232
|
$
|
—
|
$
|
3,232
|
||||
Corporate
debt obligations
|
—
|
1,970
|
—
|
1,970
|
||||||||
Residential
mortgage-backed securities
|
—
|
19,698
|
—
|
19,698
|
||||||||
Collateralized
mortgage-backed securities
|
2,669
|
1,140
|
3,809
|
|||||||||
Collateralized
debt obligations
|
—
|
—
|
711
|
711
|
||||||||
Total
|
$
|
—
|
$
|
27,569
|
$
|
1,851
|
$
|
29,420
|
||||
As of December 31,
2008
|
||||||||||||
U.S.
Government sponsored entities
|
$
|
—
|
$
|
2,011
|
$
|
—
|
$
|
2,011
|
||||
Corporate
debt obligations
|
—
|
3,071
|
—
|
3,071
|
||||||||
Residential
mortgage-backed securities
|
—
|
21,561
|
—
|
21,561
|
||||||||
Collateralized
mortgage-backed securities
|
—
|
1,883
|
1,705
|
3,588
|
||||||||
Collateralized
debt obligations
|
—
|
1,699
|
—
|
1,699
|
||||||||
Total
|
$
|
—
|
$
|
30,225
|
$
|
1,705
|
$
|
31,930
|
The fair
value of securities available for sale is the market value based on quoted
market prices, when available, or market prices provided by recognized broker
dealers (Level 1). When listed prices or quotes are
37
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
not
available, fair value is based upon quoted market prices for similar or
identical assets or other observable inputs (Level 2) or significant management
judgment or estimation based upon unobservable inputs due to limited or no
market activity of the instrument (Level 3).
The
changes in Level 3 assets measured at fair value on a recurring basis are
summarized as follows:
Securities
Available for Sale
|
||||||
2009
|
2008
|
|||||
(amounts
in thousands)
|
||||||
Beginning
balance at January 1,
|
$
|
1,705
|
$
|
5,735
|
||
Total
net gains (losses) included in:
|
||||||
Net
loss
|
(1,729)
|
(989)
|
||||
Other
comprehensive income (loss)
|
(405)
|
(4,036)
|
||||
Purchases,
sales, issuances and settlements, net
|
—
|
—
|
||||
Net
transfers into Level 3
|
2,280
|
995
|
||||
Ending
balance December 31,
|
$
|
1,851
|
$
|
1,705
|
Fair Value on a
Non-recurring Basis
Certain
assets and liabilities are not measured at fair value on an ongoing basis but
are subject to fair value adjustments in certain circumstances (for example,
when there is evidence of impairment).
Financial
Assets
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||
(amounts
in thousands)
|
||||||||||||
As
of December 31, 2009
|
||||||||||||
Impaired
Loans
|
$
|
—
|
$
|
—
|
$
|
19,126
|
$
|
19,126
|
||||
As
of December 31, 2008
|
||||||||||||
Impaired
Loans
|
$
|
—
|
$
|
—
|
$
|
587
|
$
|
587
|
||||
Repossessed
Assets
|
—
|
—
|
113
|
113
|
Impaired
loans with specific reserves, had a carrying amount of $22.7 million and
$809,000 at December 31, 2009 and December 31, 2008 respectively, with a
valuation allowance of $3.6 million and $222,000 at December 31, 2009 and
December 31, 2008, respectively, resulting in a fair value charge of $18.5
million in 2009. The valuation allowance for impaired loans is included in the
allowance for loan losses in the balance sheet.
Repossessed
assets at December 31, 2008, consisted of stock in an unrelated entity and a
mobile home, were recorded based upon management’s best estimate of fair
value.
Fair
Value of Financial Instruments
The
Company discloses estimated fair values for its financial instruments in
accordance with FASB ASC Topic 825, “Disclosures about Fair Value of Financial
Instruments”. The methodologies for estimating the fair value of
financial assets and liabilities that are measured at fair value on a recurring
or non-recurring basis are discussed above. The methodologies for other
financial assets and liabilities are discussed below.
38
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Cash and Cash
Equivalents: The carrying amount of cash, due from banks, and
federal funds sold approximates fair value.
Investment
Securities: Fair value of securities available for sale is
described above. Fair value of held to maturity securities are based upon quoted
market prices.
Restricted
Stock: The carrying value of restricted stock approximates
fair value based on redemption provisions.
Loans (other than
impaired): Fair values are estimated for portfolios of loans
with similar financial characteristics. Loans are segregated by type
such as commercial, residential mortgage and other consumer. Each
loan category is further segmented into groups by fixed and adjustable rate
interest terms and by performing and non-performing categories. The fair value
of performing loans is typically calculated by discounting scheduled cash flows
through their estimated maturity, using estimated market discount rates that
reflect the credit and interest rate risk inherent in each group of
loans. The estimate of maturity is based on contractual maturities
for loans within each group, or on the Company’s historical experience with
repayments for each loan classification, modified as required by an estimate of
the effect of current economic conditions.
For all
loans, assumptions regarding the characteristics and segregation of loans,
maturities, credit risk, cash flows, and discount rates are judgmentally
determined using specific borrower and other available information.
Accrued Interest Receivable
and Payable: The fair value of interest receivable and payable
is estimated to approximate the carrying amounts.
Deposits: The
fair value of deposits with no stated maturity, such as demand deposits,
checking accounts, savings and money market accounts, is equal to the carrying
amount. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows, where the discount rate is estimated
using the market rates currently offered for deposits of similar remaining
maturities.
Borrowings: The
fair values of FHLB borrowings, other borrowed funds and subordinated debt are
based on the discounted value of estimated cash flows. The discounted
rate is estimated using market rates currently offered for similar advances or
borrowings.
Off-Balance Sheet
Instruments: Since the majority of the Company’s
off-balance sheet instruments consist of non fee-producing, variable rate
commitments, the Company has determined they do not have a distinguishable fair
value.
39
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
The
following table summarizes carrying amounts and fair values for financial
instruments at December 31, 2009 and December 31, 2008:
December
31, 2009
|
December
31, 2008
|
||||||||||||
Carrying
Value |
Fair
Value
|
Carrying
Value |
Fair
Value
|
||||||||||
(amounts
in thousands)
|
|||||||||||||
Financial
Assets:
|
|||||||||||||
Cash
and cash equivalents
|
$
|
4,154
|
$
|
4,154
|
$
|
7,270
|
$
|
7,270
|
|||||
Investment
securities (available for sale and held to maturity)
|
31,929
|
31,824
|
34,412
|
34,254
|
|||||||||
Restricted
stock
|
3,094
|
3,094
|
2,583
|
2,583
|
|||||||||
Loans,
net
|
590,997
|
585,346
|
539,883
|
552,049
|
|||||||||
Accrued
interest receivable
|
2,808
|
2,808
|
2,976
|
2,976
|
|||||||||
Financial
Liabilities:
|
|||||||||||||
Demand
and savings deposits
|
$
|
257,566
|
$
|
257,566
|
$
|
149,353
|
$
|
149,353
|
|||||
Time
deposits
|
261,882
|
264,901
|
345,974
|
349,815
|
|||||||||
Borrowings
|
67,831
|
68,859
|
61,943
|
64,588
|
|||||||||
Accrued
interest payable
|
821
|
821
|
1,563
|
1,563
|
40
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 17. Quarterly
Financial Data (unaudited)
The
following represents summarized unaudited quarterly financial data of the
Company which, in the opinion of management, reflects adjustments (comprising
only normal recurring accruals) necessary for fair presentation.
Three
Months Ended
|
|||||||||||
December
31,
|
September
30,
|
June
30,
|
March
31,
|
||||||||
(Amounts
in thousands, except per share amounts)
|
|||||||||||
2009
|
|||||||||||
Interest
income
|
$
|
10,287
|
$
|
10,128
|
$
|
10,207
|
$
|
9,773
|
|||
Interest
expense
|
3,299
|
3,765
|
4,071
|
4,599
|
|||||||
Net
interest income
|
6,988
|
6,363
|
6,136
|
5,174
|
|||||||
Provision
for loan losses
|
2,100
|
1,450
|
980
|
770
|
|||||||
Income
before income tax expense
|
2,874
|
2,762
|
1,905
|
2,523
|
|||||||
Income
tax expense
|
1,176
|
1,067
|
726
|
995
|
|||||||
Net
income
|
1,698
|
1,695
|
1,179
|
1,528
|
|||||||
Net
income available to common shareholders
|
1,453
|
1,450
|
935
|
1,363
|
|||||||
Net
income per common share:
|
|||||||||||
Basic
|
$
|
0.36
|
$
|
0.36
|
$
|
0.23
|
$
|
0.34
|
|||
Diluted
|
$
|
0.36
|
$
|
0.36
|
$
|
0.23
|
$
|
0.34
|
|||
2008
|
|||||||||||
Interest
income
|
$
|
9,817
|
$
|
9,255
|
$
|
8,949
|
$
|
8,888
|
|||
Interest
expense
|
4,842
|
4,667
|
4,825
|
4,957
|
|||||||
Net
interest income
|
4,975
|
4,588
|
4,124
|
3,931
|
|||||||
Provision
for loan losses
|
544
|
595
|
564
|
360
|
|||||||
Income
before income tax expense
|
1,462
|
1,950
|
1,552
|
2,131
|
|||||||
Income
tax expense
|
588
|
877
|
551
|
832
|
|||||||
Net
income
|
874
|
1,073
|
1,001
|
1,299
|
|||||||
Net
income per common share:
|
|||||||||||
Basic
|
$
|
0.23
|
$
|
0.29
|
$
|
0.27
|
$
|
0.34
|
|||
Diluted
|
$
|
0.22
|
$
|
0.27
|
$
|
0.25
|
$
|
0.31
|
|||
41
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Note 18. Parent
Company Only Financial Statements
Condensed
financial information of the parent company only is presented in the following
two tables:
Balance
Sheets
|
December
31,
|
||||
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Assets:
|
|||||
Cash
|
$
|
117
|
$
|
—
|
|
Investments
in subsidiaries
|
75,410
|
53,788
|
|||
Other
assets
|
—
|
2
|
|||
Total
assets
|
$
|
75,527
|
$
|
53,790
|
|
Liabilities
and Shareholders’ Equity:
|
|||||
Subordinated
debentures
|
$
|
13,403
|
$
|
13,403
|
|
Other
liabilities
|
151
|
86
|
|||
Shareholders’
equity
|
61,973
|
40,301
|
|||
Total
liabilities and shareholders’ equity
|
$
|
75,527
|
$
|
53,790
|
|
Statements
of Income
|
Years
ended December 31,
|
||||
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Income:
|
|||||
Dividends
from bank subsidiary
|
$
|
1,600
|
$
|
1,000
|
|
Expense:
|
|||||
Interest
on subordinated debentures
|
534
|
720
|
|||
Other
expenses
|
315
|
354
|
|||
849
|
1,074
|
||||
Income
before income taxes
|
751
|
(74)
|
|||
Provision
for income taxes
|
—
|
—
|
|||
Equity
in undistributed income of subsidiaries
|
5,349
|
4,321
|
|||
Net
income
|
6,100
|
4,247
|
|||
Preferred
stock dividend and discount accretion
|
899
|
—
|
|||
Net
income available to common shareholders
|
$
|
5,201
|
$
|
4,247
|
42
Parke
Bancorp, Inc. and Subsidiaries
Notes
to Consolidated Financial
Statements
|
Statements
of Cash Flows
|
|||||
Years
ended December 31,
|
|||||
2009
|
2008
|
||||
(Amounts
in thousands)
|
|||||
Cash
Flows from Operating Activities
|
|||||
Net
income
|
$
|
6,100
|
$
|
4,247
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||
Equity
in undistributed earnings of subsidiaries
|
(5,349)
|
(4,321)
|
|||
Changes
in operating assets and liabilities:
|
|||||
Decrease
(increase) in other assets
|
2
|
(2)
|
|||
Increase
in accrued interest payable and other accrued liabilities
|
65
|
6
|
|||
Net
cash provided by operating activities
|
818
|
(70)
|
|||
Cash
Flows from Investing Activities
|
|||||
Payments
for investments in and advances to subsidiaries
|
(16,434)
|
(1,634)
|
|||
Net
cash used in investing activities
|
(16,434)
|
(1,634)
|
|||
Cash
Flows from Financing Activities
|
|||||
Proceeds
from issuance of preferred stock
|
16,288
|
—
|
|||
Payment
of dividend on preferred stock
|
(645)
|
—
|
|||
Proceeds
from exercise of stock options and warrants
|
422
|
1,678
|
|||
Purchase
of treasury stock
|
(332)
|
(29)
|
|||
Net
cash provided by financing activities
|
15,733
|
1,649
|
|||
Increase/(decrease)
in cash and cash equivalents
|
117
|
(55)
|
|||
Cash
and Cash Equivalents, January 1,
|
—
|
55
|
|||
Cash
and Cash Equivalents, December 31,
|
$
|
117
|
$
|
—
|
Note 19. Subsequent
Events
On
December 10, 2009 the Bank executed a letter of intent to purchase a closed bank
facility, located in Galloway Township, NJ, for $1,450,000 subject to regulatory
approvals. Regulatory approvals to establish a full service branch at this
location were granted from the State of New Jersey and the Federal Deposit
Insurance Corporation in March, 2010. It is expected that the branch will open
in May of 2010.
43
CORPORATE
INFORMATION
|
|||||
PARKE
BANCORP, INC
|
|||||
601
Delsea Drive
|
|||||
Washington
Township, NJ 08080
|
|||||
(856)
256-2500
|
|||||
www.parkebank.com
|
|||||
Board
of Directors (Parke Bank and Parke Bancorp, Inc.)
|
|||||
Celestino
R. (“Chuck”) Pennoni
|
Thomas
Hedenberg
|
||||
Chairman
of the Board of Directors
|
Vice
Chairman of the Board of Directors
|
||||
Chairman
& CEO - Pennoni Associates
|
Real
Estate Developer
|
||||
Vito
S. Pantilione
President,
Chief Executive and Director
|
|||||
Fred
G. Choate
Director
|
Daniel
J. Dalton
Director
|
Arret
F. Dobson
Director
|
|||
President
of Greater Philadelphia Venture Capital Corporation
|
Vice
President with Brown & Brown
|
Real
Estate Developer
|
|||
Edward
Infantolino
Director
|
Anthony
J. Jannetti
Director
|
Jeffrey
H. Kripitz
Director
|
|||
President
of Ocean Internal Medicine Associates, P.A.
|
President
of Anthony J. Jannetti, Inc.
|
Owner
of Jeff Kripitz Agency
|
|||
Richard
Phalines
Director
|
Jack
C. Sheppard, Jr.
Director
|
Ray
H. Tresch
Director
|
|||
Co-owner
of Concord Truss Company
|
Executive
Vice President with Bollinger Insurance
|
Owner
of Redy Mixt Konkrete
|
|||
_______________________
|
|||||
Parke
Bancorp Officers
|
|||||
Vito
S. Pantilione
President
and
Chief
Executive Officer
|
John
F. Hawkins
Senior Vice
President and
Chief
Financial Officer
|
David
O. Middlebrook
Senior
Vice President and
Corporate
Secretary
|
|||
________________________
|
|||||
Transfer
Agent & Registrar
Registrar
and Transfer Company
10
Commerce Dr.
Cranford,
NJ 07016
|
Independent
Auditors
McGladrey
& Pullen, LLP
512
Township Line Road
One
Valley Square, Suite 250
Blue
Bell, PA 19422
|
Special
Counsel
Malizia
Spidi & Fisch
901
New York Avenue, N.W.
Suite
210 East
Washington,
D.C. 20001
|
44
PARKE
BANK
Officers
|
|
Vito
S. Pantilione
|
Elizabeth
A. Milavsky
|
President
& Chief Executive Officer
|
Executive
Vice President & Chief Operating Officer
|
John
F. Hawkins
|
David
O. Middlebrook
|
Senior
Vice President & Chief Financial Officer
|
Senior
Vice President & Senior Loan Officer
|
Paul
E. Palmieri
|
Daniel
Sulpizio
|
Senior
Vice President, Philadelphia Region
|
Senior
Vice President
|
Allen
M. Bachman
|
Dolores
M. Calvello
|
Vice
President
|
Vice
President
|
Mark
A. Prater
|
Marlon
R. Soriano
|
Vice
President
|
Vice
President
|
James
S. Talarico
|
Milton
H. Witte
|
Vice
President
|
Vice
President
|
Kathleen
A. Conover
|
Gil
Eubank
|
Assistant
Vice President
|
Assistant
Vice President
|
Yvonne
Johnson
|
Debra
Miller
|
Assistant
Vice President
|
Assistant
Vice President
|
Mary
Ann Seal
|
Evette
M. Snyder
|
Assistant
Vice President
|
Assistant
Vice President
|
______________________________
Branches
|
||
Northfield
Office
|
Main
Office
|
Kennedy
Office
|
501
Tilton Road
|
601
Delsea Drive
|
567
Egg Harbor Road
|
Northfield,
NJ 08225
|
Washington
Township, NJ 08080
|
Washington
Township, NJ 08080
|
(609)
646-6677
|
(856)
256-2500
|
(856)
582-6900
|
Philadelphia
Office
|
||
1610
Spruce Street
|
||
Philadelphia,
PA 19103
|
||
(215)
772-1113
|
______________________________
Parke
Bank
|
44
Business Capital LLC
|
Parke
Capital Trust I
|
601
Delsea Drive
|
1787
Sentry Parkway West
|
Parke
Capital Trust II
|
Washington
Township, NJ 08080
|
Building
16, Suite 210
|
Parke
Capital Trust III
|
(856)
256-2500
|
Blue
Bell, PA 19422
|
601
Delsea Drive
|
www.parkebank.com
|
(215)
985-4400
|
Washington
Township, NJ 08080
|
www.44businesscapital.com
|
(856)
256-2500
|
45