PARKE BANCORP, INC.
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 Company commenced operations on June 1, 2005, upon completion of the  reorganization of the Bank into the holding company form of organization following approval of the reorganization by shareholders of the Bank at its 2005 Annual Meeting of Shareholders.  The Company's business and operations primarily consist of its ownership of the Bank.           The Bank is a commercial  bank,  which commenced  operations on January 28,  1999.  The Bank is chartered  by the New Jersey  Department  of Banking and insured by the Federal Deposit Insurance Corporation ("FDIC"). Parke Bancorp and the Bank  maintain  their  principal  offices  at 601 Delsea  Drive,  Washington Township,  New  Jersey.  The Bank also  conducts  business  through  offices  in Northfield and Washington Township, New Jersey. In addition, the Bank also has a Loan Production Office in Philadelphia,  Pennsylvania maintained exclusively for loan production.  The Bank is a full service bank, with an emphasis on providing personal and business  financial  services to individuals and small to mid-sized businesses in  Gloucester,  Atlantic and Cape May Counties in New Jersey and the Philadelphia area in Pennsylvania.  At December 31, 2005, the Bank had assets of $297.8  million,  deposits of $232.1 million and  shareholders'  equity of $27.2 million.                                         1             The  Bank  focuses  its  commercial  loan  originations  on  small  and mid-sized business (generally up to $7 million in annual sales). Commercial loan products  include  residential  and commercial real estate  construction  loans; working  capital  loans and lines of credit;  demand,  term and time loans;  and equipment, inventory and accounts receivable financing. Residential construction loans in tract  development  are also included in the commercial  loan category. The Bank also offers a range of deposit  products to its  commercial  customers. Commercial  customers  also have the ability to use  overnight  depository,  ACH activity and wire transfer service, all at reduced rates.           The Bank's retail banking  activities  emphasize  consumer  deposit and checking  accounts.  An extensive range of these services is offered by the Bank to meet the varied  needs of its  customers  in all age  groups.  In addition to traditional  products and services,  the Bank offers  contemporary  products and services, such as debit cards and Internet banking. Retail lending activities by the Bank include residential  mortgage loans, home equity lines of credit, fixed rate second mortgages, new and used auto loans and overdraft protection.  Market Area           Substantially  all of the  Bank's  business  is with  customers  in its market areas of Southern New Jersey and the  Philadelphia  area of Pennsylvania. Most  of the  Bank's  customers  are  individuals  and  small  and  medium-sized businesses  which are dependent upon the regional  economy.  Adverse  changes in economic and business  conditions in the Bank's markets could  adversely  affect the Bank's borrowers, their ability to repay their loan and to borrow additional funds, and consequently the Bank's financial condition and performance.           Additionally,  most of the  Bank's  loans are  secured  by real  estate located in Southern  New Jersey and the  Philadelphia  area.  A decline in local economic  conditions  could  adversely  affect the  values of such real  estate. Consequently,  a decline in local economic  conditions may have a greater effect on the Bank's  earnings  and capital  than on the earnings and capital of larger financial  institutions  whose real estate loan  portfolios  are  geographically diverse.  Competition           The Bank  faces  significant  competition,  both in  making  loans  and attracting deposits. The Bank's competition in both areas comes principally from other commercial banks, thrift and savings  institutions,  including savings and loan associations and credit unions, and other types of financial  institutions, including  brokerage firms and credit card companies.  The Bank faces additional competition  for deposits  from  short-term  money market mutual funds and other corporate and government securities funds.           Most of the Bank's  competitors,  whether traditional or nontraditional financial  institutions,   have  a  longer  history  and  significantly  greater financial  and  marketing  resources  than does the Bank.  Among the  advantages certain of these  institutions  have over the Bank are their  ability to finance wide-ranging and effective advertising campaigns,  to access international money markets and to allocate their  investment  resources to regions of highest yield and demand.  Major banks  operating  in the  primary  market area offer  certain services,  such as  international  banking  and  trust  services,  which are not offered directly by the Bank.           In commercial transactions,  the Bank's legal lending limit to a single borrower enables the Bank to compete effectively for the business of individuals and smaller enterprises. However, the Bank's legal lending limit is considerably lower  than that of various  competing  institutions,  which have  substantially greater capitalization. The Bank has a relatively smaller capital base than most other competing  institutions  which,  although above regulatory  minimums,  may constrain the Bank's effectiveness in competing for loans.                                         2   Lending Activities       Composition of Loan Portfolio. Set forth below is selected data relating to the  composition  of the  Bank's  loan  portfolio  by type of loan at the  dates indicated.(1)                                                                             At December 31,                            ---------------------------------------------------------------------------------------------------------                                       2005                  2004                2003                 2002                 2001                            ---------------------- -------------------- -------------------- ------------------- --------------------                                 Amount    Percent      Amount  Percent     Amount   Percent     Amount  Percent     Amount   Percent                            ------------   ------- ------------ ------- -----------  ------- ----------- ------- -----------  -------             Commercial................ $ 11,053,481     4.3%  $  9,708,142   5.1% $  8,799,899    6.0%  $ 7,035,669   7.4%  $ 7,013,258   11.1% Real estate construction:    Residential............    1,174,233     0.5      1,252,811   0.7     2,164,811    1.5     1,370,266   1.4     1,491,077    2.4    Commercial.............   70,156,767    27.1     37,270,464  19.8    29,896,562   20.4    17,122,397  18.0     6,912,656   10.9 Real estate mortgage:    Residential............   17,308,735     6.7     16,360,109   8.7    18,013,087   12.3    13,188,780  13.9    10,417,895   16.5    Commercial.............  154,287,964    59.6    120,051,646  63.6    84,054,063   57.5    53,503,768  56.3    35,550,050   56.2 Consumer..................    5,053,908     1.8      3,963,818   2.1     3,405,909    2.3     2,874,330   3.0     1,852,236    2.9                            ------------   -----   ------------ -----  ------------  -----   ----------- -----   -----------  -----      Total Loans.......... $259,035,088   100.0%  $188,606,990 100.0% $146,334,331  100.0%  $95,095,210 100.0%  $63,237,172  100.0%                            ============   =====   ============ =====  ============  =====   =========== =====   ===========  =====   - ------------------------------------ (1)  Amounts  presented  include  adjustments for related  unamortized  deferred      costs and fees.                                         4             Loan Maturity.  The following table sets forth the contractual maturity of certain loan categories at December 31, 2005.                                                                       Due after                                                 Due within        1 through 5         Due after                                                   1 year             years             5 years            Total                                               --------------     -------------      -------------     -------------       Commercial................................    $    7,805,102     $   2,765,286      $     483,093     $  11,053,481 Real estate construction:    Residential............................         1,174,233                 -                  -         1,174,233    Commercial.............................        50,704,662        12,645,429          6,806,676        70,156,767                                               --------------     -------------      -------------     -------------      Total amount due.....................    $   59,683,997     $  15,410,715      $   7,289,769     $  82,384,481                                               ==============     =============      =============     =============            The  following  table sets forth the dollar  amount of loans in certain loan categories due after December 31, 2006, which have  predetermined  interest rates and which have floating or adjustable interest rates.                                                                                    Floating or                                                          Fixed Rates(1)       Adjustable Rates           Total                                                          --------------       ----------------           -----      Commercial.........................................    $      3,047,959       $     8,005,522       $    11,053,481 Real estate construction:    Residential.....................................                   -             1,174,233             1,174,233    Commercial......................................           3,716,527            66,440,240            70,156,767                                                        ----------------       ---------------       ---------------      Total amount due..............................    $      6,764,486       $    75,619,995       $    82,384,481                                                        ================       ===============       ===============    (1)  Construction loans are adjustable rate loans, however, due to interest rate      floors, they have been reclassified as fixed rate loans.           Commercial  Loans.  The Bank  originates  secured  loans  for  business purposes. Loans are made to provide working capital to businesses in the form of lines of  credit,  which may be  secured by real  estate,  accounts  receivable, inventory,  equipment or other assets. The financial  condition and cash flow of commercial  borrowers  are closely  monitored  by the  submission  of  corporate financial statements,  personal financial statements and income tax returns. The frequency of submissions of required financial  information  depends on the size and  complexity  of the credit and the  collateral  that  secures the loan.  The Bank's general policy is to obtain  personal  guarantees  from the principals of the commercial loan borrowers.  Such loans are made to businesses located in the Bank's market area.           Commercial  business loans  generally  involve a greater degree of risk than residential  mortgage loans and carry larger loan balances.  This increased credit  risk is a result of several  factors,  including  the  concentration  of principal  in  a  limited  number  of  loans  and  borrowers,  the  mobility  of collateral,  the  effects  of  general  economic  conditions  and the  increased difficulty of evaluating and monitoring these types of loans. Unlike residential mortgage loans,  which generally are made on the basis of the borrower's ability to make  repayment  from his or her  employment  and other  income and which are secured by real  property  whose value  tends to be more  easily  ascertainable, commercial  business  loans  typically  are made on the basis of the  borrower's ability to make repayment from the cash flow of the  borrower's  business.  As a result, the availability of funds for the repayment of commercial business loans may be  substantially  dependent on the success of the  business  itself and the general  economic  environment.  If the cash flow from  business  operations  is reduced, the borrower's ability to repay the loan may be impaired.           Real Estate Development and Construction Loans. The Bank has emphasized the origination of construction  loans to individuals and real estate developers in its market area. The advantages of  construction  lending are that the market is typically less competitive than more standard mortgage                                         5   products,  the interest rate typically charged is a variable rate, which permits the Bank to protect  against sudden changes in its costs of funds,  and the fees or  "points"  charged by the Bank to its  customers  can be  amortized  over the shorter term of a construction loan, typically,  one to two years, which permits the Bank to recognize  income  received over a shorter  period of time. The Bank from time to time structures  construction  loans in excess of the legal lending limit of the Bank, with respect to which the Bank sells participation  interests in the construction loans to other lenders,  while maintaining and servicing the construction loan.           The Bank  provides  interim  real estate  acquisition  development  and construction  loans to builders  and  developers.  Real estate  development  and construction  loans to provide  interim  financing  on the property are based on acceptable  percentages of the appraised value of the property securing the loan in each case. Real estate  development and construction loan funds are disbursed periodically  at  pre-specified  stages of  completion.  Interest rates on these loans are generally  adjustable.  The Bank  carefully  monitors these loans with on-site inspections and control of disbursements. These loans are generally made on properties located in the Bank's market area.           Development and construction  loans are secured by the properties under development and personal guarantees are typically  obtained.  Further, to assure that reliance is not placed solely in the value of the underlying property,  the Bank  considers the financial  condition and  reputation of the borrower and any guarantors,  the amount of the  borrower's  equity in the  project,  independent appraisals, costs estimates and pre-construction sale information.           Loans to residential  builders are for the  construction of residential homes for which a binding sales contract exists and the prospective  buyers have been  pre-qualified  for  permanent  mortgage  financing.  Loans to  residential developers  are made only to developers  with a proven sales record.  Generally, these loans are extended only when the borrower  provides evidence that the lots under development will be sold to potential buyers satisfactory to the Bank.           The Bank also  originates  loans to  individuals  for  construction  of single  family   dwellings.   These  loans  are  for  the  construction  of  the individual's primary residence. They are typically secured by the property under construction,   occasionally  include  additional  collateral  (such  as  second mortgage on the borrower's present home), and commonly have maturities of six to twelve months.           Construction  financing  is labor  intensive  for the  Bank,  requiring employees of the Bank to expend substantial time and resources in monitoring and servicing  each  construction  loan to  completion.  Construction  financing  is generally  considered to involve a higher degree of risk of loss than  long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value  at  completion  of  construction   and   development,   the  accuracy  of projections,  such as the sales of homes or the  future  leasing  of  commercial space,  and  the  accuracy  of  the  estimated  cost  (including   interest)  of construction.  Substantial deviations can occur in such projections.  During the construction  phase,  a number  of  factors  could  result  in  delays  and cost overruns.  If the estimate of  construction  costs proves to be inaccurate,  the Bank may be required to advance funds beyond the amount originally  committed to permit  completion  of the  development.  If the  estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with a project having a value which is  insufficient  to assure full  repayment. Also,  a  construction  loan that is in default can cause  problems for the Bank such as designating  replacement builders for a project,  considering  alternate uses for the project and site and  handling  any  structural  and  environmental issues that might arise.           Commercial  Real Estate Mortgage  Loans.  The Bank originates  mortgage loans secured by  commercial  real estate.  Such loans are primarily  secured by office  buildings,  retail  buildings,  warehouses                                         6    and  general  purpose  business  space.  Although  terms  may vary,  the  Bank's commercial  mortgages  generally have  maturities of twenty years,  but re-price within five years.           Loans  secured  by  commercial  real  estate are  generally  larger and involve a greater degree of risk than one- to four-family  residential  mortgage loans. Of primary concern, in commercial and multi-family real estate lending is the borrower's  creditworthiness  and the feasibility and cash flow potential of the project.  Payments on loans secured by income properties are often dependent on successful operation or management of the properties.  As a result, repayment of such loans may be subject to a greater  extent than  residential  real estate loans to adverse conditions in the real estate market or the economy.           The Bank seeks to reduce the risks associated with commercial  mortgage lending by generally  lending in its primary market area and obtaining  periodic financial  statements  and tax  returns  from  borrowers.  It is also the Bank's general  policy  to  obtain  personal  guarantees  from  the  principals  of the borrowers and assignments of all leases related to the collateral.           Residential Real Estate Mortgage Loans. The Bank originates  adjustable and fixed-rate  residential  mortgage  loans.  Such mortgage loans are generally originated under terms, conditions and documentation acceptable to the secondary mortgage  market.  Although  the Bank has  placed  all of these  loans  into its portfolio,  a  substantial  majority of such loans can be sold in the  secondary market or pledged for potential borrowings.           Consumer  Loans.  The Bank  offers a variety of consumer  loans.  These loans are typically  secured by  residential  real estate or personal  property, including  automobiles.  Home equity loans  (closed-end and lines of credit) are typically  made up to 80% of the  appraised  or assessed  value of the  property securing the loan in each case,  less the amount of any existing  prior liens on the property,  and generally have maximum terms of ten years,  although the Bank does  offer a 90% loan to value  product if  certain  conditions  related to the borrower and property are satisfied.  The interest rates on second mortgages are generally  fixed,  while  interest  rates on home  equity  lines of  credit  are variable.           Loans to One Borrower.  Federal regulations limit loans to one borrower in an amount  equal to 15% of  unimpaired  capital and  unimpaired  surplus.  At December 31, 2005, the Bank's loan to one borrower limit was approximately  $5.9 million  and the Bank had 13  borrowers  with  loan  balances  in excess of $5.0 million.  At December  31, 2005,  the Bank's  largest loan to one borrower was a loan for construction  and  development,  with a balance of $5.0 million and was secured by real estate.  This loan is scheduled to be funded in stages after the houses are sold. At December 31, 2005,  this loan was current and  performing in accordance with the terms of the loan agreement.           The size of loans which the Bank can offer to  potential  borrowers  is less than the size of loans  which many of the Bank's  competitors  with  larger capitalization  are able to offer.  The Bank may  engage in loan  participations with  other  banks  for  loans in excess of the  Bank's  legal  lending  limits. However, no assurance can be given that such participations will be available at all or on terms which are favorable to the Bank and its customers.  Non-Performing and Problem Assets           Non-Performing Assets. Non-accrual loans are those on which the accrual of interest has ceased.  Loans are generally placed on non-accrual status if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more unless the  collateral is  considered  sufficient to cover  principal  and  interest  and the loan is in the  process of  collection. Interest accrued,  but not collected at the date a loan is placed on non-accrual status,  is reversed  and  charged  against  interest  income.  Subsequent  cash receipts are applied either to the outstanding principal or recorded as interest income,                                         7    depending on  management's  assessment  of ultimate  collectability  of principal  and  interest.  Loans are  returned  to an  accrual  status  when the borrower's ability to make periodic principal and interest payments has returned to normal  (i.e.,  brought  current  with  respect to  principal  or interest or restructured)  and the paying  capacity of the  borrower  and/or the  underlying collateral is deemed sufficient to cover principal and interest.           Impaired  loans are  measured  based on the  present  value of expected future  discounted cash flows, the market price of the loan or the fair value of the underlying collateral if the loan is collateral  dependent.  The recognition of  interest  income  on  impaired  loans is the same as for  non-accrual  loans discussed above.           The following table sets forth information  regarding non-accrual loans at the dates indicated.                                                                                    At December 31,                                                     ----------------------------------------------------------------------                                                         2005           2004           2003          2002           2001                                                     -----------    -----------    -----------   -----------    -----------       Loans accounted for on a non-accrual basis: Commercial.......................................   $    50,000    $         -    $         -   $         -    $         - Real estate construction:    Residential...................................             -        240,816        289,257       289,000              -    Commercial....................................             -              -              -             -              - Real estate mortgage:    Residential...................................        20,000              -        504,878       742,067        745,000    Commercial....................................     1,865,000              -              -             -              - Consumer.........................................             -              -              -             -              -                                                     -----------    -----------    -----------   -----------    -----------      Total.......................................     1,935,000        240,816        794,135     1,031,067        745,000                                                     -----------    -----------    -----------   -----------    ----------- Accruing loans delinquent 90 days or more: Commercial.......................................             -              -              -             -              - Real estate construction:    Residential...................................             -              -              -             -              -    Commercial....................................             -              -              -             -              - Real estate mortgage:    Residential...................................             -         54,859              -             -              -    Commercial....................................       665,000              -              -        50,000              - Consumer.........................................             -              -              -             -              -                                                     -----------    -----------    -----------   -----------    -----------      Total.......................................       665,000         54,859              -        50,000              -                                                     -----------    -----------    -----------   -----------    -----------          Total non-performing loans..............   $ 2,590,000    $   295,675    $   794,135   $ 1,081,067    $   745,000                                                     ===========    ===========    ===========   ===========    =========== Total non-performing loans as a    percentage of net loans.......................        1.01%          0.16%          0.55%         1.15%          1.19%                                                     ===========    ===========    ===========   ===========    ===========            Classified  Assets.  Federal  Regulations  provide for a classification system for problem  assets of insured  institutions.  Under this  Classification System,  problem assets of insured  institutions  are classified as substandard, doubtful or loss. An asset is considered  "substandard" if it involves more than an  acceptable  level  of  risk  due  to a  deteriorating  financial  condition, unfavorable history of the borrower,  inadequate payment capacity,  insufficient security or other negative  factors  within the industry,  market or management. Substandard  loans have clearly  defined  weaknesses  which can  jeopardize  the timely payments of the loan.           Assets  classified  as "doubtful"  exhibit all of the weakness  defined under  the  Substandard  Category  but  with  enough  risk  to  present  a  high probability  of  some  principal  loss  on the  loan,  although  not  yet  fully ascertainable  in  amount.  Assets  classified  as "loss"  are those  considered un-collectable  or of little value, even though a collection effort may continue after the classification and potential charge-off.                                         8             The  Bank  also  internally   classifies  certain  assets  as  "special mention;"  such assets do not  demonstrate a current  potential for loss but are monitored in response to negative trends which, if not reversed, could lead to a substandard rating in the future.           When  an  insured  institution  classifies  problem  assets  as  either "substandard"  or  "doubtful,"  it may establish  specific  allowances  for loan losses in an amount deemed  prudent by management.  When an insured  institution classifies  problem  assets as "loss," it is  required  either to  establish  an allowance  for losses equal to 100% of that portion of the assets so  classified or to charge off such amount.           At December 31, 2005, the Bank had assets classified as follows:  Special mention.......................................      $        800,411 Substandard...........................................             3,221,945 Doubtful..............................................                20,000 Loss..................................................                 9,440                                                             ----------------       Total...........................................      $      4,051,846                                                             ================           Foreclosed Real Estate. Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until  such  time as it is sold.  When  real  estate  owned is  acquired,  it is recorded at the lower of the unpaid principal balance of the related loan or its fair value less disposal  costs.  Any write-down of real estate owned is charged to  operations.  At December 31, 2005,  the Bank had real estate owned  totaling $43,936 which is totally reserved.           Allowance for Losses on Loans and Real Estate  Owned.  It is the policy of  management to provide for losses on  unidentified  loans in its portfolio in addition  to  classified  loans.  A  provision  for loan  losses is  charged  to operations  based on management's  evaluation of the inherent losses that may be incurred in the Bank's loan  portfolio.  Management also  periodically  performs valuations of Real Estate Owned and establishes allowances to reduce book values of the properties to their net realizable values when necessary.           Management's  judgment  as to the  level of future  losses on  existing loans is based on its  internal  review  of the  loan  portfolio,  including  an analysis of the borrowers'  current  financial  position,  the  consideration of current and  anticipated  economic  conditions  and their  potential  effects on specific  borrowers.   In  determining  the  collectability  of  certain  loans, management also considers the fair value of any underlying collateral.  However, management's  determination  of the appropriate  allowance level is based upon a number of assumptions about future events,  which are believed to be reasonable, but which may or may not  prove  valid.  Thus,  there can be no  assurance  that charge-offs  in future  period will not exceed the  allowance for loan losses or that additional increases in the allowance for loan losses will not be required.                                         9             The following table sets forth  information  with respect to the Bank's allowance for losses on loans at the dates and for the periods indicated.                                                                                For the Year Ended December 31,                                                     -------------------------------------------------------------------------------                                                          2005             2004            2003            2002             2001                                                     -------------    -------------   -------------   -------------    -------------        Balance at beginning of period...................   $   2,620,651    $   2,256,070   $   1,333,000   $     834,483    $     467,484 Charge-offs: Commercial.......................................               -                -               -               -           (7,000) Real estate construction:    Residential...................................               -                -               -               -                -    Commercial....................................        (227,001)               -               -               -                - Real estate mortgage:    Residential...................................               -         (460,743)              -               -                -    Commercial....................................               -                -               -               -                - Consumer.........................................               -                -          (1,000)              -                -                                                     -------------    -------------   -------------   -------------    -------------      Total charge-offs:..........................        (227,001)        (460,743)         (1,000)              -           (7,000)                                                     -------------    -------------   -------------   -------------    -------------  Recoveries: Commercial.......................................               -                -               -               -                - Real estate construction:    Residential...................................               -                -               -               -                -    Commercial....................................               -                -               -               -                - Real estate mortgage:    Residential...................................               -                -               -               -                -    Commercial....................................               -                -               -               -                - Consumer.........................................               -                -           1,000               -                -                                                     -------------    -------------   -------------   -------------    -------------      Total recoveries:...........................               -                -           1,000               -                -                                                     -------------    -------------   -------------   -------------    -------------  Net charge-offs..................................        (227,001)        (460,743)              -               -           (7,000)                                                     -------------    -------------   -------------   -------------    ------------- Provision for loan losses........................       1,180,162          825,324         923,070         498,517          373,999                                                     -------------    -------------   -------------   -------------    ------------- Balance at end of period.........................   $   3,573,812    $   2,620,651   $   2,256,070   $   1,333,000    $     834,483                                                     =============    =============   =============   =============    ============= Period-end loans outstanding (net of    deferred costs/fees)..........................   $ 259,035,088    $ 188,606,990   $ 146,344,331   $  95,095,210    $  63,237,172                                                     =============    =============   =============   =============    ============= Average loans outstanding........................   $ 223,821,300    $ 154,794,200   $ 120,796,806   $  78,245,329    $  49,878,934                                                     =============    =============   =============   =============    ============= Allowance as a percentage of period    end loans.....................................          1.38%            1.39%           1.54%           1.40%            1.32%                                                     =============    =============   =============   =============    ============= Loans charged off as a percentage of    average loans outstanding.....................          1.10%            0.30%           0.00%           0.00%            0.01%                                                     =============    =============   =============   =============    =============                                          10             Allocation of Allowance for Loan Losses. The following table sets forth the  allocation of the Bank's  allowance for loan losses by loan category at the dates indicated.  The portion of the loan loss allowance  allocated to each loan category does not represent the total available for future losses that may occur within the loan category as the total loan loss allowance is a valuation reserve applicable to the entire loan portfolio.                                                                                At December 31,                             -------------------------------------------------------------------------------------------------------                                    2005                  2004                 2003                 2002                2001                             ------------------   -------------------    ------------------    -----------------   -----------------                                      Percent of             Percent              Percent of            Percent             Percent                                       Loans in              of Loans              Loans in             of Loans            of Loans                                         Each                in Each                 Each               in Each             in Each                                       Category              Category              Category             Category            Category                                       to Total              to Total              to Total             to Total            to Total Type of Loans:              Amount       Loans   Amount        Loans    Amount       Loans    Amount      Loans   Amount      Loans - -------------               ------       -----   ------        -----    ------       -----    ------      -----   ------      -----            Commercial................ $  153,674     4.3% $  133,653        5.1% $  135,364      6.0%  $   98,642      7.4% $  92,628     11.1% Real estate construction:    Residential............     17,869     0.5      18,344        0.7      33,841      1.5       18,662      1.4     20,027      2.4    Commercial.............    968,503    27.1     518,889       19.8     460,238     20.4      239,940     18.0     90,959     10.9 Real estate mortgage:    Residential............    239,445     6.7     227,997        8.7     277,497     12.3      184,287     13.9    137,690     16.5    Commercial.............  2,129,992    59.6   1,666,734       63.6   1,297,240     57.5      750,479     56.3    468,979     56.2 Consumer..................     64,329     1.8      55,034        2.1      51,890      2.3       39,990      3.0     24,200      2.9                            ----------   -----  ----------      -----  ----------    -----   ----------    -----  ---------    -----      Total Allowance       $3,573,812   100.0% $2,620,651      100.0% $2,256,070    100.0%  $1,333,000    100.0% $ 834,483    100.0%                            ==========   =====  ==========      =====  ==========    =====   ==========    =====  =========    =====                                          11    Investment Activities           General.  The  investment  policy of the Bank is  established by senior management  and  approved  by the Board of  Directors.  It is based on asset and liability  management  goals and is  designed  to  provide a  portfolio  of high quality  investments that foster interest income within acceptable interest rate risk and  liquidity  guidelines.  In  accordance  with  SFAS No.  115,  the Bank classifies  its  portfolio of investment  securities as "available  for sale" or "held to maturity." At December 31, 2005, the Bank's  investment  policy allowed investments in instruments  such as: (i) U.S.  Treasury  obligations,  (ii) U.S. government  agency  or  government-sponsored  agency  obligations,  (iii)  local municipal  obligations,  (iv)  mortgage-backed  securities,  (v) certificates of deposit,  and (vi) investment grade corporate bonds, trust preferred  securities and mutual funds. The Board of Directors may authorize additional investments.           Composition of Investment  Securities  Portfolio.  The following  table sets forth the carrying value of the Bank's investment  securities  portfolio at the dates indicated. For additional information,  see Note 3 of the Notes to the Consolidated Financial Statements.                                                                                        At December 31,                                                                  --------------------------------------------------                                                                        2005              2004              2003                                                                  --------------    --------------    --------------     Securities Held to Maturity: - ---------------------------    Municipals.................................................   $    2,405,841    $      547,632    $      548,999    Corporate trust preferred securities.......................                -                 -           250,000                                                                  --------------    --------------    --------------      Total securities held to maturity........................        2,405,841           547,632           798,999                                                                  --------------    --------------    -------------- Securities Available for Sale: - -----------------------------    U.S. government agency securities..........................                -                 -                 -    U.S. government-sponsored entity securities................        6,202,390         8,670,230         4,255,820    Municipals.................................................                -                 -                 -    Mortgage-backed securities.................................        9,004,256        12,176,244         6,931,181    Mutual funds...............................................                -         3,196,328         3,136,034    Corporate & trust preferred securities.....................        6,316,298                 -                 -    Stock......................................................          500,000                 -                 -                                                                  --------------    --------------    --------------      Total securities available for sale......................       22,022,944        24,042,802        14,323,035                                                                  --------------    --------------    --------------        Total..................................................   $   24,428,785    $   24,590,434    $   15,122,034                                                                  ==============    ==============    ==============                                          12             Investment  Portfolio  Maturities.   The  following  table  sets  forth information regarding the scheduled maturities,  carrying values, estimated fair values,  and  weighted  average  yields  for the Bank's  investments  securities portfolio at December 31, 2005 by contractual maturity. The following table does not take into  consideration the effects of scheduled  repayments or the effects of possible prepayments.                                                                    At December 31,                            ---------------------------------------------------------------------------------------------------------                            Within One Year   One to Five Years Five to Ten Years More than Ten Years   Total Investment Securities                            ---------------   ----------------- ----------------- ------------------- -------------------------------                           Carrying Average   Carrying  Average Carrying Average    Carrying Average  Carrying   Average                            Value    Yield     Value     Yield   Value    Yield       Value   Yield     Value     Yield  Market Value                            -----    -----     -----     -----   -----    -----       -----   -----     -----     -----  ------------             Securities Held to Maturity: - ---------------------------    Municipals............. $    -       -% $  538,055    2.62%  $    -       -% $ 1,867,786  4.33%  $ 2,405,841  3.95%  $ 2,322,985                            ------   -----   ---------    ----   ------   -----  -----------  ----   -----------  ----   -----------      Total securities      held to maturity.....      -       -%    538,055    2.62%       -       -%   1,867,786  4.33%    2,405,841  3.95%    2,322,985                            ------   -----   ---------    ----   ------   -----  -----------  ----   -----------  ----   -----------  Securities Available for Sale: - ------------------------------    U.S. government    agency securities......      -       -%  2,484,490    4.49%       -       -%   3,717,900  4.46%    6,202,390  4.47%    6,202,390    U.S. government-    sponsored entity    securities.............      -       -%          -       -%       -       -%           -     -%            -     -%            -    Municipals.............      -       -%          -       -%       -       -%   9,004,256  4.85%    9,004,256  4.85%    9,004,256    Mortgage-backed    securities.............      -       -%    513,200    5.75%       -       -%   5,803,098  5.61%    6,316,298  5.60%    6,316,298    Mutual funds...........      -       -%          -       -%       -       -%     500,000  0.00%      500,000  0.00%      500,000      Total securities      available for sale...      -       -%  2,997,690    4.70%       -       -%  19,025,254  4.90%   22,022,944  4.86%   22,022,944                            ------   -----   ---------    ----   ------   -----  -----------  ----   -----------  ----   -----------        Total..............      -       -%  3,535,745    4.94%       -       -% $20,893,040  4.81%  $24,428,785  4.77%  $24,345,929                            ======   =====   =========    ====   ======   =====  ===========  ====   ===========  ====   ===========                                          13    Sources of Funds           General. Deposits are the major external source of the Bank's funds for lending and other investment purposes. In addition to deposits, the Bank derives funds  from  the  amortization,  prepayment  or sale  of  loans,  maturities  of investment securities and operations.  Scheduled loan principal repayments are a relatively  stable source of funds,  while deposit inflows and outflows and loan prepayments are  significantly  influenced by general  interest rates and market conditions.           Deposits.  The Bank offers individuals and businesses a wide variety of accounts,  including  checking,  savings,  money  market  accounts,   individual retirement accounts and certificates of deposit. Deposits are obtained primarily from communities that the Bank serves,  however, the Bank held brokered deposits of $67  million and $39  million at  December  31, 2005 and 2004,  respectively. Brokered  deposits are a more volatile  source of funding than core deposits and do not increase the deposit franchise of the Bank. In a rising rate environment, the Bank may be unwilling  or unable to pay a  competitive  rate.  To the extent that such  deposits  do not remain  with the Bank,  they may need to be replaced with  borrowings  which could  increase the Bank's cost of funds and  negatively impact its interest rate spread, financial condition and results of operation.           The following tables detail the average amount,  the average rate paid, and the  percentage of each category to total deposits for the three years ended December 31, 2005.                                                                      At December 31, 2005                                                ----------------------------------------------------------                                                      Daily                                                     Average              Average              Percent                                                     Balance               Rate                of Total                                                --------------         -------------        --------------     NOW and money market    savings deposits........................    $   23,729,040             1.8%                  11.4% Regular savings deposits...................        29,199,866             2.7%                  14.0% Time deposits..............................       138,586,970             3.3%                  66.5%                                                --------------                                  -----      Total interest-bearing deposits.......       191,515,876                                   91.9%  Non interest-bearing demand deposits.......        16,946,509                                    8.1%                                                --------------                                  -----      Total deposits........................    $  208,462,385                                  100.0%                                                ==============                                  =====                                                                      At December 31, 2004                                                ----------------------------------------------------------                                                      Daily                                                     Average              Average              Percent                                                     Balance               Rate                of Total                                                --------------         -------------        --------------     NOW and money market    savings deposits........................    $   28,510,645             1.7%                  18.4% Regular savings deposits...................        22,160,550             2.1%                  14.3% Time deposits..............................        91,104,040             2.8%                  58.7%                                                --------------                                  -----      Total interest-bearing deposits.......       141,775,235                                   91.4%  Non interest-bearing demand deposits.......        13,422,274                                    8.6%                                                --------------                                  -----      Total deposits........................    $  155,197,509                                  100.0%                                                ==============                                  =====                                          14                                                                       At December 31, 2003                                                ----------------------------------------------------------                                                      Daily                                                     Average              Average              Percent                                                     Balance               Rate                of Total                                                --------------         -------------        --------------     NOW and money market    savings deposits........................    $   24,351,546             1.6%                  19.8% Regular savings deposits...................        22,104,323             2.2%                  18.0% Time deposits..............................        67,298,382             3.2%                  54.7%                                                --------------                                  -----      Total interest-bearing deposits.......       113,754,251                                   92.5%  Non interest-bearing demand deposits.......         9,270,022                                    7.5%                                                --------------                                  -----      Total deposits........................    $  123,024,273                                  100.0%                                                ==============                                  =====            The following table indicates the amount of the Bank's  certificates of deposit of $100,000 or more by time remaining  until maturity as of December 31, 2005.                                                      Certificates of Maturity Period                                         Deposit - ---------------                                         -------  Within three months..........................       $   21,364,066 Three through six months.....................           22,183,181 Six through twelve months....................           14,331,938 Over twelve months...........................           37,402,940                                                     --------------      Total...................................       $   95,282,066                                                     ==============           Borrowings.   Borrowings  consist  of  reverse  repurchase  agreements, subordinated  debt  and  advances  from  the FHLB  and  other  parties.  Reverse repurchase  agreements  were priced at origination and are payable in four years or  less.  Borrowings  from  FHLB  outstanding  during  2005,  2004 and 2003 had maturities of five years or less and cannot be prepaid without penalty.           The  following  table  sets  forth  information  regarding  the  Bank's borrowings:                                                                                  December 31,                                                            ------------------------------------------------                                                                  2005             2004             2003                                                            --------------   --------------   --------------     Amount outstanding at year end.........................    $   35,966,860   $   20,378,726   $   10,340,123 Weighted average interest rates at year end............              4.8%             2.8%             1.8% Maximum outstanding at any month end...................    $   35,966,860   $   20,378,726   $   14,195,110 Average outstanding....................................    $   28,172,795   $   10,721,726   $    7,827,679 Weighted average interest rate during the year.........              3.1%             2.2%             2.1%   Subsidiary Activity           The largest  subsidiary  of the  Company is the Bank.  The Bank has one subsidiary,  Parke Capital Markets,  a corporation,  which was formed in 2001 to generate fee income from capital  markets  financing  activities,  which include term financings.  Personnel           At  December  31,  2005,  the Bank had 30  full-time  and 10  part-time employees.                                         15    Regulation           General.  Set forth below is a brief  description of certain laws which relate to the regulation of the Bank and the Company.  The description  does not purport  to be  complete  and is  qualified  in its  entirety  by  reference  to applicable laws and regulations.           Holding Company Regulation           General.  The Company is a bank holding  company  within the meaning of the Bank  Holding  Company Act of 1956 (the "BHC Act"),  and is regulated by the Board of Governors of the Federal Reserve System (the "Federal  Reserve Board"). The Federal  Reserve Board has  enforcement  authority  over the Company and the Company's non-bank  subsidiaries which also permits the Federal Reserve Board to restrict or prohibit  activities that are determined to be a serious risk to the subsidiary  bank.  This  regulation and oversight is intended  primarily for the protection  of the  depositors  of the  Bank  and  not for  shareholders  of the Company.           As a bank  holding  company,  the  Company is required to file with the Federal  Reserve Board an annual report and any  additional  information  as the Federal  Reserve Board may require under the BHC Act. The Federal  Reserve Board will also examine the Company and its subsidiaries.           Subsidiary  banks of a bank  holding  company  are  subject  to certain restrictions  imposed by the BHC Act on extensions of credit to the bank holding company  or any of its  subsidiaries,  on  investments  in the  stock  or  other securities of the bank holding company or its subsidiaries, and on the taking of such stock or securities as collateral  for loans to any borrower.  Furthermore, under  amendments to the BHC Act and regulations of the Federal Reserve Board, a bank  holding  company and its  subsidiaries  are  prohibited  from  engaging in certain  tie-in  arrangements  in  connection  with any  extension  of credit or provision of credit or  providing  any  property or  services.  Generally,  this provision provides that a bank may not extend credit, lease or sell property, or furnish any service to a customer on the  condition  that the  customer  provide additional credit or service to the bank, to the bank holding company, or to any other  subsidiary  of the bank  holding  company  or on the  condition  that the customer not obtain other credit or service from a competitor  of the bank,  the bank holding company, or any subsidiary of the bank.           Extensions of credit by the Bank to executive officers,  directors, and principal  shareholders  of the Bank or any  affiliate  thereof,  including  the Company,  are subject to Section 22(h) of the Federal  Reserve Act,  which among other  things,  generally  prohibits  loans to any  such  individual  where  the aggregate amount exceeds an amount equal to 15% of a bank's  unimpaired  capital and surplus,  plus an additional  10% of  unimpaired  capital and surplus in the case of loans that are fully secured by readily marketable collateral.           Federal  Securities Law. The Company's common stock is registered under Section  12(g) of the  Securities  Exchange  Act of 1934,  as amended (the "1934 Act"),  and  the  Company  is  subject  to  the  periodic  reporting  and  other requirements of Section 12(g) of the 1934 Act, as amended.           Sarbanes-Oxley  Act of 2002. The  Sarbanes-Oxley  Act of 2002 (the "SOX Act") was  enacted  to  address  corporate  and  accounting  fraud.  The SEC has promulgated new regulations  pursuant to the SOX Act and may continue to propose additional implementing or clarifying regulations as necessary in furtherance of the SOX Act.  The passage of the SOX Act by Congress and the  implementation  of new regulations by the SEC subject  publicly-traded  companies to additional and more cumbersome  reporting  regulations and disclosure.  Compliance with the SOX Act and corresponding regulations may increase the Company's expenses.                                         16    Regulation of the Bank           The Bank operates in a highly regulated  industry.  This regulation and supervision  establishes a comprehensive framework of activities in which a bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors and not shareholders of the Bank.           Any change in applicable statutory and regulatory requirements, whether by the New Jersey  Department  of Banking and  Insurance,  the  Federal  Deposit Insurance  Corporation (the "FDIC") or the United States Congress,  could have a material  adverse  impact on the  Bank,  and its  operations.  The  adoption  of regulations or the enactment of laws that restrict the operations of the Bank or impose burdensome  requirements upon it could reduce its profitability and could impair the value of the Bank's  franchise  which could hurt the trading price of the Bank's stock.           As a New  Jersey-chartered  commercial bank, the Bank is subject to the regulation, supervision, and control of the New Jersey Department of Banking and Insurance.  As an FDIC-insured  institution,  the Bank is subject to regulation, supervision  and control of the FDIC, an agency of the federal  government.  The regulations  of the FDIC and the New Jersey  Department of Banking and Insurance affect  virtually  all  activities  of the Bank,  including the minimum level of capital the Bank must maintain,  the ability of the Bank to pay  dividends,  the ability of the Bank to expand through new branches or  acquisitions  and various other matters.           Insurance of Deposits.  The Bank's deposits are insured up to a maximum of $100,000 per depositor  under the Bank  Insurance  Fund of the FDIC. The FDIC has  established  a  risk-based  assessment  system for all  insured  depository institutions.  Under the risk-based assessment system, deposit insurance premium rates range from 0-27 basis  points.  Currently,  the Bank's  deposit  insurance premium has been assessed at [zero] basis points of deposits.           Capital Adequacy Guidelines.  The Bank is subject to risk-based capital guidelines  promulgated by the FDIC that are designed to make regulatory capital requirements  more  sensitive to  differences  in risk profile  among banks,  to account  for  off-balance  sheet  exposure,  and to minimize  disincentives  for holding liquid assets. Under the guidelines,  assets and off-balance sheet items are  assigned  to broad risk  categories,  each with  appropriate  weights.  The resulting   capital   ratios   represent   capital  as  a  percentage  of  total risk-weighted assets and off-balance sheet items.           The minimum ratio of total capital to risk-weighted  assets  (including certain off-balance sheet activities,  such as standby letters of credit) is 8%. At least 4% of the total capital is required to be "Tier I Capital,"  consisting of common  shareholders'  equity and qualifying  preferred  stock,  less certain goodwill items and other  intangible  assets.  The remainder ("Tier II Capital") may consist of (a) the allowance for loan losses of up to 1.25% of risk-weighted assets,   (b)  excess  of  qualifying   preferred   stock,  (c)  hybrid  capital instruments,  (d) perpetual debt, (e) mandatory convertible securities,  and (f) qualifying subordinated debt and intermediate-term  preferred stock up to 50% of Tier I capital.  Total  capital  is the sum of Tier I and Tier II  capital  less reciprocal  holdings  of  other  banking  organizations,   capital  instruments, investments  in   unconsolidated   subsidiaries  and  any  other  deductions  as determined by the FDIC  (determined  on a  case-by-case  basis or as a matter of policy after formal rule-making).           In addition to the risk-based capital guidelines,  the FDIC has adopted a minimum Tier I capital  (leverage)  ratio,  under which a bank must maintain a minimum level of Tier I capital to average total consolidated assets of at least 3% in the case of a bank that has the highest regulatory  examination rating and is not  contemplating  significant  growth or  expansion.  All  other  banks are expected to maintain a leverage  ratio of at least 100 to 200 basis points above the stated minimum.                                         17             At  December  31,  2005,  the  Company  and the Bank had the  requisite capital levels to qualify as "well capitalized."
The  following  is a  summary  of  the  material  risks  related  to an investment in the Company's securities.  A  significant  amount of the Bank's  business  is  concentrated  in real estate development and construction lending.           At December 31, 2005,  approximately  27.5% of our loans are commercial and  residential  real estate  development  and  construction  loans,  which are secured by the real estate  under  development.  Construction  lending  involves extensive  risks.  In  addition  to the risk that the market  values of the real estate securing these loans may deteriorate, these loans are also subject to the development  risks that the projects will not be completed in a timely manner or according to original  specifications.  Real estate development and construction projects  that are not  completed  in a timely  manner or  according to original specifications  are  generally  less  marketable  than  projects  that are fully developed,  and the loans  underlying  such  projects  may be subject to greater losses  in the event  that the real  estate  collateral  becomes  the  source of repayment.   Construction   projects  are  commonly   underwritten   based  upon projections,  such as the sales of homes or future leasing of commercial spaces, and substantial deviations from such projections can occur. Construction lending is also  labor  intensive  for the  Bank,  requiring  Bank  employees  to expend substantial  time and resources in monitoring  and servicing  each  construction loan to  completion.  In addition,  a  construction  loan that is in default can create  problems for the Bank,  such as designating  replacement  builders for a project,  considering  alternate users for the project and site and handling any structural or environmental issues that might arise. Such problems and the risks inherent  in  construction  lending  may have a material  adverse  effect on the Company's earnings and overall financial condition.  Most of the Bank's  loans are  secured,  in whole or in part,  with real  estate collateral.           In addition to the financial strength and cash flow  characteristics of the  borrower  in each case,  the Bank often  secures its loans with real estate collateral.  At December 31, 2005,  approximately  95.8% of the Bank's loans had real estate as a primary,  secondary or tertiary  component of  collateral.  The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower,  but such  collateral  may  deteriorate in value  during the time the credit is  extended.  If we are required to liquidate the collateral  securing a loan during a period of reduced real estate values to satisfy the debt, our earnings and capital could be adversely affected.  Some of the Bank's assets are classified as non-performing  assets that may lose further value.           The Bank has  non-performing  assets,  which at this time only  include non-accruing loans. At December 31, 2005, the Bank's  non-performing  loans were 1.4% of outstanding net loans.  There is a possibility  that the Bank's earnings could be reduced in the event that the eventual  values of these  non-performing assets are or become less than the values that we have assigned to them.  The Bank may experience loan losses in excess of its allowance.           The risk of credit  losses on loans  varies with,  among other  things, general economic  conditions,  the type of loan being made, the creditworthiness of the borrower  over the term of the loan and, in the case of a  collateralized loan,  the value and  marketability  of the  collateral for the loan. The Bank's                                         18    management  maintains  an  allowance  for loan losses  based  upon,  among other things,  historical experience, an evaluation of economic conditions and regular reviews of delinquencies  and loan portfolio  quality.  Based upon such factors, management   makes  various   assumptions   and  judgments  about  the  ultimate collectability  of the loan  portfolio and provides an allowance for loan losses based upon a percentage of the outstanding  balances and for specific loans when their  ultimate  collectability  is  considered  questionable.   If  the  Bank's management's  assumptions  and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future losses, or if the bank regulatory authorities require the Bank to increase the allowance for loan losses as a part of  their  examination  process,  the  Bank's  earnings  and  capital  could  be significantly and adversely affected.           As  of  December  31,  2005,   the   allowance   for  loan  losses  was approximately $3.6 million,  which represented 1.4% of outstanding net loans. At such date, we had  non-accruing  loans totaling $1.9 million.  The Bank actively manages its non-accruing loans in an effort to minimize credit losses.  Although the Bank's  management  believes that its allowance for loan losses is adequate, there can be no assurance  that the  allowance  will prove  sufficient  to cover future  loan  losses.  Further,  although  the Bank's  management  uses the best information  available to make  determinations with respect to the allowance for loan losses,  future adjustments may be necessary if economic  conditions differ substantially  from the  assumptions  used or  adverse  developments  arise with respect to the Bank's  non-performing or performing loans. Material additions to the Bank's  allowance  for loan losses  would result in a decrease in the Bank's net  income  and  capital,  and  could  have a  material  adverse  effect on the Company's financial condition and results of operations.  The Bank operates in a competitive market.           The Bank operates in a competitive environment,  competing for deposits and loans  with  commercial  banks,  savings  associations  and other  financial entities.  Competition for deposits comes primarily from other commercial banks, savings  associations,  credit  unions,  money market and mutual funds and other investment  alternatives.  Competition  for loans  comes  primarily  from  other commercial banks,  savings  associations,  mortgage banking firms, credit unions and  other  financial  intermediaries.  Many  of  the  financial  intermediaries operating in our market area offer certain  services,  such as trust  investment and international banking services,  which the Bank does not offer. In addition, banks with a larger  capitalization and financial  intermediaries not subject to bank regulatory  restrictions have larger lending limits and are thereby able to serve the needs of larger  customers.  Finally,  the Bank's continued growth and profitability  will  depend  upon its  ability  to attract  and  retain  skilled managerial,   marketing  and  technical  personnel.  Competition  for  qualified personnel in the banking industry is intense, and there can be no assurance that the Bank will be successful in attracting and retaining such personnel.  The Bank is dependent on certain key personnel.           The success of the Bank depends,  to a great extent,  upon the services of Vito S. Pantilione,  the Bank's President and Chief Executive Officer, Ernest D. Huggard,  the Bank's Senior Vice President and Chief Financial  Officer,  and David O.  Middlebrook,  the Bank's Vice  President and Senior Loan Officer.  The Bank has been able to retain the  services  of Mr.  Pantilione  and Mr.  Huggard since its inception and of Mr. Middlebrook since he joined the Bank in 1999. The Bank  also  needs,  from  time to time,  to  recruit  personnel  to fill  vacant positions for experienced lending and credit administration  officers. There can be no assurance  that the Bank will continue to be successful in recruiting  and retaining the necessary personnel for the Bank's lending, operations, accounting and  administrative  functions.  The  Bank's  inability  to hire or  retain  key personnel  could  have a material  adverse  effect on the  Company's  results of operations.                                         19    Changes in interest rates affect the Company's profitability and assets.           The Company derives its income mainly from the difference, or "spread," between  the  interest  earned  by the  Bank  on  loans,  securities  and  other interest-earning  assets,  and  the  interest  paid  by the  Bank  on  deposits, borrowings  and other  interest-bearing  liabilities.  If more  interest-earning assets than  interest-bearing  liabilities re-price or mature during a time when interest  rates are  declining,  then the Company's  net interest  income may be reduced.  If more  interest-bearing  liabilities  than  interest-earning  assets re-price  or mature  during a time when  interest  rates  are  rising,  then the Company's net interest  income may be reduced.  At December 31, 2005, the Bank's total  interest-bearing  liabilities  maturing  or  re-pricing  within  one year exceeded  interest-earning  assets  maturing or re-pricing  during the same time period  by  $27.4  million.  As a  result,  the  cost  on  its  interest-bearing liabilities should adjust to changes in interest rates at a faster rate than the yield of its interest-earning assets, and its net interest income may be reduced when interest rates increase significantly for this period of time.  The Bank's management controls a significant percentage of our common stock.           At March 22, 2006, the Company's and the Bank's directors and executive officers  beneficially  owned  1,245,161  shares  or  exercisable  warrants  and options, or 48.8%, of our common stock. Because of the large percentage of stock held by the Company's and the Bank's  directors  and executive  officers,  these persons  could  influence  the outcome of any matter  submitted to a vote of our shareholders.
None.
(a)      Properties.           The  Company's  and the Bank's  main  office is  located in  Washington Township,  Gloucester County, New Jersey, in an office building of approximately 13,000 square feet. The main office facilities  include teller windows,  a lobby area, drive-through windows,  automated teller machine, a night depository,  and executive and  administrative  offices.  In December 2002, the Bank executed its lease option to purchase the building for $1.5 million.           The  Bank  also  conducts  business  from  a  full-service   office  in Northfield, New Jersey, a full-service office in Washington Township, Gloucester County,  New Jersey and a loan production office in Philadelphia,  Pennsylvania. These  offices were opened by the Bank in September  2002,  February  2003,  and February 2004 respectively. The Northfield office and loan production office are leased. The Washington Township office was purchased in February 2003.           Management  considers the physical  condition of all offices to be good and adequate for the conduct of the Bank's  business.  At December 31, 2005, net property and equipment totaled approximately $3.1 million.           (b)      Investment Policies.           See "Item 1. Business" above for a general description of the Company's investment  policies,  which are implemented by the Bank. The Bank's investments are  primarily  acquired to produce  income,  and to a lesser  extent,  possible capital gain.                                         20              (1)  Investments in Real Estate or Interests in Real Estate. See "Item                1. Business - Lending Activities."            (2)  Investments  in Real Estate  Mortgages.  See "Item 1.  Business -                Lending Activities."            (3)  Investments  in Securities  of or Interests in Persons  Primarily                Engaged  in Real  Estate  Activities.  See  "Item 1.  Business  -                Lending Activities."       (c) Description of Real Estate and Operating Data.           Not Applicable.
On December 27,  2004,  Republic  First Bank filed an action  captioned Republic  First Bank v. Parke Bank and Vito S.  Pantilione in the Superior Court of New Jersey Law Division, Gloucester County. The Bank believes that the action is without merit and intends to vigorously  defend against it. The suit alleges, among other things, fraud, negligent misrepresentation, breach of fiduciary duty and  breach of  contract  in  connection  with  certain  loans to two Parke Bank customers in which Republic First Bank became a participant. Republic First Bank is seeking  unspecified  damages and requesting that a receivership be appointed for certain collateral.  The complaint in the action was served on us in January 2005.  The Bank filed an answer to the  complaint,  and the case is currently in the discovery phase.           On June 1, 2005,  Atlantic  Central  Bankers  Bank and New Century Bank filed an action captioned  Atlantic Central Bankers Bank and New Century Bank v. Parke  Bank and  Parke  Capital  Markets  in the  Superior  Court of New  Jersey Chancery Division, Cape May County. The Bank believes that the action is without merit and intends to vigorously  defend  against it. The suit alleges  breach of participation agreements and fraudulent misrepresentation in connection with the plaintiffs'  participations  in loans to the same  Parke Bank  customers  as the Republic First Bank matter  discussed  above.  In August 2005,  the  plaintiffs' motion for a preliminary injunction was denied, and they were ordered to pay the Bank's expenses.  This case has been  consolidated  with the Republic First Bank case, and is currently in the discovery phase.           On November 4, 2004,  Stephen P.  Magenta  and other  parties  filed an action captioned  Stephen P. Magenta,  et. al. v. General  Insulation  Services, Inc.,  et. al. in the  Superior  Court of New Jersey  Law  Division,  Gloucester County, related to the alleged embezzlement of over $1 million by an employee of one of our customers of funds maintained in accounts at the Bank. All but one of the claims  against the Bank have been  dismissed.  The Bank  believes  that the action  is  without  merit and  intends  to  vigorously  defend  against  it. In addition, the Bank believes that this action is covered by its insurance.           Other than the  foregoing,  at December 31, 2005, the Company was not a party to any material legal proceedings.
On  December  20,  2005,   the  Company  held  a  special   meeting  of shareholders  to approve the Parke Bancorp,  Inc. 2005 Stock Option Plan,  which was approved with 1,173,136 votes cast for approval,  137,540 votes cast against approval and 27,670 abstentions.                                         21                                         PART II
The information  contained under the section  captioned  "Market Prices and Dividends" in the Company's  Proxy  Statement for the 2005 Annual Meeting of Shareholders (the "Proxy Statement") is incorporated herein by reference.
The  information   contained  under  the  section  captioned  "Selected Financial  Data" in the Company's  2005 Annual  Report (the "Annual  Report") is incorporated herein by reference.
The  information  contained  in  the  section  captioned  "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report is incorporated herein by reference.
The  information  contained  in  the  section  captioned  "Management's Discussion  and Analysis of Financial  Condition  and Results of  Operations  -- Interest Rate  Sensitivity  and Liquidity -- Rate  Sensitivity  Analysis" in the Annual Report is incorporated herein by reference.
The   Company's   financial   statements   listed  under  Item  15  are incorporated herein by reference.
None.
(a) Evaluation of disclosure  controls and  procedures.  Based on their evaluation of the Company's  disclosure  controls and  procedures (as defined in Rule 13a-15(e) under the Securities  Exchange Act of 1934 (the "Exchange Act")), the Company's  principal  executive officer and principal financial officer have concluded that as of the end of the period covered by this Annual Report on Form 10-K such  disclosure  controls  and  procedures  are  effective  to ensure that information  required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded,  processed,  summarized and reported within the time periods  specified in Securities and Exchange  Commission  rules and forms.           (b) Changes in internal  control over financial  reporting.  During the last  quarter of the year  under  report,  there was no change in the  Company's internal control over financial  reporting that has materially  affected,  or is reasonably  likely to materially  affect,  the Company's  internal  control over financial reporting.                                         22
Not applicable.                                         23                                       PART III
The information  contained under the headings "Section 16(a) Beneficial Ownership Reporting  Compliance" and "Proposal I - Election of Directors" in the Proxy Statement is incorporated herein by reference.           The Company has adopted a Code of Ethics that applies to its  principal executive officer,  principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Code of Ethics will be furnished  without  charge upon written  request to the Chief  Financial Officer, Parke Bancorp, Inc., 601 Delsea Drive, Washington Township, New Jersey, 08080.
The  information  contained  in the  section  captioned  "Director  and Executive Officer Compensation" in the Proxy Statement is incorporated herein by reference.
(a)      Security Ownership of Certain Beneficial Owners           The information  contained in the section captioned "Security Ownership of  Certain  Beneficial  Owners  and  Management"  in  the  Proxy  Statement  is incorporated herein by reference.           (b)      Security Ownership of Management           The information  contained in the section captioned "Security Ownership of  Certain  Beneficial  Owners  and  Management"  in  the  Proxy  Statement  is incorporated herein by reference.           (c) Management of the Registrant  knows of no  arrangements,  including any pledge by any person of securities of the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.           (d) Securities Authorized for Issuance Under Equity Compensation Plans           Set forth below is  information as of December 31, 2005 with respect to compensation   plans  under  which  equity  securities  of  the  Registrant  are authorized for issuance.                                         24                           EQUITY COMPENSATION PLAN INFORMATION                                                   (a)                        (b)                       (c)                                                                                                Number of securities                                                                                              remaining available for                                                                                               future issuance under                                                                                                equity compensation                                         Number of securities to       Weighted-average          plans (excluding                                         be issued upon exercise      exercise price of       securities reflected in                                         of outstanding options      outstanding options            column (a))                                         ----------------------      -------------------            -----------     Equity compensation plans approved      by shareholders.............               275,807                    $15.87                    138,073                                                 -------                    ------                    -------       TOTAL.......................               275,807                    $15.87                    138,073                                                 =======                    ======                    =======
The   information   contained   in  the  section   captioned   "Certain Relationships  and Related  Transactions" in the Proxy Statement is incorporated herein by reference.
The  information   contained  in  the  section   captioned   "Principal Accountant Fees and Services" in the Proxy  Statement is incorporated  herein by reference.                                       PART IV
(a) Listed below are all  financial  statements  and exhibits  filed as part of this report.            1.   The following financial statements and the independent  auditors'                report included in the Annual Report are  incorporated  herein by                reference:                 o    Report of Independent Registered Public Accounting Firm                 o    Consolidated Balance Sheets as of December 31, 2005 and 2004                 o    Consolidated  Statements  of  Income  For  the  Years  Ended                     December 31, 2005, 2004 and 2003                 o    Consolidated  Statements  of  Stockholders'  Equity  for the                     Years Ended December 31, 2005, 2004 and 2003                                         25                   o    Consolidated  Statements  of Cash Flows for the Years  Ended                     December  31,  2005,  2004 and 2003                 o    Notes to Consolidated Financial Statements            2.   Schedules omitted as they are not applicable.            3.   The   following   exhibits   are   included  in  this  Report  or                incorporated herein by reference:                 3(i) Certificate of Incorporation of Parke Bancorp, Inc.*                3(ii) Bylaws of Parke Bancorp, Inc.*                4.1  Specimen stock certificate of Parke Bancorp, Inc.*                4.2  Specimen  common stock  purchase  warrant of Parke  Bancorp,                     Inc.*                10.1 Employment Agreement Between Bank and Vito S. Pantilione*                10.2 Supplemental Executive Retirement Plan*                10.3 1999 Stock Option Plan*                10.4 2002 Stock Option Plan*                10.5 2003 Stock Option Plan*                10.6 2005 Stock Option Plan**                13   Annual  Report to  Stockholders  for the  fiscal  year ended                     December 31, 2005                21   Subsidiaries of the Registrant*                23   Consent of McGladrey & Pullen, LLP                31   Certifications pursuant to Section 302 of the Sarbanes-Oxley                     Act of 2002                32   Certifications pursuant to Section 906 of the Sarbanes-Oxley                     Act of 2002                 *    Incorporated  by  reference  to the  Company's  Registration                     Statement  on Form S-4  filed  with the SEC on  January  31,                     2005.                 **   Incorporated by reference to the Company's  Definitive Proxy                     Statement filed with the SEC on December 20, 2005.                                         26                                       SIGNATURES           Pursuant to the  requirements  of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.                                       PARKE BANCORP, INC.    Dated: March 29, 2006                By:    /s/Vito S. Pantilione                                             ----------------------------------                                             Vito S. Pantilione                                             President, Chief Executive Officer                                             and Director            Pursuant to the  requirement  of the  Securities  Exchange Act of 1934, this  Report has been  signed  below by the  following  persons on behalf of the Registrant and in the capacities and on March 29, 2006.       /s/Celestino R. Pennoni                           /s/Vito S. Pantilione - -----------------------------------------------   ----------------------------------------------- Celestino R. Pennoni                              Vito S. Pantilione Chairman                                          President, Chief Executive Officer and Director                                                   (Principal Executive Officer)  /s/Fred G. Choate                                 /s/Daniel Dalton - -----------------------------------------------   ----------------------------------------------- Fred G. Choate                                    Daniel Dalton Director                                          Director  /s/Ernest D. Huggard - ----------------------------------------------- Ernest D. Huggard Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)     EX-13 2 ex-13.txt ANNUAL REPORT                                 PARKE BANCORP, INC.                         2005 ANNUAL REPORT TO SHAREHOLDERS                                    PARKE BANCORP, INC.                        2005 ANNUAL REPORT TO SHAREHOLDERS                                  TABLE OF CONTENTS                                                                              Page  Letter to Shareholders.........................................................1  Selected Financial Data........................................................3  Management's Discussion and Analysis of      Financial Condition and Results of Operations.............................4  Market Prices and Dividends...................................................14  Report of Independent Registered Public Accounting Firm......................F-1  Consolidated Financial Statements............................................F-2  Notes to Consolidated Financial Statements...................................F-7  Corporate Information.................................................Back Cover                                --------------------  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; the timely development of and acceptance of new products and services of Parke Bank and the  perceived  overall  value of these  products and services by customers,  including the features,  pricing and quality  compared to  competitors'  products and services;  the  willingness  of customers  to  substitute  competitors'  products  and services for Parke Bank's products and services;  the success of Parke Bank in gaining regulatory approval of its products and services,  when required; the impact of changes in financial services'  laws and  regulations  (including  laws  concerning  taxes,  banking, securities  and  insurance);  technological  changes;  acquisitions;  changes in consumer  spending and saving habits;  and the success of Parke Bank at managing these risks.                                                                               iii                                   PARKE BANCORP, INC.   To Our Shareholders:  The Delaware  Valley's economic engine helped support the sixth consecutive year of record  profits  for Parke  Bank.  The real  estate  market and the  business community, from the Jersey Shore to Philadelphia,  remained strong despite eight interest  rate  increases  by the Federal  Reserve and  record-high  oil prices. Continued  interest  rate hikes  increased  pressure on the  banking  industry's already  shrinking net interest margin.  Parke Bank turned these challenges into opportunities,  with assets growing 33% to $297.8 million and profits increasing 28% to $3.5  million,  supported in part by the growth in our loan  portfolio of 37% to over $259 million.  The growth in our loan portfolio was primarily funded by a 29% growth in our deposits, which now exceeds $232 million.  During 2005,  Parke Bank reorganized into the holding company form of ownership. Through  new  business  trust  subsidiaries  of our new holding  company,  Parke Bancorp,  Inc.,  we raised  approximately  $8.5 million  through the sale of $10 million in trust preferred  securities,  strengthening  our financial  position. Parke  Bancorp  has also  given us the  opportunity  to  pursue  other  business opportunities,  including the opportunity to open a full-service  bank branch in Philadelphia.  We are pleased to report that we selected  1610 Spruce  Street as our first  full-service  branch in  Philadelphia.  We hope to start  renovations soon,  with the branch  opening  planned  for the third  quarter  of 2006.  Paul Palmieri,  our Senior Vice President in charge of the  Philadelphia  region,  is already  hard at work  growing  our loan  portfolio  and  relationships  in this market. Continued bank consolidations have provided Parke Bank with an excellent opportunity  to  offer  quality  personal  banking  services  to the  residents, businesses and professionals in the Center City area. The personal attention and competitive  banking  products  that  we  provide  to our  customers  are  being well-received in this exciting new market for Parke Bank. Our new branch will be staffed with fine banking professionals committed to the Parke Bank's "Return to Better Banking" philosophy.  We are also supporting our growth in the Vineland/Millville market in Cumberland County  with the  hiring of Milton  Witte.  Milton  is a great  addition  to our management team and brings a wealth of experience and expertise to our bank. The Vineland/Millville  area is one of the fastest  growing areas in the New Jersey, with the  construction  of thousands  of  residential  homes  approved and under development.  Commercial  development has also exploded along Delsea Drive, with many national and regional  retail chains  opening  flagship  stores.  Plans are under way to open a loan production office in this area, in addition to actively pursuing a quality,  full-service branch location.  The Parke Bank philosophy of personal  service,  competitive  banking products and our commitment to a prompt response to our customers' requests will offer a clear alternative to the people and businesses in this area.                                                                                 1    We continue to explore  opportunities in other areas of the region that would be strategically  ideal to support the growth of our bank and  enhance  shareholder value.  Once again,  the banking industry is facing many obstacles in 2006, with increased  banking and SEC  regulations,  higher  interest  rates and a volatile economy.  Changes in the political environment,  both nationally and abroad pose significant  challenges to  forecasting  the direction of interest rates and the economy.  We will  continue  to work very  hard to turn  these  challenges  into opportunities  that will further enhance  shareholder  value while maintaining a sound banking institution.      /s/C.R. "Chuck" Pennoni                    /s/Vito S. Pantilione  C.R. "Chuck" Pennoni                       Vito S. Pantilione Chairman                                   President and Chief Executive Officer                                 SELECTED FINANCIAL DATA                   (Dollars in thousands, except per share data)                                                At or for the Year Ended December 31,                                     --------------------------------------------------------                                       2005        2004        2003        2002        2001                                     --------    --------    --------    --------    --------       BALANCE SHEET DATA: Assets ..........................   $297,810    $224,339    $174,004    $130,903    $ 81,955 Loans Receivable, Net ...........   $255,461    $185,986    $144,078    $ 93,762    $ 62,403 Securities--Available for Sale...   $ 22,023    $ 24,043    $ 14,323    $ 22,903    $ 12,913 Securities--Held to Maturity ....   $  2,406    $    548    $    779    $    250    $    250 Cash and Cash Equivalents .......   $  4,380    $  1,802    $  4,267    $  7,540    $  4,627 Deposits ........................   $232,056    $179,585    $142,447    $107,548    $ 65,609 Borrowings ......................   $ 35,967    $ 20,379    $ 10,340    $  4,949    $  6,835 Shareholders' Equity ............   $ 27,193    $ 22,829    $ 19,993    $ 17,628    $  8,553  OPERATIONS DATA: Interest Income .................   $ 17,336    $ 11,766    $  9,445    $  6,612    $  4,884 Interest Expense ................      6,684       3,747       3,182       2,960       2,647                                     --------    --------    --------    --------    -------- Net Interest Income .............     10,652       8,019       6,263       3,652       2,237 Provision for Loan Losses .......      1,180         825         923         499         374                                     --------    --------    --------    --------    -------- Net Interest Income after    Provision for Loan Losses ....      9,472       7,194       5,340       3,153       1,863 Non-Interest Income .............        896         861         779         488         443 Non-Interest Expense ............      4,544       3,589       2,838       2,079       1,564                                     --------    --------    --------    --------    -------- Income Before Income Taxes ......      5,824       4,466       3,281       1,562         742 Income Tax Expense ..............      2,330       1,744       1,279         620         302                                     --------    --------    --------    --------    -------- Net Income ......................   $  3,494    $  2,722    $  2,002    $    942    $    440                                     ========    ========    ========    ========    ========  SELECTED FINANCIAL RATIOS: Ratio of Equity to Assets .......       9.13%      10.18%      11.49%      13.47%      10.44% Book Value/Common Share .........   $  11.75    $  10.50    $   9.33    $   8.47    $   7.73 Dividends declared per Share ....   $      -    $      -    $      -    $      -    $      - Basic Income per Common Share ...   $   1.55    $   1.26    $   0.96    $   0.78    $   0.39 Diluted Income per Common Share..   $   1.32    $   1.05    $   0.85    $   0.77    $   0.39 Return on Average Assets ........       1.35%       1.45%       1.33%       0.94%       0.69% Return on Average Equity ........      13.91%      13.24%      10.76%       9.56%       5.28% Net Interest Margin .............       4.33%       4.58%       4.40%       3.84%       3.55% Non-Interest Expense/Average    Assets .......................       1.76%       1.91%       1.88%       2.07%       2.44% Non-Interest Income/Average    Assets .......................       0.35%       0.46%       0.52%       0.49%       0.69% Non-Performing Loans/Loans(1)           1.01%       0.16%       0.55%       1.15%       1.19% Allowance for Loan    Losses/Loans(1) ..............       1.38%       1.39%       1.54%       1.40%       1.32% Dividend Payout Patio ...........          -           -           -           -           -  - --------------- (1)  Total loans before allowance for loan losses                                                                                 3               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION                             AND RESULTS OF OPERATION  Forward Looking Statements           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 shareholders 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 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, BOLI income and other fees. The Bank's  non-interest  expenses primarily consist of employee compensation and benefits,  occupancy expenses,  marketing expenses, 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.           We  recorded  net income of  $3,494,421,  or $1.32 per  diluted  share, $2,721,758,  or $1.05 per diluted  share,  and  $2,001,899,  or $.85 per diluted share, for 2005, 2004 and 2003,  respectively.  Pre-tax earnings were $5,824,065 for 2005 compared to $4,465,858 for 2004 and $3,281,336 for 2003.           Total  assets  increased  by  $73.5  million,   or  32.7%,   reflecting significant increases in loans. Loans outstanding increased by $69.5 million, or 37.4%, while investment securities remained constant at $24.4 million.  Deposits also grew by $52.5 million,  or 29.2%.  Borrowings  experienced a 76.5% or $15.6 million increase.  The issuance of $10 million of trust securities  enhanced our capital position for asset expansion.  Growth in loans and deposits reflects our continued efforts in business development and advertising.  Shareholders' Equity increased  $4.4  million or 19.1%,  as a result of earnings  and the exercise of stock warrants and options.  4             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  for  the  periods   indicated  the  Company's   average  volume  of interest-earning assets and interest-bearing  liabilities and average yields and rates.  Changes  in net  interest  income  from  period  to period  result  from increases  or  decreases  in the volume and mix of  interest-earning  assets and interest-bearing liabilities, increases or decreases in the average rates earned and paid on such  assets and  liabilities  and the  availability  of  particular sources of funds, such as non-interest-bearing deposits.                                                                                       For the Year Ended                                               --------------------------------------------------------------------------------------                                                     December 31, 2005              December 31, 2004          December 31, 2003                                               ---------------------------   ---------------------------   --------------------------                                                 Average   Income/   Yield/    Average   Income/   Yield/    Average  Income/   Yield/                                                Balance   Expense    Rate     Balance   Expense    Rate     Balance  Expense    Rate                                                -------   -------    ----     -------   -------    ----     -------  -------    ----                                                                                          (Dollars in thousands)           Assets: Loans (net of deferred costs/fees)(1).......  $219,217   $16,108     7.3%   $154,764   $10,978     7.1%   $120,797   $8,699    7.2%                                               --------   -------     ---    --------   -------     ---    --------   ------    --- Investment securities.......................    24,276     1,159     4.8%     17,219       750     4.4%     18,877      724    3.8% Federal funds sold..........................     2,107        69     3.3%      3,044        38     1.3%      1,847       21    1.2%                                               --------   -------            --------   -------            --------   ------      Total interest-earning assets..........   245,600    17,336     7.1%    175,027    11,766     6.7%    141,521    9,444    6.7%                                               ========   =======            ========   =======            ========   ======  Allowance for loan losses...................    (3,009)                       (2,280)                       (1,729) Other assets................................    15,322                        14,802                        10,979                                               --------                      --------                      --------      Total assets...........................  $257,913                      $187,549                      $150,771                                               ========                      ========                      ========  Liabilities and Shareholders' Equity: Interest-bearing deposits:    Regular savings deposits.................  $ 29,200   $   797     2.7%   $ 22,160   $   464     2.1%   $ 22,104   $  493    2.2%    NOW & money market savings...............    23,729       416     1.8%     28,511       477     1.7%     24,351      381    1.6%    Time deposits............................   138,587     4,599     3.3%     91,104     2,584     2.8%     67,298    2,139    3.2%                                               --------   -------            --------   -------            --------   ------      Total interest-bearing deposits........   191,516     5,812     3.0%    141,775     3,525     2.5%    113,754    3,013    2.6%  Borrowed funds                                  22,376       872     3.9%     10,272       221     2.2%      7,828      168    2.1%                                               --------   -------            --------   -------            --------   ------      Total interest-bearing liabilities.....   213,892   $ 6,684     3.1%    152,047   $ 3,746     2.5%    121,582   $3,181    2.6%                                                          =======                       =======                       ======  Non-interest-bearing demand deposits........    16,946                        13,422                         9,270 Other liabilities...........................     1,948                         1,520                         1,311 Shareholders' equity........................    25,127                        20,559                        18,608                                               --------                      --------                      --------      Total liabilities and      shareholders' equity...................  $257,913                      $187,549                      $150,771                                               ========                      ========                      ========  Interest rate spread (average yield    less average rate).......................                         4.0%                          4.2%                        4.1% Net interest income (interest income    less interest expense)...................             $10,652                       $ 8,020                       $6,263                                                          =======                       =======                       ====== Net interest margin (net interest    income/average interest-earning assets)..                         4.3%                          4.6%                        4.4%   - --------------------------- (1)  Non-accrual loans are included in the calculation of average balances.  6   Return on Equity and Assets                                                                             December 31,                                                            --------------------------------------------                                                             2005             2004              2003                                                             ----             ----              ----             Return on average assets..................           1.35%             1.45%            1.33%         Return on average equity..................          13.91%            13.24%           10.76%         Dividend payout ratio.....................           0                 0                0         Average equity to average assets ratio....           9.74%            10.96%           12.34%            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.                                                                Year's Ended December 31,                                -------------------------------------------------------------------------------------                                             2005 vs. 2004                              2004 vs. 2003                                ----------------------------------------    -----------------------------------------                                       Variance Due to Changes In                Variance Due to Changes In                                ----------------------------------------    -----------------------------------------                                                                  Net                                       Net                                  Average         Average      Increase/       Average        Average      Increase/                                  Volume           Rate       (Decrease)       Volume           Rate       (Decrease)                                -----------    -----------    -----------   -----------    -----------    -----------        Interest Income:    Loans (net of deferred      costs/fees) ...........   $ 4,576,187    $   554,203    $ 5,130,390   $ 2,409,394    $  (130,276)   $ 2,279,118    Investment securities           310,506         98,651        409,157       (72,209)        97,818         25,609    Federal funds sold ......       (12,181)        42,890         30,709        14,984          1,637         16,621                                -----------    -----------    -----------   -----------    -----------    -----------  Total interest income ......     4,874,512        695,744      5,570,256     2,352,169        (30,821)     2,321,348                                -----------    -----------    -----------   -----------    -----------    -----------  Interest Expense:    Deposits ................     1,243,516      1,044,265      2,287,781       696,636       (186,075)       510,561    Borrowed funds ..........       266,290        383,751        650,041        52,686          1,214         53,900                                -----------    -----------    -----------   -----------    -----------    -----------  Total interest expense .....     1,509,806      1,428,016      2,937,822       749,322       (184,861)       564,461                                -----------    -----------    -----------   -----------    -----------    -----------  Net interest income ........   $ 3,364,706    $  (732,272)   $ 2,632,434   $ 1,602,847    $   154,040    $ 1,756,887                                ===========    ===========    ===========   ===========    ===========    ===========    Critical Accounting Policies           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.                                                                                 7    Operating Results for the Years Ended December 31, 2005, 2004 and 2003           Net  Interest  Income/Margins.  Our  primary  source of earnings is net interest   income,   which  is  the   difference   between   income   earned  on interest-earning  assets, such as loans and investment securities,  and interest expense incurred on the interest-bearing  sources of funds, such as deposits and borrowings.  The level of net  interest  income is  determined  primarily by the average  balances  ("volume") and the rate spreads between the  interest-earning assets and our funding sources.           Net interest  income  increased to $10.7  million for 2005  compared to $8.0  million  for 2004 and $6.3  million for 2003.  The 32.8%  increase in 2005 compared  to 2004 and 28.1%  increase in 2004  compared  to 2003 were  primarily attributable  to the growth in average  interest-earning  assets,  which totaled $245.6  million,  $175.0  million and $141.5  million  for 2005,  2004 and 2003, respectively.           Average  loans  increased  during  2005 by 41.6% to $219.2  million and increased  by  28.1%  during  2004  to  $154.8  million  at  year-end.   Average investments increased during 2005 by 41.0% to $24.3 million and decreased during 2004 by 8.8% to $17.2 million at year-end.           Interest-earning  asset growth was funded by a $49.7 million, or 35.1%, increase  in  average  interest-bearing  deposits  during  2005  and by a  $28.0 million, or 24.6%,  increase in average  interest-bearing  deposits during 2004. The average  borrowed funds increased $12.1 million during 2005 and $2.4 million during 2004.           The  key  performance  measure  for net  interest  income  is the  "net interest  margin," or net interest  income  divided by average  interest-earning assets.  Our net  interest  margin is affected by loan  pricing,  mix of earning assets,  and the  distribution  and pricing of deposits and borrowings.  Our net interest margin was 4.3% for 2005,  compared to 4.6% for 2004 and 4.4% for 2003. During 2005,  the yield on average  interest-earning  assets  increased to 7.1%, while the cost of interest-bearing  liabilities  increased by 60 basis points to 3.1%.  During 2004,  the yield on average  interest-earning  assets  remained at 6.7%,  while the cost of  interest-bearing  liabilities  decreased  by one basis point to 2.5%.           Non-Interest  Income.  Non-interest  income is principally derived from service fees on deposit accounts, BOLI income, fee income from loan services and gains  on sale of  investment  securities.  Non-interest  income  for  2005  was $896,367 compared to $860,986 for 2004 and $779,044 for 2003.           Other fee income  increased to $720,882 for 2005 from $609,596 for 2004 and $496,237 for 2003 due primarily to increased  loan fees.  Loan fees included in other fee income  consist of "exit  fees"  that are  charged on  construction loans if the builder  sells the  property  before  completing  the  construction project.  Exit fees are  intended  to  discourage  construction  borrowers  from starting  projects and quickly  "flipping out" of the project before the project is completed.           The loss on sale of  securities  amounted to $9,240 for 2005. A gain on sale of  securities  amounted  to $7,889 in 2004 and  $63,681  in 2003.  Service charges  on  deposit  accounts  decreased  $58,776,  or  21.1%,  during  2005 to $184,725. An increase of $24,375, or 11.1%, occurred during 2004 over 2003.           Non-Interest  Expense.  Nearly all categories of  non-interest  expense increased during 2005 and 2004.  Non-interest  expenses totaled $4.5 million for 2005  compared to $3.6 million for 2004 and $2.8 million for 2003,  increases of $954,770,  or 26.6%, and $752,053,  or 26.5%,  for 2005 and 2004,  respectively. These increases reflect greater costs associated with the growth of the Company, including compensation and benefits, as well as increases in lending and deposit activities.  8             Compensation and benefits increased $518,030, or 33.1%, during 2005 and $294,406,  or 23.1%, during 2004, primarily due to staffing increases to support loan and deposit growth,  as well as regular salary increases and higher benefit costs. Occupancy,  equipment and data processing costs grew $2,471, or 0.3%, and $166,969 or 21.1% for 2005 and 2004, respectively.           Professional  services  fees and expenses  increased  by  $448,081,  or 154.4%,  during 2005.  Costs  associated with the holding company and additional legal fees were the primary reason for the increase.  During 2004 a $118,688, or 69.2%,  an increase  over 2003 occurred  from normal  operations.  Marketing and business development expenses increased by $112,060, or 63.9%, to $287,318,  due to a major advertising  campaign conducted during 2005. Other operating expenses decreased  $125,872,  or 21.0%, in 2005 because of less loan servicing costs and increased to $272,767,  or 54.5%,  during 2004 due to expenses  associated  with servicing loans.           Income Taxes.  We recorded tax expenses of $2.3 million,  $1.7 million, and $1.3 million in 2005, 2004 and 2003, respectively, for an effective tax rate of 40.0% in 2005, 39.1% in 2004 and 39.0% in 2003.  Financial Condition at December 31, 2005 and December 31, 2004           At December 31, 2005, we had total assets of $297.8  million,  compared to $224.3 million at December 31, 2004,  representing an increase of 32.7%. This increase was due to the continued expansion of business development efforts, and continued  marketing of deposit and loan products.  The Company's overall growth in its core  business,  generating  loans and  gathering of deposits grew at the same rate as overall asset growth.           Loans at  December  31, 2005 were  $259.0  million,  compared to $188.6 million at December 31, 2004, which represents an increase of $70.4 million,  or 37.3%.  Growth  occurred in all  categories of loans.  Investment  securities at December 31, 2005 slightly decreased by $161,649, or 0.7%, to $24.4 million.           Total  deposits  increased  by $52.5  million  to  $232.1  million,  an increase of 29.2%, from $179.6 million at December 31, 2004.           Borrowings  augmented  funding of assets by increasing by $15.6 million or 76.5%,  to $36.0 million at December 31, 2005, from $20.4 million at December 31, 2004.           Shareholders  equity  increased  by  $4.4  million.   The  increase  is attributable  earnings  of $3.5  million and the  exercise of stock  options and warrants offset by the purchase of treasury stock.  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 in the loan  portfolio.  The  adequacy  of the  allowance  for loan  loss is  evaluated periodically  based on a review  of all  significant  loans,  with a                                                                                 9    particular  emphasis  on  non-accruing  loans;  past due and  other  loans  that management believes require special attention.           For  significant   problem  loans,   management's  review  consists  of evaluation of the  financial  strengths of the borrower and the  guarantor,  the related  collateral,  and the effects of economic  conditions.  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.           As  of  December  31,  2005,  we  had  approximately  $1.9  million  in non-accruing loans,  compared with $240,816 at December 31, 2004 and $794,135 at December 31, 2003. The increase in  non-accruing  loans was  attributable to two borrower relationships, consisting of commercial and residential loans more than 90 days delinquent.  Foreclosure proceedings have been commenced, and we believe the loans are adequately  collateralized.  Non-performing loans,  expressed as a percentage  of total loans,  increased to 0.7% at December 31, 2005 from 0.1% at December  31, 2004 and 0.5% at December 31,  2003.  At December  31,  2005,  the allowance for loan losses was nearly twice the amount of non-accruing loans.           The  provision  for loan  losses is a charge to earnings in the current period to maintain the  allowance at a level  management  has  determined  to be adequate  based upon factors noted above.  We made  provision for loan losses of $1.2 million, $825,324 and $923,070 for 2005, 2004 and 2003, respectively.           As of  December  31,  2005,  the  allowance  for loan  losses  was $3.6 million,  compared  to $2.6  million at December  31,  2004 and $2.3  million at December 31, 2003, which represents a net increase of $953,161, or 36.4%, during 2005 and a net increase of $364,581,  or 16.2%,  during 2004.  The growth in the allowance was driven by the growth and mix in the loan portfolio.           The following table summarizes the allowance activities:                                                                         Years Ended December 31,                                                         -------------------------------------------------                                                               2005              2004              2003                                                         -------------     -------------     -------------     Allowance for loan losses, beginning of year ........   $   2,620,651     $   2,256,070     $   1,333,000 Loans charged off ...................................        (227,001)         (460,743)           (1,000) Recoveries ..........................................               -                 -             1,000 Provision for loan losses ...........................       1,180,162           825,324           923,070                                                         -------------     -------------     ------------- Allowance for loan losses, end of year ..............   $   3,573,812     $   2,620,651     $   2,256,070                                                         =============     =============     ============= Loans (net of deferred costs/fees)    period-end balance ...............................   $ 259,035,088     $ 188,606,990     $ 146,334,331                                                         =============     =============     ============= Allowance as percentage of period-end loan balance...        1.4%              1.4%              1.5%                                                         =============     =============     =============            Management's  judgment as to the level of losses on  existing  loans is based on its internal review of the loan portfolio, including an analysis of the borrowers'  current  financial  position,   the  consideration  of  current  and anticipated   economic  conditions  and  their  potential  effects  on  specific borrowers.  In determining the collectability of certain loans,  management also considers the fair value of any underlying collateral. There can be no assurance that  charge-offs in future period will not exceed the allowance for loan losses or that  additional  increases  in the  allowance  for loan  losses  will not be required.  In addition an outside loan reviewer conducts an independent analysis of the loan loss reserve to ensure completeness.  10    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 statement of financial condition 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 and meeting periodically to monitor and manage the statement of financial condition, control interest rate exposure,  and evaluate our pricing strategies.  The asset mix of the statement of financial condition is continually evaluated in terms of several  variables:  yield,  credit  quality,  appropriate  funding  sources and liquidity.  Management  of  the  liability  mix of the  statement  of  financial condition 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.           Rate Sensitivity Analysis. The interest rate sensitivity position as of December 31, 2005 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 that are based on prevailing prepayment  assumptions and core deposits which are based on core deposit  re-pricing  immediately.  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,  2005,  our  interest  sensitive   liabilities  exceeded  interest sensitive  assets within a one year period by $27.4  million,  or 0.24% of total assets.                                                                                11                                                            As of December 31, 2005                                ----------------------------------------------------------------------                                              Over 3                                              Months    Over 1 Year  Over 3 Years Over 5 Years                                 3 Months     Through     Through      Through      Through                                  or Less    12 Months    3 Years      5 Years      30 Years    Total                                  -------    ---------    -------      -------      --------    -----                                                         (Dollars in thousands)        Interest-earning assets:    Loans ....................   $134,325    $ 16,136     $ 18,226     $ 86,572    $  3,776    $259,035    Investment securities ....      1,612       1,314          994        2,889      18,097      24,906    Federal funds sold .......          3           -            -            -           -           3                                 --------    --------     --------     --------    --------    --------    Total interest-earning      assets .................   $135,940    $ 17,450     $ 19,220     $ 89,461    $ 21,873    $283,944                                 ========    ========     ========     ========    ========    ========  Interest-bearing    liabilities:    Regular savings deposits..   $ 38,824    $  5,241     $  6,988     $ 13,977    $  6,988    $ 38,824    NOW & money market      savings deposits .......     22,371       4,245        5,660        7,237       1,578      22,371    Time deposits ............     30,551      67,679       46,737        7,976           -     152,943    Borrowed funds ...........     15,247       6,100        2,964       10,155       1,500      35,966                                 --------    --------     --------     --------    --------    --------    Total interest-bearing      liabilities ............   $106,993    $ 73,779     $ 49,701     $ 18,131    $  1,500    $250,104                                 ========    ========     ========     ========    ========    ========  Interest rate sensitive gap..   $ 28,947    $(56,329)    $(30,481)    $ 71,330    $ 20,373    $ 33,840  Cumulative interest rate    gap ......................   $ 28,947    $(27,382)    $(57,863)    $ 13,467    $ 33,840    $      -  Ratio of rate sensitive    assets to    rate-sensitive    liabilities ..............     1.27%       0.24%        0.38%        4.93%      14.58%       1.14%            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 111.6%,  105.0% and 102.7% at December  31, 2005, December 31, 2004 and December 31, 2003,  respectively.  Funds received from new and existing  depositors  provided a large  source of liquidity  during 2005 and 2004.  The Company seeks to rely  primarily on core  deposits from  customers to provide  stable and  cost-effective  sources of funding to support local growth. The Bank also  seeks to  augment  such  deposits  with  longer  term and  higher yielding  certificates  of deposit.  To the extent that retail  deposits are not adequate  to  fund  customer  loan  demand,  liquidity  needs  can be met in the short-term  funds  market.  Longer  term  funding  requirements  can be obtained through  advances from the Federal Home Loan Bank  ("FHLB").  As of December 31, 2005, the Bank maintained lines of credit with the FHLB totaling $23.9 million.           As of December 31, 2005,  the Bank's  investment  securities  portfolio included $9.1 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  mortgage  portfolio  is  pledged  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.  12    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  extension of credit,  is based on  management's  credit evaluation.   Collateral  held  varies  but  may  include  accounts  receivable, inventory, property, equipment and income-producing commercial properties. As of December 31,  2005,  2004 and 2003,  commitments  to extend  credit  amounted to approximately $101.8 million, $70.4 million and $35.2 million, respectively.           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, 2005, 2004 and 2003, standby letters of credit with customers were $4.5 million,  $2.5 million and $2.3 million, respectively.           The  Bank  does  not  issue  or hold  derivative  instruments  with the exception of loan commitments and standby letters of credit.  These  instruments are  issued  in  the  ordinary  course  of  business  to  meet  customer  needs. Commitments  to fund  fixed-rate  loans were  immaterial  at December  31, 2005. 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.  Impact of Inflation and Changing Prices           The consolidated  financial statements and notes presented elsewhere in this Proxy  Statement have been prepared in accordance  with generally  accepted accounting  principles,  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,  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.                                                                                13    Recent Accounting Pronouncements           In December 2002, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based  Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123." This statement  provides  alternative  methods of transition for a  voluntary  change  to the fair  value  based  method  of  accounting  for stock-based  employee  compensation.  In  addition,  this  statement  amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and  interim  financial  statements  about the method of  accounting  for stock-based employee compensation and the effects of the method used on reported results.           In  December  2004,  the FASB  issued  SFAS  No.  123  (revised  2004), "Share-Based Payment." This statement revises the original guidance contained in SFAS No. 123 and supersedes  Accounting Principles Board ("APB") Opinion No. 25, "Accounting  for  Stock  Issued to  Employees,  and its  related  implementation guidance. Under SFAS No. 123 (revised 2004), a public entity such as the Company will be required to measure the cost of employee  services  received in exchange for an award of equity  instruments  based on the  grant-date  fair value of the award (with limited  exceptions)  and recognize such cost over the period during which an  employee is  required  to provide  service in exchange  for the reward (usually  the  vesting  period).  For stock  options  and  similar  instruments, grant-date fair value will be estimated using option-pricing models adjusted for the unique  characteristics of instruments  (unless observable market prices for the same or similar instruments are available). For public entities, such as the Company,  SFAS No. 123 (revised  2004) is  effective as of the  beginning of the first interim or annual  reporting  period that begins after  December 15, 2005. The Company is currently  assessing the financial  statement  impact of adopting SFAS No. 123(R).                             MARKET PRICES AND DIVIDENDS  General           The  Company's  or the Bank's  common stock has been traded in the over the  counter  market and listed on the Nasdaq  Stock  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 bid prices as reported on www.nasdaq.com  during each quarter of the last two fiscal years.  The quotations  reflect  inter-dealer  prices,  without retail  mark-up, markdown or commission and may not represent actual transactions. Prices reflect a 20% stock dividend paid in December 2004.          Quarter Ended                         High             Low         -------------                         ----             ---          March 31, 2004                       $14.58          $14.08         June 30, 2004                        $14.33          $13.29         September 30, 2004                   $14.60          $13.47         December 31, 2004                    $19.45          $14.00          March 31, 2005                       $19.40          $16.65         June 30, 2005                        $16.85          $14.90         September 30, 2005                   $19.99          $15.25         December 31, 2005                    $21.71          $18.00           The number of  shareholders  of record of common  stock as of March 22, 2006,  was  approximately  407.  This does not  reflect the number of persons or entities who held stock in nominee or "street"  name through  various  brokerage firms.  At March 22,  2006,  there were  2,327,995  shares of our  common  stock outstanding. To date, the Company has not paid cash dividends.  14             Holders of the Company's common stock are entitled to receive dividends when,  and if  declared  by the  Board  of  Directors  of out of  funds  legally available therefor. 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.  To date,  the Company has not paid cash dividends.           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.           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).                                                                                15    McGladrey & Pullen Certified Public Accountants   Report of Independent Registered Public Accounting Firm    Directors and Shareholders Parke Bancorp, Inc. Sewell, New Jersey   We have audited the accompanying  consolidated  balance sheets of Parke Bancorp, Inc.  and  Subsidiaries  as of  December  31,  2005  and  2004  and the  related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period  ending  December  31,  2005.  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,  2005 and 2004,  and the results of their operations and their cash flows for each of the three years in the period ending December  31,  2005,  in  conformity  with U.S.  generally  accepted  accounting principles.    /s/McGladrey & Pullen, LLP  Blue Bell, Pennsylvania January 20, 2006  McGladrey & Pullen,  LLP is a member firm of RSM  International - an affiliation of separate and independent legal entities.                                        F-1   Parke Bancorp, Inc. and Subsidiaries  Consolidated Balance Sheets December 31, 2005 and 2004                                                                                            2005                  2004 - --------------------------------------------------------------------------------------------------------------------    Assets  Cash and due from banks                                                         $   4,377,196           $ 1,780,280 Federal funds sold                                                                      2,840                21,508                                                                                 ------------------------------------    Cash and cash equivalents                                                        4,380,036             1,801,788                                                                                 ------------------------------------  Investment securities available for sale, at market value                          22,022,944            24,042,802 Investment securities held to maturity, at amortized cost (market value 2005 - $2,322,985;  2004 - $540,740)                                  2,405,841               547,632                                                                                 ------------------------------------    Total investment securities                                                     24,428,785            24,590,434                                                                                 ------------------------------------  Restricted stock, at cost                                                           1,348,900             1,064,200                                                                                 ------------------------------------  Loans                                                                             259,035,088           188,606,990 Less:  allowance for loan losses                                                   (3,573,812)           (2,620,651)                                                                                 ------------------------------------    Total net loans                                                                255,461,276           185,986,339                                                                                 ------------------------------------  Bank premises and equipment, net                                                    3,079,876             3,247,179 Accrued interest receivable and other assets                                        9,111,571             7,648,623                                                                                 ------------------------------------                                                                                  $ 297,810,444         $ 224,338,563                                                                                 ====================================   (Continued)                                        F-2    Parke Bancorp, Inc. and Subsidiaries  Consolidated Balance Sheets (Continued) December 31, 2005 and 2004                                                                                           2005                  2004 - ---------------------------------------------------------------------------------------------------------------------    Liabilities and Shareholders' Equity  Liabilities   Deposits     Noninterest-bearing demand                                                      $ 17,918,339         $ 15,960,444     Interest-bearing                                                                 214,137,969          163,624,567                                                                                     ---------------------------------       Total deposits                                                                 232,056,308          179,585,011    Borrowed funds                                                                       5,082,500            3,100,000   Federal Home Loan Bank advances                                                     20,574,360           17,278,726   Subordinated debentures                                                             10,310,000                    -   Accrued interest payable and other accrued liabilities                               2,593,949            1,545,675                                                                                     ---------------------------------       Total liabilities                                                              270,617,117          201,509,412                                                                                     ---------------------------------  Commitments and Contingencies (Notes 7 and 16)  Shareholders' Equity   Common stock,     $.10 par value, 10,000,000 shares authorized;     2,317,364 and 2,175,559 shares issued     at December 31, 2005 and 2004, respectively                                          231,736              217,556   Preferred stock,     1,000 shares authorized; no shares issued and outstanding                                  -                    -   Additional paid-in capital                                                          20,511,410           19,390,102   Retained earnings                                                                    6,787,118            3,292,697   Accumulated other comprehensive loss                                                  (286,296)             (71,204)   Treasury stock  (2,380 shares in 2005 and none in 2004), at cost                       (50,641)                   -                                                                                     ---------------------------------       Total shareholders' equity                                                      27,193,327           22,829,151                                                                                     ---------------------------------                                                                                      $297,810,444         $224,338,563                                                                                     =================================   See Notes to Consolidated Financial Statements.                                        F-3   Parke Bancorp, Inc. and Subsidiaries  Consolidated Statements of Income Years Ended December 31, 2005, 2004 and 2003                                                                  2005              2004             2003 - ---------------------------------------------------------------------------------------------------------     Interest and Dividend Income   Interest and fees on loans                               $ 16,108,210      $ 10,977,820      $ 8,698,702   Interest and dividends on securities                        1,159,004           749,847          724,238   Interest on federal funds sold                                 68,830            38,121           21,500                                                            -----------------------------------------------     Total interest and dividend income                       17,336,044        11,765,788        9,444,440                                                            -----------------------------------------------  Interest Expense   Interest on deposits                                        5,812,487         3,524,706        3,014,145   Interest on borrowings                                        871,468           221,427          167,527                                                            -----------------------------------------------     Total interest expense                                    6,683,955         3,746,133        3,181,672                                                            -----------------------------------------------        Net interest income                                    10,652,089         8,019,655        6,262,768  Provision for Loan Losses                                     1,180,162           825,324          923,070                                                            -----------------------------------------------       Net interest income after provision for loan losses     9,471,927         7,194,331        5,339,698                                                            -----------------------------------------------  Noninterest Income   Service charges on deposit accounts                           184,725           243,501          219,126   Other fee income                                              720,882           609,596          496,237   Net gain (loss) on the sale of securities                      (9,240)            7,889           63,681                                                            -----------------------------------------------     Total noninterest income                                    896,367           860,986          779,044                                                            -----------------------------------------------  Noninterest Expenses   Compensation and benefits                                   2,085,301         1,567,271       1,272,865   Occupancy, equipment and data processing                      960,059           957,588         790,619   Marketing and business development                            287,318           175,258         101,857   Professional services                                         738,307           290,226         171,538   Other operating expenses                                      473,244           599,116         500,527                                                            -----------------------------------------------     Total noninterest expenses                                4,544,229         3,589,459        2,837,406                                                            -----------------------------------------------  Income Before Income Tax Expense                              5,824,065         4,465,858        3,281,336  Income Tax Expense                                            2,329,644         1,744,100        1,279,437                                                            -----------------------------------------------      Net income                                              $ 3,494,421       $ 2,721,758      $ 2,001,899                                                            =============================================== Net Income Per Common Share:   Basic                                                     $      1.55       $      1.26      $      0.96                                                            ===============================================   Diluted                                                   $      1.32       $      1.05      $      0.85                                                            ===============================================  Weighted Average Shares Outstanding:   Basic                                                       2,247,928         2,152,069        2,088,730                                                            ===============================================   Diluted                                                     2,644,256         2,598,864        2,351,230                                                            ===============================================   See Notes to Consolidated Financial Statements.                                        F-4  Parke Bancorp, Inc. and Subsidiaries  Consolidated Statements of Shareholders' Equity Years Ended December 31, 2005, 2004 and 2003                                                                                              Accumulated                                                               Additional                     Other                       Total                                                    Common       Paid-In       Retained   Comprehensive   Treasury     Shareholders'                                                    Stock        Capital       Earnings   Income (Loss)     Stock         Equity - -----------------------------------------------------------------------------------------------------------------------------------        Balance, December 31, 2002                      $ 157,606   $ 15,963,324   $  1,306,860   $  200,123    $         -    $ 17,627,913   Stock options and warrants exercised              4,877        500,756              -            -              -         505,633   10% common stock dividend                        16,140      2,721,272     (2,737,820)           -              -            (408)   Comprehensive income:     Net income - 2003                                   -              -      2,001,899            -      2,001,899     Change in net unrealized gain on securities       available for sale, net of reclassification       adjustment and tax effects                        -              -              -     (142,430)             -        (142,430)                                                                                                                        ------------          Total comprehensive income                                                                                       1,859,469                                                 ----------------------------------------------------------------------------------- Balance, December 31, 2003                        178,623     19,185,352        570,939       57,693              -      19,992,607   Stock options and warrants exercised              2,696        241,490              -            -              -         244,186   20% common stock dividend                        36,237        (36,740)             -            -              -            (503)   Comprehensive income:     Net income - 2004                                   -              -      2,721,758            -              -       2,721,758     Change in net unrealized gain on securities       available for sale, net of reclassification       adjustment and tax effects                        -              -              -     (128,897)             -        (128,897)                                                                                                                        ------------          Total comprehensive income                                                                                       2,592,861                                                 ----------------------------------------------------------------------------------- Balance, December 31, 2004                        217,556     19,390,102      3,292,697      (71,204)             -      22,829,151   Stock options and warrants exercised             14,180      1,121,308              -            -              -       1,135,488   Treasury stock purchased                              -              -              -            -        (50,641)        (50,641)   Comprehensive income:     Net income - 2005                                   -              -      3,494,421            -              -       3,494,421     Change in net unrealized loss on securities       available for sale, net of reclassification       adjustment and tax effects                        -              -              -     (215,092)             -        (215,092)                                                                                                                        ------------          Total comprehensive income                                                                                       3,279,329                                                 ----------------------------------------------------------------------------------- Balance, December 31, 2005                      $ 231,736   $ 20,511,410   $  6,787,118   $ (286,296)   $   (50,641)   $ 27,193,327                                                 ===================================================================================   See Notes to Consolidated Financial Statements.                                        F-5  Parke Bancorp, Inc. and Subsidiaries  Consolidated Statements of Cash Flows Years Ended December 31, 2005, 2004 and 2003                                                                                  2005              2004              2003 - ----------------------------------------------------------------------------------------------------------------------------     Cash Flows from Operating Activities   Net income                                                                $ 3,494,421       $ 2,721,758         2,001,899   Adjustments to reconcile net income to     net cash provided by operating activities:   Depreciation and amortization                                                 264,105           251,482           194,874   Provision for loan losses                                                   1,180,162           825,324           923,070   Realized losses (gains) on sales of securities                                  9,240            (7,889)          (63,681)   Net (accretion) amortization of purchase premiums     and discounts on securities                                                 (72,795)            2,995            (6,714)   Deferred income tax benefit                                                  (387,382)          (45,972)         (290,700)   Changes in operating assets and liabilities:   Increase in accrued interest receivable and other assets                     (932,172)         (717,345)         (857,385)   Increase in accrued interest payable and other accrued liabilities          1,048,274           321,277           445,204                                                                           -------------------------------------------------       Net cash provided by operating activities                               4,603,853         3,351,630         2,346,567                                                                           -------------------------------------------------  Cash Flows from Investing Activities   Purchases of investment securities held to maturity                        (1,854,018)                -          (549,682)   Purchases of investment securities available for sale                      (5,559,000)      (15,054,401)       (6,376,623)   Purchases of restricted stock                                                (284,700)         (566,900)         (201,300)   Proceeds from sales of investment securities available for sale             5,092,055         1,071,509         8,905,271   Proceeds from maturities of investment securities available for sale                -         2,000,000         2,500,000   Principal payments on mortgage-backed securities                            2,187,681         2,304,558         3,385,509   Purchase of bank-owned life insurance                                               -                 -        (2,000,000)   Net increase in loans                                                     (70,655,099)      (42,733,402)      (51,239,121)   Purchases of bank premises and equipment                                      (96,802)         (259,248)         (839,313)                                                                           -------------------------------------------------       Net cash used in investing activities                                 (71,169,883)      (53,237,884)      (46,415,259)                                                                           -------------------------------------------------  Cash Flows from Financing Activities   Proceeds from exercise of stock options and warrants                        1,135,488           243,683           505,225   Purchase of treasury stock                                                    (50,641)                -                 -   Proceeds from borrowings                                                   27,652,500        18,850,000         8,000,000   Repayment of borrowings                                                   (12,064,366)       (8,811,397)       (2,608,567)   Net increase in interest-bearing deposits                                  50,513,402        33,923,365        30,791,290   Net increase in noninterest-bearing deposits                                1,957,895         3,215,135         4,107,624                                                                           -------------------------------------------------       Net cash provided by financing activities                              69,144,278        47,420,786        40,795,572                                                                           -------------------------------------------------       Increase (Decrease) In Cash and Cash Equivalents                        2,578,248        (2,465,468)       (3,273,120)  Cash and Cash Equivalents, January 1,                                         1,801,788         4,267,256         7,540,376                                                                           ------------------------------------------------- Cash and Cash Equivalents, December 31,                                   $   4,380,036       $ 1,801,788       $ 4,267,256                                                                           ================================================= Supplemental Disclosure of Cash Flow Information:   Cash paid during the year for:     Interest on deposits and borrowed funds                               $   5,992,826       $ 3,681,682       $ 3,171,116                                                                           =================================================     Income taxes                                                          $   2,466,000       $ 2,179,000       $ 1,492,000                                                                           =================================================   See Notes to Consolidated Financial Statements.                                        F-6   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. ("Parke Bancorp") is a bank holding company headquartered in Sewell, New Jersey. Through subsidiaries, Parke Bancorp 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 (the "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 two additional branch office locations,  one at 501 Tilton Road, Northfield,  New Jersey and the other at 567 Egg Harbor Road,  Washington Township,  New Jersey. In addition,  the Bank has a loan production office in Philadelphia, Pennsylvania.  The   accounting  and  financial   reporting   policies  of  Parke  Bancorp  and Subsidiaries (the "Company") conform to accounting principles generally accepted in the United  States of America  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 and Parke  Capital  Markets.  Parke Capital Trust I and Parke Capital Trust II are wholly-owned  subsidiaries but are not consolidated because they do not  meet  the  requirements.   All  significant   inter-company   balances  and transactions have been eliminated.  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 as 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.  At December 31, 2005 and 2004, 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.  Also,  at  December  31,  2005 and 2004,  the Company  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 available for sale and held to maturity securities  below their cost that are other than temporary result in write-downs of the individual securities to their fair value, and the losses are included in noninterest  income in the  statements  of  operations.  Factors  affecting  the determination of whether an other-than-temporary impairment has occurred include a downgrading of the security by rating agency,  a significant  deterioration in the financial condition of the issuer, the length of time a security has been in a loss  position,  or that  management  would not have the intent and ability to hold a security  for a period of time  sufficient  to allow for any  anticipated recovery in fair value.                                        F-7   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 1.   Description of Business and Summary of Significant Accounting Policies           (Continued)  Investment Securities (Continued): 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.  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 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.  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-Restructured:  Restructured  loans are those  loans  whose terms have been modified because of deterioration in the financial  condition of the borrower to provide for a reduction  of either  interest or principal or an extension of the payment period.  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 Company's, 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 Statement of Operation 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,  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  collectability 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.                                        F-8   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 1.   Description of Business and Summary of Significant Accounting Policies           (Continued)  Allowance for Loan Losses (Continued):  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.  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.  Factors  considered by management in determining  impairment include payment status,  collateral  value, and the probability of collecting  scheduled principal and interest  payments when due. 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.  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  identify  individual consumer and residential loans for impairment disclosures.  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 seven 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,  generally  terms  ranging  from ten to forty years.  Income Taxes:  The amount  provided for federal  income taxes is based on income reported for consolidated financial statement purposes.  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.                                        F-9   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 1.   Description of Business and Summary of Significant Accounting Policies           (Continued)  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 and the valuation of deferred income taxes.  Reclassification:  Certain  items in the 2004  financial  statements  have  been reclassified to conform with the 2005  presentation with no affect on net income or shareholder's equity.  Comprehensive  Income:  Accounting  principles generally require that recognized revenue,  expenses, gains and losses be included in net income. However, certain changes  in assets  and  liabilities,  such as  unrealized  gains and  losses on available  for sale  securities,  are  reported as a separate  component  of the equity  section of the balance  sheet.  Such items,  along with net income,  are components of comprehensive income.  The  components  of other  comprehensive  income and  related tax effects are as follows:                                                                              2005            2004           2003                                                                        ------------------------------------------     Unrealized holding losses on available for sale securities             $ (367,719)     $ (206,939)    $ (173,703) Reclassification adjustment for net losses (gains) realized in income       9,240          (7,889)       (63,681)                                                                        ------------------------------------------ Net unrealized losses                                                    (358,479)       (214,828)      (237,384) Tax effect                                                                143,387          85,931         94,954                                                                        ------------------------------------------      Net-of-tax amount                                                 $ (215,092)     $ (128,897)    $ (142,430)                                                                        ==========================================    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.  Both basic and diluted  earnings per share  computations give retroactive  effect to stock dividends declared in 2004 (Note 14). Earnings per common share have been computed  based on the  following for 2005,  2004 and 2003:                                                                              2005            2004           2003                                                                        ------------------------------------------     Net income                                                             $3,494,421      $2,721,758     $2,001,899                                                                        ==========================================  Average number of common shares outstanding                             2,247,928       2,152,069      2,088,730 Effect of dilutive options                                                396,328         446,795        262,500                                                                        ------------------------------------------  Average number of common shares outstanding used to calculate diluted earnings per common share                          2,644,256       2,598,864      2,351,230                                                                        ==========================================   Statement  of Cash  Flows:  Cash  and  cash  equivalents  include  cash on hand, balances  due from  banks  and  federal  funds  sold.  For the  purposes  of the statement of cash flows, changes in loans and deposits are shown on a net basis.                                        F-10   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 1.   Description of Business and Summary of Significant Accounting Policies           (Continued)  Stock-Based  Employee   Compensation:   The  Company  has  stock-based  employee compensation plans which are more fully described in Note 14. As permitted under generally accepted accounting  principles,  grants of options under the plan are accounted for under the recognition  and  measurement  principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,  and related  Interpretations. Because  options  granted  under  the plans had an  exercise  price  equal to or greater  than the market  value of the  underlying  common  stock on the date of grant, no stock-based employee  compensation cost is included in determining net income.  The following  table  illustrates the effect on net income and earnings per share for 2005,  2004 and 2003 if the  Company  had  applied  the fair value recognition   provisions  of  Financial   Accounting  Standards  Board  ("FASB") Statement  No.  123,  Accounting  for  Stock-Based  Employee  Compensation,   to stock-based  employee  compensation.  Both basic and diluted  calculations  give retroactive effect to stock dividends declared.                                                                               2005            2004           2003                                                                        -------------------------------------------     Net income, as reported                                                 $3,494,421      $2,721,758     $2,001,899  Deduct total stock-based compensation expense determined under the fair value method for all awards, net of related tax effects                                        (670,000)        (41,000)      (114,000)                                                                        -------------------------------------------   Pro forma net income                                                  $2,824,421      $2,680,758     $1,887,899                                                                        ===========================================  Earnings per share: Basic:   As reported                                                                $1.55           $1.26          $0.96   Pro forma                                                                  $1.26           $1.25          $0.90 Diluted:   As reported                                                                $1.32           $1.05          $0.85   Pro forma                                                                  $1.07           $1.03          $0.80    Recent Accounting Pronouncements:  EITF  Issue  03-1  The  Meaning  of  Other-Than-Temporary   Impairment  and  Its Application to Certain Investments  In March 2004, the Financial  Accounting  Standards Board ("FASB") released EITF Issue 03-1, The Meaning of  Other-Than-Temporary  Impairment and Its Application to Certain  Investments  ("Issue 03-1") which provides  guidance for determining when an  investment  is  impaired  and  whether  the  impairment  is other  than temporary.  In  September  2004,  the FASB  approved  for  issuance a FASB Staff Position  ("FSP") on Issue  03-1.  This  position  delayed the  effective  date, originally set for periods  beginning  after June 15, 2004, for the  measurement and recognition  guidance contained in paragraphs 10-20 of Issue 03-1.  However, it  did  not  suspend  the   requirements   to  recognize   other-than-temporary impairments as required by existing authoritative  literature. On June 29, 2005, the  FASB  decided  not  to  provide  additional  guidance  on  the  meaning  of other-than-temporary  impairment  and directed the staff to propose a final FSP, EITF Issue 03-1-a,  which will supersede Issue 03-1. The final FSP (retitled FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary  Impairment and Its Application of Certain  Investments) was issued on November 3, 2005 and replaces the guidance set forth in certain  paragraphs  of Issue 03-1 with  references to existing  other-than-temporary  impairment  guidance.  The  final  FSP  is to be applied  prospectively  and is effective  for the Company  beginning  January 1, 2006.  The  Company  does not expect  application  of the FSP to have a material impact on the consolidated financial statements.                                        F-11    Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 1.   Description of Business and Summary of Significant Accounting Policies           (Continued)  Recent Accounting Pronouncements (Continued):  Statement No. 123 (Revised) Share-Based Payment ("SFAS No. 123(R)")  In December 2004, the FASB issued SFAS No. 123(R), which establishes  accounting standards for transactions in which an entity  exchanges its equity  instruments for goods or services.  SFAS No. 123(R) also addresses  transactions in which an entity  incurs  liabilities  in exchange for goods or services that are based on the fair value of the entity's equity instruments. SFAS No. 123(R) covers a wide range  of  share-based   compensation   arrangements  including  stock  options, restricted  stock plans,  performance-based  stock  awards,  stock  appreciation rights,  and employee stock purchase plans.  SFAS No. 123(R)  replaces  existing requirements under SFAS No. 123, "Accounting for Stock-Based  Compensation," and eliminates  the ability to account  for  share-based  compensation  transactions using APB Opinion No. 25. The  provisions  for SFAS No. 123(R) are effective for the  Company on  January 1, 2006.  As of  December  31,  2005,  all of the stock options the Company has granted have been vested and therefore  will not require any  stock-based  employee  compensation  expense  to be  recognized  in  future periods. The financial impact of any stock options granted in the future will be determined using the Black-Scholes option pricing model.   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, 2005, because reserve requirements were covered by vault cash.   Note 3.   Investment Securities  The Company's investment securities as of December 31, 2005 were as follows:                                                                           Gross           Gross                                                      Amortized       Unrealized      Unrealized         Market                                                        Cost            Gains           Losses           Value                                                   -----------------------------------------------------------------      Available For Sale - ------------------ U.S. Government sponsored entities                   $  6,533,381      $     60     $ 331,051 60    $  6,202,390 Corporates                                              6,317,394        13,047           14,143       6,316,298 Stock                                                     500,000             -                -         500,000 Mortgage-backed securities                              9,149,322        13,671          158,737       9,004,256                                                   --------------------------------------------------------------- Total securities available for sale                  $ 22,500,097      $ 26,778        $ 503,931    $ 22,022,944                                                   =============================================================== Held to Maturity - ---------------- Municipals                                           $  2,405,841      $      -        $  82,856    $  2,322,985                                                   ===============================================================                                         F-12   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 3.   Investment Securities (Continued)  The Company's investment securities as of December 31, 2004 were as follows:                                                                  Gross            Gross                                            Amortized        Unrealized       Unrealized        Market                                              Cost             Gains            Losses          Value                                         ---------------------------------------------------------------      Available For Sale - ------------------ U.S. Government sponsored entities        $ 8,886,211       $  10,883        $ 226,864    $  8,670,230 Mutual Funds                                3,237,520                           41,192       3,196,328 Mortgage-backed securities                 12,037,745         178,090           39,591      12,176,244                                         --------------------------------------------------------------- Total securities available for sale      $ 24,161,476       $ 188,973        $ 307,647    $ 24,042,802                                         =============================================================== Held to Maturity - ---------------- Municipals                               $    547,632       $       -        $   6,892    $    540,740                                         ===============================================================   The  amortized  cost and  estimated  market value of  investment  securities  at December 31, 2005 by contractual maturities are shown below. Expected maturities may differ from contractual  maturities for  mortgage-backed  securities because the mortgages  underlying the  securities  may be called or prepaid  without any penalties;  therefore,  these  securities  are  not  included  in  the  maturity categories in the following maturity summary.                                                              Available For Sale                 Held to Maturity                                                   -----------------------------------------------------------------                                                        Amortized         Market          Amortized         Market                                                          Cost            Value             Cost            Value                                                   -----------------------------------------------------------------      Maturing within one year                             $          -    $          -      $         -     $         - Maturing after one year but within five years           3,026,191       2,997,690          538,055         523,697 Maturing after five years, but within ten years                 -               -                -               - Maturing after ten years                                9,824,584       9,520,998        1,867,786       1,799,288                                                   -----------------------------------------------------------------                                                        12,850,775      12,518,688        2,405,841       2,322,985 Mortgage-backed securities                              9,149,322       9,004,256                -               - Stock                                                     500,000         500,000                -               -                                                   -----------------------------------------------------------------      Total securities                                $ 22,500,097    $ 22,022,944      $ 2,405,841     $ 2,322,985                                                   =================================================================    Gross realized gains on the sale of investment  securities were $53,770 in 2005, $8,043  in 2004  and  $75,814  in 2003.  Gross  realized  losses  on the sale of investments securities were $63,010 in 2005, $155 in 2004 and $12,133 in 2003.  As of December 31, 2005, approximately  $13,273,000 of investment securities are pledged as collateral for borrowed funds (Note 10). In addition, securities with a carrying value of $478,595 were pledged to secure public  deposits at December 31, 2005.  As of December 31, 2004, approximately  $12,187,192 of investment securities are pledged as collateral for borrowed funds (Note 10). In addition, securities with a carrying value of $558,880 were pledged to secure public  deposits at December 31, 2004.                                        F-13    Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 3.   Investment Securities (Continued)  The fair value of securities with  unrealized  losses by length of time that the individual  securities  have been in a continuous  loss position at December 31, 2005, are as follows:                                                         Continuous Unrealized Losses      Continuous Unrealized Losses                                                   Existing for Less Than 12 Months  Existing for More Than 12 Months                                                   ------------------------------------------------------------------                                                                         Unrealized                       Unrealized                                                      Market Value         Losses      Market Value         Losses                                                   -----------------------------------------------------------------      Available For Sale - ------------------ U.S. Government sponsored entities                   $  3,427,330       $  56,051      $ 2,275,000       $ 275,000 Corporates                                                513,200          12,991          746,318           1,152 Stock                                                           -               -                -               - Mortgage-backed securities                              6,225,181         158,132          153,736             605                                                   -----------------------------------------------------------------                                                        10,165,711         227,174        3,175,054         276,757 Held to Maturity - ---------------- Municipals                                              1,799,287          68,499          523,698          14,357                                                   ----------------------------------------------------------------- Total temporarily impaired securities                $ 11,964,998       $ 295,673      $ 3,698,752       $ 291,114                                                   =================================================================   Management  does not believe any individual  unrealized  loss as of December 31, 2005 represents an other-than-temporary impairment. A total of 25 securities are included in the continuous  unrealized portion, of which 22 are in the available for sale category.  The unrealized  losses on these securities are primarily due to changes in general  market  interest  rates.  The  Company  believes  it will collect all amounts  contractually due on these securities as it has the ability to hold these  securities until the fair value is at least equal to the carrying value. Should the impairment become other-than-temporary,  the carrying value of the  investment  will be reduced  and the  unrealized  loss be  recorded  in the statement of income.  The fair value of securities with  unrealized  losses by length of time that the individual  securities  have been in a continuous  loss position at December 31, 2004 are as follows:                                                         Continuous Unrealized Losses      Continuous Unrealized Losses                                                   Existing for Less Than 12 Months  Existing for More Than 12 Months                                                   ------------------------------------------------------------------                                                                         Unrealized                       Unrealized                                                      Market Value         Losses      Market Value         Losses                                                   -----------------------------------------------------------------      Available For Sale - ------------------ U.S. Government sponsored entities                    $   746,250        $     94      $ 2,050,000       $ 226,770 Mutual funds                                               74,888             196        3,121,440          40,996 Mortgage-backed securities                              2,167,568          39,591                -               -                                                   -----------------------------------------------------------------                                                         2,988,706          39,881        5,171,440         267,766 Held to Maturity - ---------------- Municipals                                                      -               -          540,740           6,892                                                   ----------------------------------------------------------------- Total temporarily impaired securities                 $ 2,988,706        $ 39,881      $ 5,712,180       $ 274,658                                                   =================================================================                                         F-14   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------   Note 4.   Loans  The composition of net loans as of December 31, 2005 and 2004 are as follows:                                                       2005            2004                                                   ------------------------------  Commercial                                        $ 236,013,459   $ 167,376,451 Residential real estate                              18,482,968      17,612,920 Consumer                                              5,053,908       3,963,818                                                   ------------------------------ Total loans                                         259,550,335     188,953,189 Less: allowance for loan losses                      (3,573,812)     (2,620,651) Less: net deferred loan fees                           (515,247)       (346,199)                                                   ------------------------------      Net loans                                    $ 255,461,276   $ 185,986,339                                                   ==============================   At  December  31,  2005 and 2004,  approximately  $16,358,000  and  $14,970,000, respectively,  of residential real estate and consumer loans were pledged to the FHLBNY on borrowings (Note 10).   Note 5.   Loans and Deposits 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 collectability.  An analysis of the activity of such related  party loans for 2005 and 2004 is as follows:                                                         2005            2004                                                   ------------------------------  Balance, beginning of year                         $ 10,325,629    $ 10,219,179 Advances                                              5,619,948       8,761,251 Less: repayments                                     (3,597,951)     (8,654,801)                                                   ------------------------------ Balance, end of year                               $ 12,347,626    $ 10,325,629                                                   ==============================                                        F-15   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 2005 and 2004 is as follows:                                                              2005            2004             2003                                                   -------------------------------------------------      Balance, beginning of year                            $ 2,620,651     $ 2,256,070      $ 1,333,000 Provision for loan losses                               1,180,162         825,324          923,070 Charge offs                                              (227,001)       (460,743)          (1,000) Recoveries                                                      -               -            1,000                                                   ------------------------------------------------- Balance, end of year                                  $ 3,573,812     $ 2,620,651      $ 2,256,070                                                   =================================================   Information  about impaired  loans and nonaccrual  loans as of and for the years ended December 31, 2005 and 2004 is as follows:                                                            2005           2004                                                       --------------------------  Impaired loans with a valuation allowance             $   511,211    $   240,816 Impaired loans without a valuation allowance                    -              -                                                       -------------------------- Total impaired loans                                  $   511,211    $   240,816                                                       ========================== Related allowance for loan losses for impaired loans  $    60,181    $   114,135                                                       ========================== Nonaccrual loans                                      $ 1,935,000    $   240,816                                                       ========================== Loans past due ninety days or more and still   accruing interest                                   $   665,000    $    54,859                                                       ========================== Average monthly balance of impaired loans   (based on month-end balances)                       $   457,000    $   709,000                                                       ========================== Interest income recognized on cash basis   on impaired loans                                   $    36,914    $    12,674                                                       ==========================  Interest  income of $66,000,  $64,000 and  $29,000  would have been  recorded on non-accrual  loans in accordance  with their  original  terms in 2005,  2004 and 2003, respectively.                                        F-16   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 7.   Bank Premises and Equipment  A  summary  of the  cost  and  accumulated  depreciation  of Bank  premises  and equipment as of December 31, 2005 and 2004 is as follows:                                                         2005            2004                                                    ----------------------------  Land                                                 $ 470,000     $   470,000 Building and improvements                            2,587,564       2,536,512 Furniture and equipment                                873,017         882,812                                                    ---------------------------- Total premises and equipment                         3,930,581       3,889,324 Less: accumulated depreciation and amortization                                      (850,705)       (642,145)                                                    ----------------------------    Premises and equipment, net                     $ 3,079,876     $ 3,247,179                                                    ============================  Depreciation  expense  was  $264,105 in 2005,  $251,482 in 2004 and  $194,874 in 2003.  The  Company  has a  non-cancelable  operating  lease  agreement  related to its Northfield  branch  office.  The term of the lease is for 10 years through March 2011 with two  5-year  renewal  options.  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  office.  The company has a month to month lease for the loan production office in Philadelphia,  Pennsylvania. In addition,  the Company leases certain computer software under an operating lease expiring 2008. At December 31, 2005, the required  future rental  payments under these leases are as follows:          Years Ending December 31,         -----------------------------------------------------                  2006                            $   187,000                 2007                                203,000                 2008                                204,000                 2009                                 68,000                 2010                                 69,000              Thereafter                              29,000                                                 -----------         Total minimum lease payments            $   760,000                                                 ===========  Rent expense was approximately $176,000 in 2005, $165,000 in 2004 and $53,000 in 2003.   Note 8.   Bank-Owned Life Insurance  The Bank has  purchased  $4,500,000  of  Bank-owned  life  insurance on selected officers,  which amount is recorded at its cash surrender  value and is included in  "accrued   interest   receivable  and  other  assets"  in  the  accompanying consolidated  balance  sheets.  There  are no  restrictions  on  the  use of any proceeds  and at  December  31,  2005 and 2004 there were no loans  outstanding. Earnings from the policies,  which amounted to  approximately  $186,000 in 2005, $199,000 in 2004 and $180,000 in 2003, are credited to "other fee income" in the accompanying Statement of Income.                                        F-17   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 9.   Deposits  Deposits at December 31, 2005 and 2004 consisted of the following:                                                       2005            2004                                                   ------------------------------  Demand deposits, noninterest-bearing              $  17,918,339    $ 15,960,444 Demand deposits, interest-bearing                    22,371,195      28,327,050 Savings deposits                                     38,823,726      26,320,106 Time deposits of $100,000 or more                    95,282,066      56,628,000 Other time deposits                                  57,660,982      52,349,411                                                   ------------------------------      Total deposits                               $ 232,056,308   $ 179,585,011                                                   ==============================  Time deposits included brokered deposits totaling approximately  $67,159,000 and $38,880,000 and at December 31, 2005 and 2004, respectively.  Scheduled  maturities  of  certificates  of deposit at December  31, 2005 are as follows:          Years Ending December 31,         -----------------------------------------------------                  2006                            $    98,230,399                 2007                                 38,856,108                 2008                                  7,881,030                 2009                                  3,597,173                 2010                                  4,378,338                                                 ---------------                                                 $   152,943,048                                                 ===============  Deposits from related parties totaled approximately $5,740,000 and $6,092,000 at December 31, 2005 and 2004, respectively.   Note 10.   Borrowings  An analysis of borrowings as of December 31, 2005 and 2004 is as follows:                                                                                          2005                      2004                                                                         ------------------------------------------------------                                                         Maturity Date          Amount        Rate        Amount         Rate - ------------------------------------------------------------------------------------------------------------------------------       Borrowed funds:  Federal Home Loan Bank Repurchase Agreements          June 2006              $ 1,000,000     3.05%     $ 1,000,000      3.05%                                                       December 2006            1,100,000     3.33%       1,100,000      3.33% Repurchase agreements                                 February 2005                    -         -       1,000,000      2.40%                                                       January 2006               982,500     3.99%               -          -                                                       February 2006            1,000,000     4.33%               -          -                                                       March 2006               1,000,000     4.49%               -          -                                                                              ------------              ------------                                                                              $ 5,082,500               $ 3,100,000                                                                              ============              ============                                         F-18   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 10.   Borrowings (Continued)                                                                                   2005                      2004                                                                         ------------------------------------------------------                                                         Maturity Date        Amount        Rate        Amount         Rate - ------------------------------------------------------------------------------------------------------------------------------        Federal Home Loan Bank  Advances                      January 2005          $          -         -    $  8,000,000      1.94%                                                       July 2005                        -         -       1,000,000      1.57%                                                       December 2005                    -         -       2,000,000      3.10%                                                       January 2006             6,610,000     4.08%               -          -                                                       February 2006              250,000     4.52%               -          -                                                       March 2006                 250,000     4.61%               -          -                                                       April 2006               1,000,000     4.46%               -          -                                                       June 2006                  250,000     4.78%               -          -                                                       October 2006             1,000,000     4.70%               -          -                                                       December 2006            1,750,000     4.05%       1,000,000      3.41%                                                       January 2007               464,360     4.73%         528,726      4.73%                                                       December 2007              750,000     4.92%               -          -                                                       June 2008                  750,000     3.89%         750,000      3.89%                                                       December 2008            1,000,000     4.97%               -          -                                                       June 2009                4,000,000     4.07%       4,000,000      4.07%                                                       December 2010            1,000,000     5.05%               -          -                                                       December 2015            1,500,000     5.02%               -          -                                                                             -------------             -------------                                                                             $ 20,574,360              $ 17,278,726                                                                             =============             ============= Subordinated debentures - capital trusts              November 2035         $  5,155,000     6.04%    $          -          -                                                       November 2035            5,155,000     6.25%               -          -                                                                             -------------             -------------                                                                             $ 10,310,000              $          -                                                                             =============             =============   At December  31,  2005,  the Company had a  $23,870,500  line of credit from the FHLBNY. In addition, the Company has available a $23,870,500 one-month overnight re-pricing line of credit.  Certain  investment  securities  (Note 3),  loans (Note 4), and FHLBNY 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 6.04% at December 31, 2005.  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 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 $800,000 was retained at the Company for future use.                                        F-19  Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 10.   Borrowings (Continued)  Subordinated Debentures - Capital Trusts (Continued):  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 $800,000 was retained at the Company for future use.  The  subordinates  debentures  are  classified as  liabilities  in the Company's consolidated  balance  sheet at December  31, 2005 but a majority was allowed as Tier I Capital for regulatory capital purposes (Note 13).   Note 11.   Income Taxes  The net deferred tax asset,  which is included in "accrued  interest  receivable and other assets" at December 31, 2005 and 2004, includes the following:                                                         2005           2004                                                  ----------------------------    Deferred tax assets                              $ 1,676,004     $ 1,034,350 Deferred tax liabilities                            (470,039)       (359,161)                                                  ----------------------------      Net deferred tax asset                      $ 1,205,965       $ 675,189                                                  ============================   Income tax expense for 2005, 2004 and 2003 consisted of the following:                                         2005            2004             2003                                  ---------------------------------------------     Current tax expense: Federal                          $ 2,092,771     $ 1,357,072      $ 1,212,122 State                                624,255         433,000          358,015                                  ---------------------------------------------                                    2,717,026       1,790,072        1,570,137 Deferred tax (benefit)              (387,382)        (45,972)        (290,700)                                  ---------------------------------------------      Income tax expense          $ 2,329,644     $ 1,744,100      $ 1,279,437                                  =============================================   The components of the net deferred tax asset, which is included in other assets, are as follows:                                                       2005            2004                                                ----------------------------    Allowance for loan losses                      $ 1,354,558     $ 1,004,511 Deferred loan costs                               (213,276)       (213,276) Securities available for sale                      190,857          47,470 Other                                             (126,174)       (163,516)                                                ----------------------------                                                $ 1,205,965       $ 675,189                                                ============================                                        F-20   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 11.   Income Taxes (Continued)  A reconciliation  of the Company's  effective income tax rate with the statutory Federal rate for 2005, 2004 and 2003 is as follows:                                                       2005            2004             2003                                                ---------------------------------------------     Tax expense at statutory rate (35%)            $ 2,038,423     $ 1,563,050      $ 1,148,467 Permanent differences and other, net                 3,513         (39,564)         (31,128) State income taxes, net of Federal tax benefit     345,949         265,272          194,911 Benefit of income taxed at lower rates             (58,241)        (44,658)         (32,813)                                                ---------------------------------------------                                                $ 2,329,644     $ 1,744,100      $ 1,279,437                                                =============================================   Note 12.   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  $246,000 in 2005, $207,000 in 2004 and $151,000 in 2003. The unfunded  accumulated  benefit  obligation,  which was included in "accrued interest payable and other liabilities",  was approximately $894,000 at December 31, 2005 and $672,000 at December 31, 2004.  Simple  IRA  Plan:  The  Company  has a simple  IRA Plan (the  "Plan")  covering substantially  all  employees.  The Company is required to  contribute 2% of the employees'   eligible  salary  to  the  Plan.  All  Company   contributions  are immediately  vested.  Plan expense  amounted to  approximately  $33,000 in 2005, $22,000 in 2004 and $16,000 in 2003.   Note 13.   Regulatory Matters  Capital  Ratios:  Parke  Bancorp 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, Parke Bancorp and 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 Parke Bancorp and 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, 2005 and  2004,  that  Parke  Bancorp  and the Bank  meet all  capital  adequacy requirements to which they are subject.  As of  December  31,  2005,  Parke  Bancorp  and the Bank  were  categorized  as "well-capitalized"  under the regulatory framework for prompt corrective action. At December 31, 2004, the Bank was categorized as  "well-capitalized"  under the regulatory  framework for prompt corrective  action.  There are no conditions or events  since  December  31,  2005 that  management  believes  have  changed any subsidiary bank's capital category.                                        F-21   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 13.   Regulatory Matters (Continued)  Capital Ratios (Continued):  Parke Bancorp and the Bank's actual capital amounts and ratios as of  December  31,  2005 and 2004 are  presented  in the  following tables:                                                                                  To Be Well Capitalized                                                            For Capital             Prompt Under Corrective                                         Actual           Adequacy Purposes       Action Provisions                                ----------------------------------------------------------------------- Parke Bancorp, Inc.                Amount   Ratio          Amount   Ratio          Amount   Ratio                                -----------------------------------------------------------------------        As of December 31, 2005: (amounts in thousands) - ----------------------  Total Risk Based Capital         $ 40,737     16%        $ 20,856     8%         $ 26,070     10% (to Risk Weighted Assets)  Tier I Capital                   $ 34,349     13%        $ 10,428     4%         $ 15,652     6% (to Risk Weighted Assets)  Tier I Capital                   $ 34,349     12%        $ 11,370     4%         $ 14,212     5% (to Average Assets)                                                                                  To Be Well Capitalized                                                            For Capital             Prompt Under Corrective                                         Actual           Adequacy Purposes       Action Provisions                                ----------------------------------------------------------------------- Parke Bank                         Amount   Ratio          Amount   Ratio          Amount   Ratio                                -----------------------------------------------------------------------        As of December 31, 2005: (amounts in thousands) - ----------------------  Total Risk Based Capital         $ 39,416     15%        $ 20,825     8%         $ 26,031     10% (to Risk Weighted Assets)  Tier I Capital                   $ 36,158     14%        $ 10,413     4%         $ 15,618     6% (to Risk Weighted Assets)  Tier I Capital                   $ 36,158     13%        $ 11,370     4%         $ 14,213     5% (to Average Assets)                                                                                  To Be Well Capitalized                                                            For Capital             Prompt Under Corrective                                         Actual           Adequacy Purposes       Action Provisions                                ----------------------------------------------------------------------- Parke Bank                         Amount   Ratio          Amount   Ratio          Amount   Ratio                                -----------------------------------------------------------------------        As of December 31, 2004: (amounts in thousands) - ----------------------  Total Risk Based Capital         $ 25,254     13%        $ 15,042     8%         $ 18,802     10% (to Risk Weighted Assets)  Tier I Capital                   $ 22,900     12%        $  7,521     4%         $ 11,281     6% (to Risk Weighted Assets)  Tier I Capital                   $ 22,900     11%        $  8,301     4%         $ 10,376     5% (to Average Assets)                                         F-22   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 14.   Shareholders' Equity  Reorganization:  Parke Bancorp was  incorporated in 2005 for the sole purpose of becoming the holding  company of the Bank.  Parke Bancorp  recognized the assets and liabilities  transferred at the carrying amounts in the accounts of the Bank as of June 1, 2005, the effective date of the  reorganization.  The accompanying consolidated  financial  statements  are  presented as if the exchange of shares occurred  as of January  1,  2003.  Pursuant  to the Plan of  Acquisition,  each outstanding share of Parke Bank was converted  automatically by operation of law into one share of Parke  Bancorp.  Parke  Bancorp had no  activity  prior to the competition  of this  reorganization.  Parke  Bancorp  is  authorized  to  issue 10,000,000  shares of common  stock,  par  value  $0.10 per share and  1,000,000 shares of serial  preferred  stock,  par value  $0.10  per  share.  Options  and warrants outstanding under the Bank's various Plans were converted automatically by  operation  of law into  options and  warrants  to  purchase  shares of Parke Bancorp on the same terms and conditions.  Common Stock  Dividend:  In December  2004,  the Company paid a 20% common stock dividend (362,363 shares) to shareholders.  In December 2003, the Company paid a 10% common stock dividend (161,404 shares) to shareholders.  Stock Options and Warrants:  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 437,055  shares of common  stock.  All options  issued under the Plans are 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.  A summary of the status of options granted is as follows:                                                         2005                       2004                      2003                                         --------------------------------------------------------------------------------                                              Number       Exercise      Number      Exercise      Number      Exercise                                            of Options      Price      of Options      Price     of Options      Price                                         --------------------------------------------------------------------------------        Outstanding, beginning of year              133,367         $9.39       122,897        $8.88         74,796     $7.58 Granted                                     163,500        $20.50        12,420       $15.00         49,553    $10.61 Expired / terminated                           (360)       $10.61          (300)       $7.58              -         - Exercised                                   (20,700)       $10.58        (1,650)       $7.58         (1,452)    $7.58                                         ------------                 -----------                ------------      Outstanding, end of year               275,807        $15.87       133,367        $9.39        122,897     $8.88                                         ============                 ===========                ============   Information  regarding options  outstanding and exercisable at December 31, 2005 is as follows:                                   Number      Weighted-Average                 Exercise     Outstanding and    Remaining                   Price        Exercisable   Contractual Life              -------------------------------------------------                     $7.58            65,292         4.6                   $10.61            38,795         7.5                   $15.00             8,220         8.1                   $18.00            27,500         9.2                   $21.00           136,000         9.9                              --------------                                    275,807                              ==============                                        F-23   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 14.   Shareholders' Equity (Continued)  Stock Options and Warrants (Continued): At December 31, 2005, there were 138,073 shares available for grant under the Plans.  The Bank has adopted the  disclosure-only  provisions  of FASB No. 123. The Bank accounts for its Plans in accordance  with Accounting  Principles  Board Opinion No. 25 and related interpretations.  Accordingly,  no compensation cost has been recognized for the Plan in 2005, 2004 or 2003. Compensation cost that would have been  recognized  using the fair value  method  pursuant to FASB No. 123, if the Bank had so elected,  would have been approximately  $1,117,000 in 2005, $68,000 in 2004 and $190,000 in 2003. The method of determining  pro-forma  compensation cost for 2005,  2004 and 2003 was based on certain  assumptions,  including  the past trading  ranges of the Bank's  stock,  volatility of 25%,  expected  option lives of 5 - 7 years,  risk-free interest rate of 4%, and no expected payment of dividends.  In connection with the Company's  initial stock offering in 1998,  approximately 732,000 (as adjusted for stock dividends in 2003 and 2004) warrants were issued. These  warrants  have an  exercise  price of $7.58 per share and expire in 2008. During 2005, 2004 and 2003, 122,156,  25,586 and 47,675 warrants were exercised, respectively.   Note 15.   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  $98,000 in 2005,  $102,000 in 2004 and $81,000 in 2003.  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  $284,000  in 2005,  $197,000  in 2004 and $151,000 in 2003.   Note 16.   Commitments and Contingencies  The Company has entered  into  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.                                        F-24   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 16.   Commitments and Contingencies (Continued)  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,  2005 and 2004,  commitments  to extend  credit amounted to approximately $101,815,000 and $70,418,000, 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, 2005 and 2004, standby  letters  of credit  with  customers  were  $4,536,000  and  $2,489,492, respectively.  The Company does not issue or hold derivative  instruments with the exception of loan commitments and standby letters of credit.  These instruments are issued in the ordinary  course of business to meet  customer  needs.  Commitments  to fund fixed-rate loans were immaterial at December 31, 2005. 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.  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 17.   Fair Value of Financial Instruments  The  Company  discloses  estimated  fair  values for its  significant  financial instruments. Because no market exists for a significant portion of the Company's financial  instruments,  fair value  estimates are based on judgments  regarding future   expected   loss   experience,   current   economic   conditions,   risk characteristics  of  various  financial  instruments  and other  factors.  These estimates  are  subjective  in nature and involve  uncertainties  and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.  The  following  fair  value  estimates,  methods  and  assumptions  were used to estimate the fair value of each class of significant financial instruments,  for which it is practical to estimate that value:  Cash and Cash  Equivalents:  The carrying  amount of cash and federal funds sold approximates fair value.  Investment  Securities:  The fair value of  investment  securities is based upon quoted market prices or dealer quotes.  Restricted Stock: The carrying value of restricted stock approximates fair value based on redemption provisions.  Loans:  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.                                        F-25   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 17.   Fair Value of Financial Instruments (Continued)  Loans (Continued): 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.  Fair value for nonperforming  loans is based on the discounted value of expected future cash flows, discounted using a rate commensurate with the risk associated with the  likelihood  of  repayment  and/or  the fair  value of  collateral  (if repayment of the loan is collateral dependent).  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 rates currently offered for deposits of similar remaining maturities.  Borrowings:  The fair value of  borrowings is based on the  discounted  value of estimated cash flows. The discounted rate is estimated using the rates currently offered for similar advances.  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.  The following table  summarizes  carrying  amounts and fair values for financial instruments at December 31, 2005:                                                 Carrying Value    Fair Value                                              --------------------------------      Financial Assets:        Cash and cash equivalents                $  4,380,036    $  4,380,036        Investment securities                      24,428,785      24,345,929        Restricted stock                            1,348,900       1,348,900        Loans, net                                255,461,276     252,907,849        Accrued interest receivable                 1,545,443       1,545,443       Financial Liabilities:        Demand deposits and savings deposits     $ 79,113,260    $ 79,113,260        Time deposits                             152,943,048     154,935,630        Borrowings                                 35,966,860      35,966,860        Accrued interest payable                    1,073,713       1,073,713                                        F-26   Parke Bancorp, Inc. and Subsidiaries  Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------  Note 17.   Fair Value of Financial Instruments (Continued)  The following table  summarizes  carrying  amounts and fair values for financial instruments at December 31, 2004:                                               Carrying Value    Fair Value                                              ------------------------------      Financial Assets:        Cash and cash equivalents              $  1,801,788    $  1,801,788        Investment securities                    24,590,434      24,583,542        Restricted stock                          1,064,200       1,064,200        Loans, net                              185,986,339     186,968,704        Accrued interest receivable                 972,235         972,235       Financial Liabilities:        Demand deposits and savings deposits   $ 70,607,600    $ 70,607,600        Time deposits                           108,977,411     108,745,773        Borrowings                               20,378,726      20,378,726        Accrued interest payable                    382,583         382,583   Note 18.   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.   Note 18.  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,                                    ----------------------------------------------------------------       2005  ----   Interest income                       $ 5,098,380     $ 4,434,368     $ 4,106,809     $ 3,696,487  Interest expense                        2,092,613       1,810,909       1,515,232       1,265,201  Net interest income                     3,005,767       2,623,459       2,591,577       2,431,286  Provision for loan losses                 374,000         298,005         276,023         232,134  Income before income tax expense        1,624,981       1,481,502       1,499,565       1,218,017  Income tax expense                        655,994         592,100         595,550         486,000  Net income                                968,987         889,402         904,015         732,017   Net income per common share:    Basic                               $      0.42     $      0.39     $      0.40     $      0.33    Diluted                             $      0.36     $      0.34     $      0.35     $      0.28   2004  ----   Interest income                       $ 3,188,760     $ 2,980,350     $ 2,839,127     $ 2,757,551  Interest expense                        1,030,003         954,159         861,999         899,972  Net interest income                     2,158,757       2,026,191       1,977,128       1,857,579  Provision for loan losses                 425,913         101,951         184,585         112,875  Income before income tax expense        1,109,120       1,258,605       1,074,408       1,023,725  Income tax expense                        434,600         490,000         419,100         400,400  Net income                                674,520         768,605         655,308         623,325   Net income per common share:    Basic                               $      0.30     $      0.36     $      0.31     $      0.29    Diluted                             $      0.23     $      0.31     $      0.26     $      0.25                                         F-27                                   CORPORATE INFORMATION                                 PARKE BANCORP, INC.                                 601 Delsea Drive                       Washington Township, New Jersey 08080                                  (856) 256-2500                                                     Board of Directors     Celestino R. ("Chuck") Pennoni                  Fred Choate                        Daniel J. Dalton   Chairman of the Board of Directors                 Director                              Director                                          -----------------------------------                                                       Officers            Vito S. Pantilione                  Ernest D. Huggard, CPA                 David O. Middlebrook             President and                    Senior Vice President and            Senior Vice President and        Chief Executive Officer                Chief Financial Officer                Corporate Secretary                                          -----------------------------------              Local Counsel                                                            Independent Auditors              Duane Morris                                                          McGladrey & Pullen, LLP           One Liberty Place                                                         512 Township Line Road         Philadelphia, PA 19103                                                   One Valley Square, Suite 250                                                                                      Blue Bell, PA 19422             Special Counsel                                                       Transfer Agent and Registrar       Malizia Spidi & Fisch, PC                                                 Registrar and Transfer Company       901 New York Avenue, N.W.                                                       10 Commerce Drive             Suite 210 East                                                            Cranford, NJ 07016         Washington, D.C. 20001                                                         PARKE BANK                                                   Board of Directors               Celestino R. ("Chuck") Pennoni                                  Vito S. Pantilione            Chairman of the Board of Directors                 President, Chief Executive Officer and Director                      Thomas Hedenberg                                          Arret F. Dobson          Vice Chairman of the Board of Directors                                  Director                      Daniel J. Dalton                                         Edward Infantolino                         Director                                                  Director                     Anthony J. Jannetti                                       Jeffrey H. Kripitz                         Director                                                  Director                      Richard Phalines                                       Jack C. Sheppard, Jr.                         Director                                                  Director                        Ray H. Tresch                                            Fred G. Choate                         Director                                                  Director                                     Victor Fabietti, CPA/Special Consultant to                                              the Board of Directors                                                      Officers                     Vito S. Pantilione                                      Ernest D. Huggard, CPA           President and Chief Executive Officer              Senior Vice President and Chief Financial Officer                    David O. Middlebrook                                     Elizabeth A. Milavsky               Senior Vice President, Senior                              Senior Vice President and             Loan Officer, Corporate Secretary                              Systems/Retail Officer                      Paul E. Palmieri                                           James Talerico               Senior Vice President of the                                     Vice President                    Philadelphia Region                                                                                 Milton Witte                      John J. Murphy                                            Vice President                         Treasurer                                                                             Dolores M. Calvello                     Allen M. Bachman                                      Assistant Vice President                 Assistant Vice President                                                                             Kathleen A. Conover                       Mary Ann Seal                                       Assistant Vice President                 Assistant Vice President                                                                                 Mark Prater                                                                           Assistant Vice President                                                        BRANCH OFFICES                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                                          -----------------------------------                                                 Loan Production Office                                                 1610 Spruce Street                                               Philadelphia, PA 19103                                                   (215) 772-1113                                          -----------------------------------                PARKE BANK                       PARKE CAPITAL MARKETS                PARKE CAPITAL TRUST I            601 Delsea Drive                      601 Delsea Drive                   PARKE CAPITAL TRUST II     Washington Township, NJ 08080          Washington Township, NJ 08080               601 Delsea Drive             (856) 256-2500                        (856) 256-2500                Washington Township, NJ 08080                                                                                         (856) 256-2500      EX-23 3 ex-23.txt CONSENT OF MCGLADREY & PULLEN LLP  Consent of Independent Registered Public Accounting Firm  We  consent  to  the  incorporation  by  reference  in  Registration   Statement (No.333-128202)  on Form S-8 of Parke Bancorp,  Inc. of our report dated January 20, 2006 relating to our audit of the consolidated  financial statements,  which appear in the  Annual  Report to  Stockholders,  which is  incorporated  in this Annual Report on Form 10-K of Parke  Bancorp,  Inc. for the year ended  December 31, 2005.    /s/ McGladrey & Pullen, LLP  Blue Bell, Pennsylvania March 27, 2006     EX-31 4 ex-31.txt CERTIFICATIONS                              SECTION 302 CERTIFICATION           I, Vito S. Pantilione,  President and Chief Executive Officer,  certify that:  1. I have reviewed this annual report on Form 10-K of Parke Bancorp, Inc.;  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact  necessary to make the statements made, in light of the  circumstances  under which such statements were made, not misleading with respect to the period covered by this report;  3. Based  on  my  knowledge,  the  financial  statements,  and  other  financial information included in this report, fairly present in all material respects the financial  condition,  results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  4. The  registrant's  other  certifying  officer  and  I   are  responsible  for establishing and maintaining  disclosure  controls and procedures (as defined in Exchange Act Rule 13a-15(e)) for the registrant and have:           (a) Designed such disclosure  controls and  procedures,  or caused such disclosure  controls and  procedures to be designed  under our  supervision,  to ensure that  material  information  relating to the  registrant,  including  its consolidated subsidiaries,  is made known to us by others within those entities, particularly during the period in which this report is being prepared;           (b) Evaluated the effectiveness of the registrant's disclosure controls and  procedures  and  presented  in  this  report  our  conclusions   about  the effectiveness  of the disclosure  controls and procedures,  as of the end of the period covered by this report based on such evaluation; and           (c)  Disclosed in this report any change in the  registrant's  internal control over  financial  reporting (as defined in Exchange Act Rules  13a-15(f)) that  occurred  during the  registrant's  most recent  fiscal  quarter  that has materially  affected,   or  is  reasonably  likely  to  materially  affect,  the registrant's internal control over financial reporting; and  5.  The registrant's other certifying officer and I have disclosed, based on our most recent  evaluation of internal  control over  financial  reporting,  to the registrant's  auditors  and the audit  committee  of the  registrant's  board of directors:           (a) All significant  deficiencies and material weaknesses in the design or operation of internal  control over financial  reporting which are reasonably likely  to  adversely  affect  the  registrant's  ability  to  record,  process, summarize and report financial information; and           (b) Any fraud,  whether or not material,  that  involves  management or other employees who have a significant role in the registrant's internal control over financial reporting.    Date: March 29, 2006                       /s/Vito S. Pantilione                                            -------------------------------------                                            Vito S. Pantilione                                            President and Chief Executive Officer                                 SECTION 302 CERTIFICATION           I,  Ernest D.  Huggard,  Senior  Vice  President  and  Chief  Financial Officer, certify that:  1. I have reviewed this annual report on Form 10-K of Parke Bancorp, Inc.;  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact  necessary to make the statements made, in light of the  circumstances  under which such statements were made, not misleading with respect to the period covered by this report;  3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial information included in this report, fairly present in all material respects the financial  condition,  results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for establishing and maintaining  disclosure  controls and procedures (as defined in Exchange Act Rule 13a-15(e)) for the registrant and have:           (a) Designed such disclosure  controls and  procedures,  or caused such disclosure  controls and  procedures to be designed  under our  supervision,  to ensure that  material  information  relating to the  registrant,  including  its consolidated subsidiaries,  is made known to us by others within those entities, particularly during the period in which this report is being prepared;           (b) Evaluated the effectiveness of the registrant's disclosure controls and  procedures  and  presented  in  this  report  our  conclusions   about  the effectiveness  of the disclosure  controls and procedures,  as of the end of the period covered by this report based on such evaluation; and           (c)  Disclosed in this report any change in the  registrant's  internal control over  financial  reporting (as defined in Exchange Act Rules  13a-15(f)) that  occurred  during the  registrant's  most recent  fiscal  quarter  that has materially  affected,   or  is  reasonably  likely  to  materially  affect,  the registrant's internal control over financial reporting; and  5. The registrant's other certifying officer and I have disclosed,  based on our most recent  evaluation of internal  control over  financial  reporting,  to the registrant's  auditors  and the audit  committee  of the  registrant's  board of directors:           (a) All significant  deficiencies and material weaknesses in the design or operation of internal  control over financial  reporting which are reasonably likely  to  adversely  affect  the  registrant's  ability  to  record,  process, summarize and report financial information; and           (b) Any fraud,  whether or not material,  that  involves  management or other employees who have a significant role in the registrant's internal control over financial reporting.    Date: March 29, 2006                                 /s/Ernest D. Huggard                                                      ---------------------------                                                      Ernest D. Huggard                                                      Senior Vice President and                                                      Chief Financial Officer    EX-32 5 ex-32.txt CERTIFICATION                               CERTIFICATION PURSUANT TO                              18 U.S.C. SECTION 1350,                              AS ADOPTED PURSUANT TO                   SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002            In  connection  with the Annual  Report on Form 10-K of Parke  Bancorp, Inc. (the  "Company") for the fiscal year ended December 31, 2005 (the "Report") as filed with the Securities and Exchange  Commission,  we, Vito S.  Pantilione, President  and Chief  Executive  Officer,  and Ernest D.  Huggard,  Senior  Vice President and Chief Financial Officer,  certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:           (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and           (2) The  information  contained in the Report fairly  presents,  in all material  respects,  the  financial  condition  and results of operations of the Company.   Dated: March 29, 2006   /s/Vito S. Pantilione                               /s/Ernest D. Huggard - -------------------------------------               ------------------------- Vito S. Pantilione                                  Ernest D. Huggard President and Chief Executive Officer               Senior Vice President and                                                     Chief Financial Officer     -----END PRIVACY-ENHANCED MESSAGE-----