Edgar Filing: PARKE BANCORP, INC.

f10q_033112-0343.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2012.

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

For the transition period from ____________ to ____________

Commission File No. 000-51338

PARKE BANCORP, INC.

(Exact name of registrant as specified in its charter)

New Jersey		65-1241959
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

601 Delsea Drive, Washington Township, New Jersey		08080
(Address of principal executive offices)		(Zip Code)

856-256-2500

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

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

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]

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

Yes [ ] No [X]

As of May 15, 2012, there were issued and outstanding 4,886,178 shares of the registrant's common stock.

PARKE BANCORP, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2011

INDEX

		Page
Part I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51

SIGNATURES

EXHIBITS and CERTIFICATIONS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Parke Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
(in thousands except share and per share data)
	March 31,			December 31,
	2012			2011
Assets
Cash and due from financial institutions	$	4,314		$	3,733
Federal funds sold and cash equivalents		98,498			106,495
Cash and cash equivalents		102,812			110,228

Investment securities available for sale, at fair value		21,337			22,517
Investment securities held to maturity (fair value of $2,100 at March 31, 2012 and $2,080 at December 31, 2011)		2,040			2,032
Total investment securities		23,377			24,549

Loans held for sale		863			225

Loans, net of unearned income		612,067			625,117
Less: Allowance for loan losses		17,557			19,323
Net loans		594,510			605,794

Accrued interest receivable		3,039			3,039
Premises and equipment, net		4,212			4,122
Other real estate owned (OREO)		23,934			19,410
Restricted stock, at cost		2,214			3,565
Bank owned life insurance (BOLI)		5,586			5,541
Other assets		14,057			14,265
Total Assets	$	774,604		$	790,738
Liabilities and Equity
Liabilities
Deposits
Noninterest-bearing deposits	$	27,283		$	31,146
Interest-bearing deposits		620,211			603,709
Total deposits		647,494			634,855

FHLB borrowings		20,568			50,607
Other borrowed funds		10,000			10,000
Subordinated debentures		13,403			13,403
Accrued interest payable		605			618
Other liabilities		4,182			3,982
Total liabilities		696,252			713,465
Equity
Preferred stock, cumulative perpetual, $1,000 liquidation value; authorized 1,000,000 shares; Issued: 16,288 shares at March 31, 2012 and December 31, 2011		15,916			15,868
Common stock, $.10 par value; authorized 10,000,000 shares; Issued: 5,097,078 shares at March 31, 2012 and December 31, 2011		510			510
Additional paid-in capital		45,844			45,844
Retained earnings		19,343			17,808
Accumulated other comprehensive loss		(619	)		(626	)
Treasury stock, 210,900 shares at March 31, 2012 and December 31, 2011, at cost		(2,180	)		(2,180	)
Total shareholders’ equity		78,814			77,224
Noncontrolling (minority) interest in consolidated subsidiaries		(462	)		49
Total equity		78,352			77,273
Total liabilities and equity	$	774,604		$	790,738
See accompanying notes to consolidated financial statements

Parke Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
	For the three months ended March 31,
	2012			2011
	(in thousands except share data)
Interest income:
Interest and fees on loans	$	9,512		$	9,816
Interest and dividends on investments		288			374
Interest on federal funds sold and cash equivalents		54			22
Total interest income		9,854			10,212
Interest expense:
Interest on deposits		1,772			2,056
Interest on borrowings		243			351
Total interest expense		2,015			2,407
Net interest income		7,839			7,805
Provision for loan losses		2,250			2,400
Net interest income after provision for loan losses		5,589			5,405
Noninterest income (loss)
Loan fees		54			64
Net income from BOLI		45			44
Service fees on deposit accounts		50			55
Gain on sale of SBA loans		602			2,244
Other than temporary impairment losses		(12	)		(47	)
Portion of loss recognized in other comprehensive income (OCI) (before taxes)		12			27
Net impairment losses recognized in earnings		-			(20	)
(Gain) loss on sale of real estate		(88	)		52
Other miscellaneous income		444			52
Total noninterest income		1,107			2,491
Noninterest expense
Compensation and benefits		1,442			1,414
Professional services		276			255
Occupancy and equipment		265			260
Data processing		94			110
FDIC Insurance		270			342
OREO expense		369			96
Other operating expense		814			720
Total noninterest expense		3,530			3,197
Income before income tax expense		3,166			4,699
Income tax expense		1,272			1,880
Net income attributable to Company and noncontrolling (minority) interests interests		1,894			2,819
Net income attributable to noncontrolling (minority) interests		(107	)		(527	)
Net income attributable to Company		1,787			2,292
Preferred stock dividend and discount accretion		252			249
Net income available to common shareholders	$	1,535		$	2,043

Earnings per common share
Basic	$	0.31		$	0.42
Diluted	$	0.31		$	0.41
Weighted average shares outstanding
Basic		4,886,178			4,886,178
Diluted		4,897,332			5,027,810
See accompanying notes to consolidated financial statements

Parke Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
	For the three months ended March 31,
	2012				2011
	(in thousands)
Net income attributable to Company
Other comprehensive income net of tax:		$	1,787			$	2,292
Unrealized gains (losses) on securities:
Non-credit unrealized (losses) gains on securities with OTTI			(12	)			4
Net unrealized gains (losses) on securities without OTTI			15				(59	)
Total unrealized gains (losses) on securities			3				(55	)
Pension liability adjustments			4				11
Total other comprehensive income (loss)			7				(44	)
Total comprehensive income		$	1,794			$	2,248
See accompanying notes to consolidated financial statements

Parke Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGE IN TOTAL EQUITY

(unaudited)

	Preferred Stock		Shares of Common Stock	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Treasury Stock		Total Shareholders’ Equity		Non-Controlling (Minority) Interest			Total Equity
	(In thousands except share numbers)

Balance, December 31, 2011	$	15,868	5,097,078	$	510	$	45,844	$	17,808	$	(626)	$	(2,180)	$	77,224	$	49	$	77,273
Capital withdrawals by noncontrolling (minority) interest																	(618)		(618)
Comprehensive income:
Net income									1,787						1,787		107		1,894
Non-credit unrealized losses on securities with OTTI, net of taxes											(12)				(12)				(12)
Net unrealized gains on securities without OTTI, net of taxes											15				15				15
Pension liability adjustments, net of taxes											4				4				4
Total comprehensive income															1,794		107		1,901
Dividend on preferred stock (5% annually)									(204)						(204)				(204)
Accretion of discount on preferred stock		48							(48)						—				—
Balance, March 31, 2012	$	15,916	5,097,078	$	510	$	45,844	$	19,343	$	(619)	$	(2,180)	$	78,814	$	(462)	$	78,352

See accompanying notes to consolidated financial statements

Parke Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
	For the three months ended March 31,
	2012			2011
	(in thousands)
Cash Flows from Operating Activities
Net income	$	1,894		$	2,819
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		92			91
Provision for loan losses		2,250			2,400
Bank owned life insurance		(45	)		(44	)
Supplemental executive retirement plan expense		34			112
Gain on sale of SBA loans		(602	)		(2,244	)
SBA loans originated for sale		(6,017	)		(6,980	)
Proceeds from sale of SBA loans originated for sale		6,671			7,767
(Gain) loss on sale of other real estate owned		89			(52	)
Other than temporary decline in value of investments		0			(20	)
Net accretion of purchase premiums and discounts on securities		(6	)		(21	)
Deferred income tax benefit		(13	)		—
Changes in operating assets and liabilities:
Increase in accrued interest receivable and other assets		(473	)		(57	)
Increase (decrease) in accrued interest payable and other accrued liabilities		157			(1,702	)
Net cash provided by operating activities		4,031			2,069
Cash Flows from Investing Activities
Redemptions of restricted stock		1,351			2
Proceeds from maturities and principal payments on mortgage backed securities		1,184			1,447
Proceeds from sale of other real estate owned		480			2,587
Advances on other real estate owned		(68	)		—
Net decrease in loans		4,009			6,877
Purchases of bank premises and equipment		(182	)		(16	)
Net cash provided by investing activities		6,774			10,897
Cash Flows from Financing Activities
Payment of dividend on preferred stock		(203	)		(204	)
Minority interest capital withdrawal, net		(618	)		—
Net decrease in Federal Home Loan Bank and short term borrowings		(30,039	)		(11,454	)
Payments of Federal Home Loan Bank advances		—			(37	)
Net decrease in noninterest-bearing deposits		(3,863	)		(1,367	)
Net increase (decrease) in interest-bearing deposits		16,502			(18,886	)
Net cash used in financing activities		(18,221	)		(31,948	)
Decrease in cash and cash equivalents		(7,416	)		(18,982	)
Cash and Cash Equivalents, beginning of period		110,228			57,628
Cash and Cash Equivalents, end of period	$	102,812		$	38,646
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest on deposits and borrowed funds	$	2,027		$	2,561
Income taxes	$	1,000		$	1,880
Supplemental Schedule of Noncash Activities:
Real estate acquired in settlement of loans	$	5,025		$	—

See accompanying notes to consolidated financial statements

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

Parke Bancorp, Inc. ("Parke Bancorp” or the "Company") is a bank holding company incorporated under the laws of the State of New Jersey in January 2005 for the sole purpose of becoming the holding company of Parke Bank (the "Bank").

The Bank is a commercial bank which commenced operations on January 28, 1999. The Bank is chartered by the New Jersey Department of Banking and insured by the Federal Deposit Insurance Corporation ("FDIC"). Parke Bancorp and the Bank maintain their principal offices at 601 Delsea Drive, Washington Township, New Jersey. The Bank also conducts business through branches in Galloway Township, Northfield and Washington Township, New Jersey and Philadelphia, Pennsylvania.

The Bank competes with other banking and financial institutions in its primary market areas. Commercial banks, savings banks, savings and loan associations, credit unions and money market funds actively compete for savings and time certificates of deposit and all types of loans. Such institutions, as well as consumer financial and insurance companies, may be considered competitors of the Bank with respect to one or more of the services it renders.

The Bank is subject to the regulations of certain state and federal agencies, and accordingly, the Bank is periodically examined by such regulatory authorities. As a consequence of the regulation of commercial banking activities, the Bank’s business is particularly susceptible to future state and federal legislation and regulations.

The FDIC and the New Jersey Department of Banking and Insurance Consent Orders: On April 9, 2012, the Bank entered into Consent Orders with the FDIC and the New Jersey Department of Banking and Insurance (the “Department”). Under the Consent Orders, the terms of which are substantially identical, the Bank is required, among other things, subject to review and approval by the FDIC and the Department: (i) to adopt and implement a plan to reduce the Bank’s position in delinquent or classified assets; (ii) to adopt and implement a program providing for a periodic independent review of the Bank’s loan portfolio and the identification of problem credits; (iii) to review and revise the Bank’s loan policies and procedures to address identified lending deficiencies; and (iv) to adopt and implement a plan to reduce and manage each of the concentrations of credit identified by the FDIC and the Department.

The Consent Orders also require the Bank to obtain the prior approval of the FDIC and the New Jersey Department before declaring or paying any dividend or appointing or changing the title or responsibilities of any director or senior executive officer. Additional regulatory provisions require FDIC prior approval before the Bank enters into any employment agreement or other agreement or plan providing for the payment of a “golden parachute payment” or the making of any golden parachute payment.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation: The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and predominant practices within the banking industry.

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. 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 for consolidation under applicable accounting guidance. All significant inter-company balances and transactions have been eliminated.

The accompanying interim financial statements should be read in conjunction with the annual financial statements and notes thereto included in Parke Bancorp Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 since they do not include all of the information and footnotes required by GAAP. The accompanying interim financial statements for the three months ended March 31, 2012 and 2011 are unaudited. The balance sheet as of December 31, 2011, was derived from the audited financial statements. In the opinion of management, these financial statements include all normal and recurring adjustments necessary for a fair statement of the results for such interim periods. Results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results for the full year.

Use of Estimates: In preparing the interim financial statements, management makes estimates and assumptions based on available information that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet and reported amounts of expenses and revenues. Actual results could differ from such estimates. The allowance for loan losses, deferred taxes, evaluation of investment securities for other-than-temporary impairment and fair values of financial instruments and other real estate owned (“OREO”) are significant estimates and particularly subject to change.

Recently Issued Accounting Pronouncements:

In May 2011, FASB issued ASU 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted. This guidance is to be applied prospectively and is effective during interim and annual periods beginning after December 15, 2011. Adoption of this guidance has not had a material impact on results of operations or financial condition.

In June 2011, the FASB issued guidance to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments are effective for interim and annual periods beginning after December 15, 2011 with retrospective application. The Company adopted the accounting standard on January 1, 2012, as required, with no material impact on its results of operations or financial position.

NOTE 3. INVESTMENT SECURITIES

The following is a summary of the Company's investments in available-for-sale and held-to-maturity securities as of March 31, 2012 and December 31, 2011:

As of March 31, 2012	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	$	1,007		$	4	$	—	$	—	$	1,011
Corporate debt obligations		1,500			55		—		—		1,555
Residential mortgage-backed securities	12,640			746		—		—		13,386
Collateralized mortgage obligations	1,404			75		—		44		1,435
Collateralized debt obligations	5,556			—		1,114		492		3,950
Total available-for-sale	$	22,107		$	880	$	1,114	$	536	$		21,337

Held to maturity:
States and political subdivisions	$		2,040	$	83	$	23	$	—	$	2,100

As of December 31, 2011	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	$	1,006		$	5	$	—	$	—	$	1,011
Corporate debt obligations		1,500			43		57		—		1,486
Residential mortgage-backed securities	13,697			764		—		—		14,461
Collateralized mortgage obligations	1,534			73		—		13		1,594
Collateralized debt obligations	5,556			—		1,080		511		3,965
Total available-for-sale	$	23,293		$	885	$	1,137	$	524	$		22,517

Held to maturity:
States and political subdivisions	$		2,032	$	87	$	39	$	—	$	2,080

The amortized cost and fair value of debt securities classified as available-for-sale and held-to-maturity, by contractual maturity as of March 31, 2012 are as follows:

	Amortized Cost		Fair Value
	(amounts in thousands)
Available-for-sale:
Due within one year	$	—	$	—
Due after one year through five years		1,000		1,004
Due after five years through ten years		—		—
Due after ten years		7,062		5,512
Residential mortgage-backed securities and collateralized mortgage obligations		14,045		14,821
Total available-for-sale	$	22,107	$	21,337

Held-to-maturity:
Due within one year	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		—		—
Due after ten years		2,040		2,100
Total held-to-maturity	$	2,040	$	2,100

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 penalty.

As of March 31, 2012, securities with a carrying value of $16.1 million, and fair value of $17.0 million, were pledged as collateral for borrowed funds. In addition, securities with a carrying value of $7.7 million, and fair value of $8.2 million, were pledged to secure public deposits.

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 March 31, 2012 and December 31, 2011:

As of March 31, 2012	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:
Collateralized debt obligations		—		—		3,636		1,114		3,636		1,114
Total available-for-sale	$	—	$	—	$	3,636	$	1,114	$	3,636	$	1,114

Held-to-maturity:
States and political subdivisions	$	—	$	—	$	784	$	23	$	784	$	23

As of December 31, 2011	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:
Corporate debt obligations		—		—		443		57		443		57
Collateralized debt obligations		—		—		3,670		1,080		3,670		1,080
Total available for sale	$	—	$	—	$	4,113	$	1,137	$	4,113	$	1,137

Held to maturity:
States and political subdivisions	$	758	$	39	$	—	$	—	$	758	$	39

Collateralized Debt Obligations: The Company’s unrealized loss on investments in collateralized debt obligations (“CDOs”) relates to three securities issued by financial institutions, totaling $3.7 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, 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 (a range of 1% to 2%), 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 (a range of 0.57% to 0.66%), and the severity of the losses on securities which default (95%). 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 (“CDR”) 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 are based on historical averages. The fair value of each bond was assessed by discounting its 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 investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, it does not consider these investments to be other-than-temporarily impaired at March 31, 2012.

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 (“OTTI”) 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 of 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 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. OTTI recognized in earnings 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 were as follows for the periods ended March 31, 2012 and 2011.

	For the Three Months Ended March 31,
	2012			2011

	(amounts in thousands)
Beginning balance	$	1,950		$	2,657
Initial credit impairment		—			—
Subsequent credit impairments		—			20
Reductions for amounts recognized in earnings due to intent or requirement to sell		—			—
Reductions for securities sold		—			—
Reductions for securities deemed worthless		(399	)		(81	)
Reductions for increases in cash flows expected to be collected		—			—
Ending balance	$	1,551		$	2,596

A summary of investment gains and losses recognized in income during the three month periods ended March 31, 2012 and 2011 are as follows:

	For the Three Months Ended March 31,
	2012		2011

	(amounts in thousands)
Available-for-sale securities:
Realized gains	$	—	$	—
Realized (losses)		—		—
Other than temporary impairment		—		(20	)
Total available-for-sale securities	$	—	$	(20	)

Held-to-maturity securities:
Realized gains	$	—	$	—
Realized (losses)		—		—
Other than temporary impairment		—		—
Total held-to-maturity securities	$	—	$	—

NOTE 4. LOANS

The portfolio of loans outstanding consists of:

		March 31, 2012				December 31, 2011
		Amount	Percentage of Total Loans			Amount	Percentage of Total Loans
		(Amounts in thousands)
Commercial and industrial	$	21,803	3.6	%	$	24,136		3.9	%
Real estate construction:
Residential		18,108	3.0			21,287		3.4
Commercial		44,441	7.3			50,361		8.1
Real estate mortgage:
Commercial – owner occupied		148,872	24.3			147,449		23.6
Commercial – non owner occupied		205,107	33.5			204,216		32.6
Residential – 1 to 4 family		134,793	22.0			138,768		22.2
Residential - Multifamily		20,497	3.3			20,126		3.2
Consumer		18,446	3.0			18,774		3.0
Total Loans	$	612,067	100.0	%	$	625,117		100.0	%

The Company maintains interest reserves for the purpose of making periodic and timely interest payments for borrowers that qualify for development and construction loans. Total development and construction loans with interest reserves were $11.6 million and $14.6 million at March 31, 2012 and December 31, 2011, respectively. The amount of interest capitalized from interest reserves and recognized as interest income for the three month periods ended March 31, 2012 and 2011 was $209,000 and $642,000, respectively. Interest reserves provide borrowers temporary sources of cash flow which can be used to make interest payments during the development or construction phases of a project. It is our expectation that equity in the project increases as the project moves towards completion and that cash flows will be positive once sales begin or stabilization occurs. Loans with interest reserves are monitored throughout the life of the project. Interest accrual may be suspended on interest reserve dependent loans that are not delinquent but are risk rated substandard or worse.

Loan Origination/Risk Management: In the normal course of business the Company is exposed to a variety of operational, reputational, legal, regulatory and credit risks that could adversely affect our financial performance. Most of our asset risk is primarily tied to credit (lending) risk. The Company has lending policies, guidelines and procedures in place that are designed to maximize loan income within an acceptable level of risk. The Board of Directors reviews and approves these policies, guidelines and procedures. When we originate a loan we make certain subjective judgments about the borrower’s ability to meet the loan’s terms and conditions. We also make objective and subjective value assessments on the assets we finance. The borrower’s ability to repay can be adversely affected by economic changes. Likewise, changes in market conditions and other external factors can affect asset valuations. The Company actively monitors the quality of its loan portfolio. A reporting system supplements the credit review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit risk, loan delinquencies, troubled debt restructures, nonperforming and potential problem loans. Diversification in the loan portfolio is another means of managing risk associated with fluctuations in economic conditions.

With respect to construction loans to developers and builders that are secured by non-owner occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally underwritten based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. Commercial real estate loans may be riskier than loans for one-to-four family residences and are typically larger in dollar size. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. The repayment of these loans is generally largely dependent on the successful operation and management of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location within our market area. This diversity helps reduce the Company's exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also monitors economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At March 31, 2012, approximately 42.1% of the outstanding principal balance of the Company’s commercial real estate loans were secured by owner-occupied properties.

Consumer loans may carry a higher degree of repayment risk than residential mortgage loans. Repayment is typically dependent upon the borrower’s financial stability which is more likely to be adversely affected by job loss, illness, or personal bankruptcy. To monitor and manage consumer loan risk, policies and procedures are developed and modified as needed. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, trend and outlook reports are reviewed by management on a regular basis. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage of 80%, collection remedies, the number of such loans a borrower can have at one time and documentation requirements. Historically the Company’s losses on consumer loans have been negligible.

The Company maintains an outsourced independent loan review program that reviews and validates the credit risk assessment program on a periodic basis. Results of these external independent reviews are presented to management. In 2011 the Company expanded its risk monitoring program by creating a standalone Credit Risk Management Department. The external independent loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit risk management personnel.

Nonaccrual and Past Due Loans: Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet payment obligations as they

become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provision. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

An age analysis of past due loans by class follows:

March 31, 2012	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Not Accruing		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
	(Amounts in thousands)

Commercial	$	340	$	—	$	603	$	943	$	20,860	$	21,803	$	—
Real estate construction:
Residential		—		—		3,134		3,134		14,974		18,108		—
Commercial		2,198		—		7,768		9,966		34,475		44,441		—
Real estate mortgage:
Residential		2,961		147		9,738		12,846		142,444		155,290		—
Commercial		1,235		6,649		21,733		29,617		324,362		353,979		—
Consumer		—		—		228		228		18,218		18,446		—
Total	$	6,734	$	6,796	$	43,204	$	56,734	$	555,333	$	612,067	$	—

December 31, 2011

30-59 Days
Past Due

60-89

Days Past
Due

Greater
than 90
Days and
Not Accruing

Total Past

Due

Current

Total
Loans

Loans >
90 Days
and

Accruing

(Amounts in thousands)


Commercial	$	603	$	—	$	—	$	603	$	23,533	$	24,136	$	—
Real estate construction:
Residential		350		—		5,265		5,615		15,672		21,287		—
Commercial		—		—		7,703		7,703		42,658		50,361		—
Real estate mortgage:
Residential		2,587		—		8,288		10,875		148,019		158,894		—
Commercial		2,932		—		22,929		25,861		325,804		351,665		—
Consumer		—		—		274		274		18,500		18,774		—
Total	$	6,472	$	—	$	44,459	$	50,931	$	574,186	$	625,117	$	—

Impaired Loans: Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.

All impaired loans have an independent third-party full appraisal to determine the net realizable value (“NRV”) based on the fair value of the underlying collateral, less cost to sell (a range of 5% to 10%) and other costs, such as unpaid real estate taxes, that have been identified, or the present value of discounted cash flows in the case of certain impaired loans that are not collateral dependent. The appraisal will be

based on an "as-is" valuation and will follow a reasonable valuation method that addresses the direct sales comparison, income, and cost approaches to market value, reconciles those approaches, and explains the elimination of each approach not used. Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value. Prior to receiving the updated appraisal, we will establish a specific reserve for any estimated deterioration, based upon our assessment of market conditions, adjusted for estimated costs to sell and other identified costs. If the NRV is greater than the loan amount, then no impairment loss exists. If the NRV is less than the loan amount, the shortfall is recognized by a specific reserve. If the borrower fails to pledge additional collateral in the ninety day period, a charge-off equal to the difference between the loan carrying value and NRV will occur. In certain circumstances, however, a direct charge-off may be taken at the time that the NRV calculation reveals a shortfall. All impaired loans are evaluated based on the criteria stated above on a quarterly basis and any change in the reserve requirements are recorded in the period identified. All partially charged-off loans remain on nonaccrual status until they are brought current as to both principal and interest and have at least six months of payment history and future collectability of principal and interest is assured.

Impaired loans are set forth in the following tables.

March 31, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Amounts in thousands)
With no related allowance recorded:
Commercial	$	603	$	603	$	—
Residential real estate construction		4,060		5,892		—
Commercial real estate construction		14,738		15,017		—
Residential real estate mortgage		11,344		13,692		—
Commercial real estate mortgage		39,413		42,212		—
Consumer		169		169		—
		70,327		77,585		—

With an allowance recorded:
Commercial		—		—		—
Residential real estate construction		957		957		437
Commercial real estate construction		1,613		1,613		180
Residential real estate mortgage		2,434		2,470		468
Commercial real estate mortgage		10,717		10,837		230
Consumer		59		59		37
		15,780		15,936		1,352

Total:
Commercial		603		603		—
Residential real estate construction		5,017		6,849		437
Commercial real estate construction		16,351		16,630		180
Residential real estate mortgage		13,778		16,162		468
Commercial real estate mortgage		50,130		53,049		230
Consumer		228		228		37
	$	86,107	$	53,049	$	1,352

December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Amounts in thousands)
With no related allowance recorded:
Commercial	$	603	$	603	$	—
Residential real estate construction		4,440		5,246		—
Commercial real estate construction		12,898		13,118		—
Residential real estate mortgage		9,074		11,404		—
Commercial real estate mortgage		37,370		37,798		—
Consumer		229		229		—
		64,614		68,398		—

With an allowance recorded:
Commercial		—		—		—
Residential real estate construction		4,170		5,151		1,297
Commercial real estate construction		3,329		3,329		380
Residential real estate mortgage		6,656		6,857		633
Commercial real estate mortgage		18,410		18,530		2,549
Consumer		—		—		—
		32,565		33,867		4,859

Total:
Commercial		603		603		—
Residential real estate construction		8,610		10,397		1,297
Commercial real estate construction		16,227		16,447		380
Residential real estate mortgage		15,730		18,261		633
Commercial real estate mortgage		55,780		56,328		2,549
Consumer		229		229		—
	$	97,179	$	102,265	$	4,859

The following table presents by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2012 and 2011:

	Three Months Ended March 31,
	2012						2011
	Average Recorded Investment			Interest Income Recognized			Average Recorded Investment			Interest Income Recognized
	(Amounts in thousands)
Commercial		$	599		$	—		$	594		$	3
Residential real estate construction			6,701			34			11,828			102
Commercial real estate construction			16,461			79			21,153			167
Residential real estate mortgage			14,988			112			21,809			151
Commercial real estate mortgage			53,060			475			53,624			704
Consumer			231			2			61			1
Total		$	92,041		$	702		$	109,069		$	1,128

Troubled debt restructurings: Periodically management evaluates our loans for appropriate risk rating, interest accrual status and potential classification as a TDR, some of which are performing and accruing interest. A TDR is a loan on which we have granted a concession due to a borrower’s financial difficulty. These are concessions that would not otherwise be considered. The terms of these modified loans may include extension of maturity, renewals, change in interest rate, additional collateral requirements or infusion of additional capital into the project by the borrower to reduce debt or to support future debt service. On construction and land development loans we may modify the loan as a result of delays or other project issues such as slower than anticipated sell-outs, insufficient leasing activity and/or a decline in the value of the underlying collateral securing the loan. Management believes that working with a borrower to restructure a loan provides us with a better likelihood of collecting our loan. It is our policy not to renegotiate the terms of a commercial loan simply because of a delinquency status. However, we will use our Troubled Debt Restructuring Program to work with delinquent borrowers when the delinquency is temporary. We consider all loans modified in a troubled debt restructuring to be impaired.

At the time a loan is modified in a troubled debt restructuring, we consider the following factors to determine whether the loan should accrue interest:

·	Whether there is a period of current payment history under the current terms, typically 6 months;

·	Whether the loan is current at the time of restructuring; and

·	Whether we expect the loan to continue to perform under the restructured terms with a debt coverage ratio that complies with the Bank’s credit underwriting policy of 1.25 times debt service.

We also review the financial performance of the borrower over the past year to be reasonably assured of repayment and performance according to the modified terms. This review consists of an analysis of the borrower’s historical results; the borrower’s projected results over the next four quarters; current financial information of the borrower and any guarantors. The projected repayment source needs to be reliable, verifiable, quantifiable and sustainable. In addition, all troubled debt restructurings are reviewed quarterly to determine the amount of any impairment.

At the time of restructuring, the amount of the loan principal for which we are not reasonably assured of repayment is charged-off, but not forgiven.

A borrower with a restructured loan must make a minimum of six consecutive monthly payments at the restructured level and be current as to both interest and principal to be on accrual status.

The following is an analysis of TDRs by type of concession as of March 31, 2012 and December 31, 2011. There were no modifications that involved forgiveness of debt.

March 31, 2012	TDRs in compliance with their modified terms and accruing interest			TDRs that are not accruing interest			Total
	(Amounts in thousands)
Reduction in interest rate		$	15,261		$	19,409	$	34,670
A period of interest only payments			16,831			6,929		23,760
Total		$	32,092		$	26,338	$	58,430

There were no TDRs during the three month period ended March 31, 2012 for which there was a subsequent payment default.

December 31, 2011	TDRs in compliance with their modified terms and accruing interest			TDRs that are not accruing interest			Total
	(Amounts in thousands)
Reduction in interest rate		$	23,601		$	16,541	$	40,142
A period of interest only payments			17,542			9,279		26,821
Total		$	41,143		$	25,820	$	66,963

The following is an analysis of performing and nonperforming TDRs as of March 31, 2012 and December 31, 2011.

March 31, 2012	TDRs in compliance with their modified terms and accruing interest					TDRs that are not accruing interest				Total
	Balance			Count		Balance		Count		Balance		Count
	(loan balances in thousands)
Commercial		$	—		—	$	603		1	$	603		1
Residential Real Estate Construction			957		1		1,095		2		2,052		3
Commercial Real Estate Construction			500		1		4,350		2		4,850		3
Commercial Real Estate Mortgage - Owner Occupied			2,716		5		4,430		6		7,146		11
Commercial Real Estate Mortgage – Non-owner Occupied			24,515		7		7,743		5		32,258		12
Residential Real Estate Mortgage -Multifamily			—		—		3,530		2		3,530		2
Residential Real Estate Mortgage			3,404		6		4,450		5		7,854		11
Consumer			—		—		137		1		137		1
Total		$	32,092		20	$	26,338		24	$	58,430		44

December 31, 2011	TDRs in compliance with their modified terms and accruing interest					TDRs that are not accruing interest				Total
	Balance			Count		Balance		Count		Balance		Count
	(loan balances in thousands)
Commercial		$	603		1	$	—		—	$	603		1
Residential Real Estate Construction			2,195		2		2,832		3		5,027		5
Commercial Real Estate Construction			500		1		4,350		2		4,850		3
Commercial Real Estate Mortgage - Owner Occupied			2,740		5		4,450		6		7,190		11
Commercial Real Estate Mortgage – Non-owner Occupied			28,232		9		9,196		5		37,428		14
Commercial Real Estate Mortgage -Multifamily			3,268		1		515		2		3,783		3
Residential Real Estate Mortgage			3,605		7		4,340		6		7,945		13
Consumer			—		—		137		1		137		1
Total		$	41,143		26	$	25,820		25	$	66,963		51

During the three months ended March 31, 2012, there was a decrease of $8.5 million in restructured loans deemed TDRs. The decrease was the result of $4.5 million of balances transferred to OREO; $3.3 million of charge-offs and $700,000 of principal payments. In addition, a $6.3 million hotel loan was removed after further analysis of the borrower’s credit profile and the borrower’s receipt of a loan commitment from another financial institution at a rate of interest lower than the Bank’s rate of interest.

Credit Quality Indicators: As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to the risk grades of loans, the level of classified loans, net charge-offs, nonperforming loans (see details above) and the general economic conditions in the region.

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 7. Grades 1 through 4 are considered “Pass”. A description of the general characteristics of the seven risk grades is as follows:

1.	Good: Borrower exhibits the strongest overall financial condition and represents the most creditworthy profile.

2.	Satisfactory (A): Borrower reflects a well balanced financial condition, demonstrates a high level of creditworthiness and typically will have a strong banking relationship with Parke Bank.

3.	Satisfactory (B): Borrower exhibits a balanced financial condition and does not expose the Bank to more than a normal or average overall amount of risk. Loans are considered fully collectable.

4.	Watch List: Borrower reflects a fair financial condition, but there exists an overall greater than average risk. Risk is deemed acceptable by virtue of increased monitoring and control over borrowings. Probability of timely repayment is present.

Other Assets Especially Mentioned (OAEM): Financial condition is such that assets in this category have a potential weakness or pose unwarranted financial risk to the Bank even though the asset value is not currently impaired. The asset does not currently warrant adverse classification but if not corrected could weaken and could create future increased risk exposure. Includes loans which require an increased degree of monitoring or servicing as a result of internal or external changes.

Substandard: This classification represents more severe cases of #5 (OAEM) characteristics that require increased monitoring. Assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral. Asset has a well-defined weakness or weaknesses that impairs the ability to repay debt and jeopardizes the timely liquidation or realization of the collateral at the asset’s net book value.

Doubtful: Assets which have all the weaknesses inherent in those assets classified #6 (Substandard) but the risks are more severe relative to financial deterioration in capital and/or asset value; accounting/evaluation techniques may be questionable and the overall possibility for collection in full is highly improbable. Borrowers in this category require constant monitoring, are considered work out loans and present the potential for future loss to the bank.

An analysis of the credit risk profile by internally assigned grades is as follows:

At March 31, 2012	Pass		OAEM		Substandard		Doubtful		Total
	(Amounts in thousands)
Commercial	$	16,950	$	4,250	$	603	$	—	$	21,803
Residential real estate construction		13,091		—		5,017		—		18,108
Commercial real estate construction		19,860		—		24,581		—		44,441
Residential real estate mortgage		134,842		7,063		13,385		—		155,290
Commercial real estate mortgage		301,379		14,246		38,354		—