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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACTIVITIES OF 1934
For the quarterly period ended June 30, 2003
PARK BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation)
36-4082530
(IRS Employer Identification No.)
5400 SOUTH PULASKI ROAD, CHICAGO, ILLINOIS
(Address of Principal Executive Offices)
60632
(ZIP Code)
(773) 582-8616
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------ -------------
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12 b-2 of the Act).
Yes No x
------------ -------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of July 31, 2003, the Registrant had outstanding 1,190,095 shares of common
stock.
PARK BANCORP, INC.
Form 10-Q Quarterly Report
Index
Page
----
PART I - Financial Information
Item 1 Financial Statements 1
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3 Quantitative and Qualitative Disclosures About Market Risk 10
Item 4 Controls and Procedures 11
PART II - Other Information
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submission of Matters to a Vote of Securities Holders 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 14
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of
Section 27a of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Park Bancorp, Inc. (the Company)
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Reform Act of 1995 as amended and is including this statement for purposes of
these safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of the words such as "believe,"
"expect," "intend," "anticipate," "estimate," "project," or similar expressions.
The Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors that could have a material adverse
effect on the operations and future prospects of the Company and its wholly
owned subsidiaries include, but are not limited to, changes in: interest rates;
the economic health of the local real estate market; general economic
conditions; legislative/regulatory provisions; monetary and fiscal policies of
the U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board; the quality or composition of the loan or investment portfolios;
demand for loan products; deposit flows; competition; demand for financial
services in the Company's market area; and accounting principles, policies, and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2003 2002
--------- ------------
ASSETS
Cash and due from banks $ 2,188 $ 3,226
Federal funds sold 29,009 16,310
Interest-bearing deposit accounts in other financial institutions 3,931 4,462
--------- ---------
Total cash and cash equivalents 35,128 23,998
Time deposits with other financial institutions 1,134 1,117
Securities available-for-sale 62,770 61,113
Loans receivable, net 149,961 147,993
Federal Home Loan Bank stock 11,105 7,327
Premises and equipment, net 2,933 2,703
Accrued interest receivable 1,145 1,195
Bank-owned life insurance 5,507 5,381
Due from broker 1,550 --
Other assets 835 705
--------- ---------
Total assets $ 272,068 $ 251,532
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing $ 5,128 $ 4,478
Interest-bearing 169,879 159,490
--------- ---------
Total deposits 175,007 163,968
Securities sold under repurchase agreements 8,413 10,599
Advances from borrowers for taxes and insurance 1,983 1,969
Federal Home Loan Bank advances 52,688 43,663
Accrued interest payable 141 396
Other liabilities 3,856 1,043
--------- ---------
Total liabilities 242,088 221,638
Stockholders' Equity
Preferred stock, $.01 par value per share, authorized
1,000,000 shares; none issued and outstanding -- --
Common stock, $.01 par value per share, authorized
9,000,000 shares; issued 2,719,631 and 2,719,131 shares 27 27
Additional paid-in capital 27,167 27,050
Retained earnings 27,961 27,407
Treasury stock, 1,526,036 and 1,493,836 shares, at cost (25,254) (24,491)
Unearned ESOP shares (906) (979)
Accumulated other comprehensive income 985 880
--------- ---------
Total stockholders' equity 29,980 29,894
--------- ---------
Total liabilities and stockholders' equity $ 272,068 $ 251,532
========= =========
See notes to consolidated financial statements.
1
PARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
2003 2002 2003 2002
------ ------ ------ ------
Interest income
Loans receivable $2,489 $2,709 $5,058 $5,257
Securities 670 1,064 1,477 2,090
Other interest-bearing deposits 105 37 188 119
------ ------ ------ ------
Total 3,264 3,810 6,723 7,466
Interest expense
Deposits 1,003 1,307 2,055 2,789
Federal Home Loan Bank advances
and other borrowings 591 615 1,163 1,219
------ ------ ------ ------
Total 1,594 1,922 3,218 4,008
------ ------ ------ ------
Net interest income 1,670 1,888 3,505 3,458
Provision for loan losses -- 35 -- 50
------ ------ ------ ------
Net interest income after provision for
loan losses 1,670 1,853 3,505 3,408
Noninterest income
Gain on sale of securities available-for-sale 51 87 119 263
Gain on sale of real estate held for expansion -- 126 -- 126
Service fee income 86 66 175 137
Earnings on bank-owned life insurance 72 77 144 155
Other operating income 13 5 24 14
------ ------ ------ ------
Total noninterest income 222 360 462 695
Noninterest expense
Compensation and benefits 844 751 1,702 1,501
Occupancy and equipment 155 157 311 312
Other operating expenses 305 326 636 598
------ ------ ------ ------
Total noninterest expense 1,304 1,234 2,649 2,411
------ ------ ------ ------
Income before income taxes 588 979 1,318 1,692
Income tax expense 193 326 434 548
------ ------ ------ ------
Net income $ 395 $ 653 $ 884 $1,144
====== ====== ====== ======
Basic earnings per share $ .36 $ .58 $ .80 $ 1.02
Diluted earnings per share $ .33 $ .56 $ .75 $ .98
Comprehensive income $ 487 $1,390 $ 989 $1,379
====== ====== ====== ======
See notes to consolidated financial statements.
2
PARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
----------------------
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 884 $ 1,144
Adjustments to reconcile net income to net cash from
operating activities
Net premium amortization on securities 149 27
Gain on sale of securities available-for-sale (119) (263)
Gain on sale of real estate held for expansion -- (126)
Earnings on bank-owned life insurance (144) (155)
Provision for loan losses -- 50
Depreciation 150 150
ESOP compensation expense 182 168
Federal Home Loan Bank stock dividends (278) (128)
Net change in:
Accrued interest receivable 50 (36)
Accrued interest payable (255) (579)
Other assets (129) (202)
Other liabilities 2,813 222
-------- --------
Net cash from operating activities 3,303 272
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (14,466) (18,289)
Proceeds from sales, calls, and maturities of securities available-for-sale 4,064 18,883
Principal repayments on mortgage-backed securities 7,270 3,398
Net increase in loans (1,968) (13,978)
Purchase of Federal Home Loan Bank stock (3,500) --
Proceeds from sale of real estate held for expansion -- 154
Purchase of premises and equipment (380) (199)
-------- --------
Net cash from investing activities (8,980) (10,031)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 11,039 1,076
Net change in repurchase agreements (2,186) (86)
Net change in advances from borrowers for taxes and insurance 14 77
Net change in Federal Home Loan Bank advances 9,025 --
Dividends paid (330) (268)
Stock options exercised 8 272
Purchase of treasury stock (763) (229)
-------- --------
Net cash from financing activities 16,807 842
-------- --------
Net change in cash and cash equivalents 11,130 (8,917)
Cash and cash equivalents at beginning of period 23,998 27,909
-------- --------
Cash and cash equivalents at end of period $ 35,128 $ 18,992
======== ========
CASH FLOWS FROM OPERATING ACTIVITIES
Supplemental disclosures of cash flow information
Cash due from broker $ 1,550 --
See notes to consolidated financial statements.
3
PARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)
Accumulated
Other
Compre- Total
Additional Unearned hensive Stock-
Common Paid-in Retained ESOP Treasury Income holders'
Stock Capital Earnings Shares Stock (Loss) Equity
------ ---------- -------- -------- -------- ----------- --------
2002
- ----
Balance at January 1, 2002 $ 27 $26,600 $25,845 $(1,131) $(24,019) $(44) $27,278
Comprehensive income
Net income -- -- 1,144 -- -- -- 1,144
Change in fair value of securities
classified as available-for-sale,
net of reclassification
and tax effects -- -- -- -- -- 235 235
-------
Total comprehensive income 1,379
Exercise of 17,290 stock options -- 272 -- -- -- -- 272
Purchase of 12,300 of treasury stock -- -- -- -- (229) -- (229)
Dividends declared ($.24 per share) -- -- (268) -- -- -- (268)
ESOP shares earned -- 92 -- 76 -- -- 168
------ ------- ------- ------- -------- ---- -------
Balance at June 30, 2002 $ 27 $26,964 $26,721 $(1,055) $(24,248) $191 $28,600
====== ======= ======= ======= ======== ==== =======
2003
- ----
Balance at January 1, 2003 $ 27 $27,050 $27,407 $ (979) $(24,491) $880 $29,894
Comprehensive income
Net income -- -- 884 -- -- -- 884
Change in fair value of securities
classified as available-for-sale,
net of reclassification
and tax effects -- -- -- -- -- 105 105
-------
Total comprehensive income 989
Exercise of 500 stock options -- 8 -- -- -- -- 8
Purchase of 32,200 shares of treasury stock -- -- -- -- (763) -- (763)
Dividends declared ($.30 per share) -- -- (330) -- -- -- (330)
ESOP shares earned -- 109 -- 73 -- -- 182
------ ------- ------- ------- -------- ---- -------
Balance at June 30, 2003 $ 27 $27,167 $27,961 $ (906) $(25,254) $985 $29,980
====== ======= ======= ======= ======== ==== =======
See notes to consolidated financial statements.
4
PARK BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(table amounts in thousands of dollars, except share data)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Park Bancorp, Inc. (the Company) and its wholly owned subsidiaries,
Park Federal Savings Bank (the Bank) and PBI Development Company (PBI), and the
Bank's subsidiaries, GPS Company and GPS Development Company (GPS), as of June
30, 2003 and December 31, 2002 and for the three-month and six-month periods
ended June 30, 2003 and 2002. Significant intercompany accounts and transactions
have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain disclosures required by generally accepted accounting
principles are not included herein. These interim statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 2002 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The December 31, 2002 balance sheet
presented herein has been derived from the audited financial statements included
in the Company's 2002 Annual Report on Form 10-K filed with the Securities and
Exchange Commission, but does not include all disclosures required by generally
accepted accounting principles.
Interim statements are subject to possible adjustment in connection with the
annual audit of the Company for the year ending December 31, 2003. In the
opinion of management of the Company, the accompanying unaudited interim
consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the consolidated
financial position and consolidated results of operations for the periods
presented.
The results of operations for the three-month and six-month periods ended June
30, 2003 and 2002 are not necessarily indicative of the results to be expected
for the full year.
5
Note 2 - Earnings Per Share
The following table presents a reconciliation of the components used to compute
basic and diluted earnings per share for the three-month and six-month periods
ended June 30, 2003 and 2002.
2003 2002
---- ----
Three Months Six Months Three Months Six Months
Ended June 30 Ended June 30 Ended June 30 Ended June 30
------------- ------------- ------------- -------------
Net income as reported $ 395 $ 884 $ 653 $ 1,144
Weighted average common
shares outstanding 1,101,259 1,104,106 1,128,922 1,123,514
---------- ----------- ---------- ----------
Basic earnings per share $ .36 $ .80 $ .58 $ 1.02
========== ========== ========== ==========
Earnings per share assuming dilution
Net income available to common
shareholders $ 395 $ 884 $ 653 $ 1,144
Weighted average common shares
outstanding 1,101,259 1,104,106 1,128,922 1,123,514
Dilutive effect of stock options 79,309 75,252 46,121 40,291
Average common shares and dilutive
potential common shares 1,180,568 1,179,358 1,175,043 1,163,805
---------- ----------- ---------- ----------
Diluted earnings per share $ .33 $ .75 $ .56 $ .98
========== ========== ========== ==========
The following table illustrates the effect on net income and earnings per share
if expense was measured using the fair value recognition of FASB Statement No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
2003 2002
3 Mos. 6 Mos. 3 Mos. 6 Mos.
---------- ----------- ---------- ----------
Net income as reported $ 395 $ 884 $ 653 $ 1,144
Deduct: Stock-based compensation expense
Determined under fair vale based method (4) (8) (9) (18)
---------- ----------- ---------- ----------
Pro forma net income 391 876 644 1,126
Basic earnings per share as reported .36 .80 .58 1.02
Pro forma basic earnings per share .36 .79 .57 1.00
Diluted earnings per share as reported .33 .75 .56 .98
Pro forma diluted earnings per share .33 .74 .55 .97
Note 3 - Newly Issued But Not Yet Effective Accounting Standards
The Financial Accounting Standards Board (FASB) recently issued two new
accounting standards, Statement 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, and Statement 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equities,
both of which generally become effective in the quarter beginning July 1, 2003.
6
Because the Company does not have these instruments or is only nominally
involved in these instruments, the new accounting standards will not materially
affect the Company's operating results or financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of Park Bancorp, Inc.
(Company) and its wholly owned subsidiaries, Park Federal Savings Bank (Bank)
and PBI Development Corporation, and the Bank's subsidiaries, at June 30, 2003
to its financial condition at December 31, 2002 and the results of operations
for the three-month and six-month periods ended June 30, 2003 to the same
periods in 2002. This discussion should be read in conjunction with the interim
financial statements and footnotes included herein.
FINANCIAL CONDITION
Total assets at June 30, 2003 were $272.1 million compared to $251.5 million at
December 31, 2002, an increase of $20.5 million. During the six months ended
June 30, 2003, cash and cash equivalents increased $11.1 million, Federal Home
Loan Bank stock increased $3.8 million and loans receivable increased by $2.0
million. The increase in cash and cash equivalents was funded from an increase
in deposits and Federal Home Loan Bank advances that have not yet been
redeployed into loans or securities.
The allowance for loan losses was $582,000 and $574,000 at June 30, 2003 and
December 31, 2002, respectively. Non-performing assets were $684,000 and
$290,000 at June 30, 2003 and December 31, 2002, respectively.
Total liabilities at June 30, 2003 were $242.1 million compared to $221.6
million at December 31, 2002, an increase of $20.5 million, primarily due to
increases of $11.0 million in deposits and $9.0 million in Federal Home Loan
Bank advances, offset by $2.2 million in repurchase agreements. Deposits
continued to increase as a result of consumers' hesitancy to place funds in
other investment vehicles such as the stock market in the current economic
environment. Federal Home Loan Bank advances increased as a result of management
taking advantage of low fixed rate term advances for asset/liability management
purposes.
Stockholders' equity at June 30, 2003 was $30.0 million compared to $29.9
million at December 31, 2002. The increase was primarily attributable to the net
income of the Company, offset by the repurchase of 32,200 shares of common stock
at an average price of $23.70 and dividends declared of $330,000.
RESULTS OF OPERATIONS
Net income decreased $258,000 to $395,000 for the quarter ended June 30, 2003
compared to the same period in 2002. Net income decreased $260,000 to $884,000
for the six months ended June 30, 2003 compared to the six months ended June 30,
2002.
Net interest income decreased $218,000 to $1.7 million for the quarter ended
June 30, 2003 compared to the same period in 2002. Net interest income increased
$47,000 to $3.5 million for the six months ended June 30, 2003 compared to the
same period in 2002. The net interest margin decreased to 2.63% and 2.82% for
the three-month and six-month periods ended June 30, 2003, respectively, from
3.22% and 2.97% for the three-month and six-month periods ended June 30, 2002,
respectively. This was largely due to a decrease in the spread to 2.41% and
2.59% for the three-month and six-month periods ended June 30, 2003,
respectively, from 2.91% and 2.64% for the three-month and six-month periods
ended June 30, 2002, respectively. The decrease in the spread was a result of
the yield on assets decreasing more rapidly in the current interest rate
environment that deposits and borrowings. In addition, the increase in cash and
cash equivalents funded by an increase in deposits and Federal Home Loan Bank
advances have not yet deployed into loans or securities. The average yield on
earning assets decreased to 5.14% and 5.41% for the three-month and six-month
periods ended June 30, 2003, respectively, from 6.51% and 6.41% for the
three-month and six-
7
month periods ended June 30, 2002, respectively. The average cost of funds also
decreased to 2.73% and 2.82% for the three-month and six-month periods ended
June 30, 2003, respectively, from 3.60% and 3.77% for the three-month and
six-month periods ended June 30, 2002, respectively.
Management establishes provisions for loan losses, which are charged to
operations, at a level management believes is appropriate to absorb probable
incurred credit losses in the loan portfolio. In evaluating the level of the
allowance for loan losses, management considers historical loss experience, the
types of loans and the amount of loans in the loan portfolio, adverse situations
that may affect the borrower's ability to repay, estimated value of any
underlying collateral, peer group information, and prevailing economic
conditions. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revision as more information becomes
available or as future events change. The provision for loan losses was $0 for
the three-month and six-month periods ended June 30, 2003, respectively, and
$35,000 and $50,000 for the three-month and six-month periods ended June 30,
2002. The decrease in the provision for loan losses is a direct result of a
decrease in the volume of loan participations purchased which generally have a
greater loss experience than other loans.
Management assesses the allowance for loan losses on a quarterly basis and makes
provisions for loan losses as necessary in order to maintain the allowance.
While management uses available information to recognize losses on loans, future
loan loss provisions may be necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses and may
require us to recognize additional provisions based on their judgment of
information available to them at the time of their examination. The allowance
for loan losses as of June 30, 2003 is maintained at a level that represents
management's best estimate of inherent losses in the loan portfolio, and such
losses were both probable and reasonably estimable.
Noninterest income decreased $138,000 to $222,000 and decreased $233,000 to
$462,000 for the three-month and six-month periods ended June 30, 2003,
respectively, compared to the same periods in 2002. The decrease for both
periods reflects a $126,000 gain on sale of land held for expansion. This land
was excess land that was adjacent to the Company's Westmont branch location.
Additionally, there was a decrease in gains on the sale of securities.
Noninterest expense increased $70,000 to $1.3 million and increased $238,000 to
$2.6 million for the three-month and six-month periods ended June 30, 2003,
respectively, compared to the same periods in 2002. The increase for both
periods are due to higher compensation costs primarily increases in employee
benefits, health insurance and additional staffing.
The Company's federal income tax expense decreased $133,000 to $193,000 for the
quarter ended June 30, 2003 compared to the same period in 2002, while income
tax expense decreased $114,000 to $434,000 for the six-month period ended June
30, 2003 compared to the same period in 2002. The change in income tax was
attributable to a decrease in income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and interest
payments on loans and securities, proceeds from maturities and calls of
securities, FHLB advances, and securities sold under repurchase agreements.
While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions, and competition. The
Bank's liquidity ratio was 55% at June 30, 2003.
The Company's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities, and financing activities.
Cash flows provided by operating activities were $3.3 million and $272,000 in
2003 and 2002, respectively. Net cash from investing activities consisted
primarily of disbursements for loan originations and the purchase of securities,
offset by principal collections on loans,
8
and proceeds from maturing securities and paydowns on mortgage-backed
securities. The net cash used in investing activities were $8.9 million and
$10.0 million in 2003 and 2002, respectively. Net cash from financing activities
consisted primarily of the activity in deposit accounts, FHLB borrowings, and
securities sold under repurchase agreements in addition to the purchase of
treasury stock. The net cash from financing activities was $16.8 million and
$842,000 in 2003 and 2002, respectively.
At June 30, 2003, the Bank exceeded all of its regulatory capital requirements
with a Tier 1 (core) capital level of $ 23.6 million, or 8.8% of adjusted total
assets, which is above the required level of $10.7 million, or 4.0%; and total
risk-based capital of $24.1 million, or 15.5% of risk-weighted assets, which is
above the required level of $12.5 million, or 8.0%. The Bank at June 30, 2003
was categorized as well capitalized. Management is not aware of any conditions
or events since the most recent notification that would change the Bank's
category.
The Bank's most liquid assets are cash and short-term investments. The levels of
these assets are dependent on the Bank's operating, financing, lending, and
investing activities during any given period. At June 30, 2003, cash and
short-term investments totaled $35.1 million. The Bank has other sources of
liquidity if a need for additional funds arises, including the repayment of
loans and mortgage-backed securities. The Bank may also utilize FHLB advances or
the sale of securities available-for-sale as a source of funds.
At June 30, 2003, the Bank had outstanding commitments to originate mortgage
loans of $4.8 million, and $1.5 million in standby letters of credit. The Bank
anticipates that it will have sufficient funds available to meet its current
loan origination commitments. Certificate accounts that are scheduled to mature
in less than one year from June 30, 2003 totaled $85.8 million. Management
expects that a substantial portion of the maturing certificate accounts will be
renewed at the Bank. However, if a substantial portion of these deposits is not
retained, the Bank may utilize FHLB advances or raise interest rates on deposits
to attract new accounts, which may result in higher levels of interest expense.
Subsequent to December 31, 2002, the Company entered into a $1.8 million
contract to reconstruct the 55th Street branch office. The construction started
in 2003.
9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank's interest rate sensitivity is monitored by management through the use
of a model that estimates the change in net portfolio value (NPV) over a range
of interest rate scenarios. NPV is the present value of expected cash flows from
assets, liabilities, and off-balance-sheet contracts. An NPV ratio, in any
interest rate scenario, is defined as the NPV in that scenario divided by the
market value of assets in the same scenario. The Sensitivity Measure is the
decline in the NPV ratio, in basis points, caused by a 2% increase or decrease
in rates, whichever produces a larger decline. The higher an institution's
Sensitivity Measure is, the greater its exposure to interest rate risk is
considered to be. The OTS has incorporated an interest rate risk component into
its regulatory capital rule. Under the rule, an institution whose sensitivity
measure exceeds 2% would be required to deduct an interest rate risk component
in calculating its total capital for purposes of the risk-based capital
requirement. As of March 31, 2003, the latest date for which information is
available, the Bank's sensitivity measure, as measured by the OTS, resulting
from a 200 basis point increase in interest rates was (19)% and would result in
a $5.9 million reduction in the NPV of the Bank. Accordingly, increases in
interest rates would be expected to have a negative impact on the Bank's
operating results. The NPV ratio sensitivity measure is below the threshold at
which the Bank could be required to hold additional risk-based capital under OTS
regulations.
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of certain
assumptions that may tend to oversimplify the manner in which actual yields and
costs respond to changes in market interest rates. First, the models assume that
the composition of the Bank's interest sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being measured.
Second, the models assume that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Third, the model does
not take into account the impact of the Bank's business or strategic plans on
the structure of interest-earning assets and interest-bearing liabilities.
Accordingly, although the NPV measurement provides an indication of the Bank's
interest rate risk exposure at a particular point in time, such measurement is
not intended to and does not provide a precise forecast of the effect of changes
in market interest rates on the Bank's net interest income and will differ from
actual results. The results of this modeling are monitored by management and
presented to the Board of Directors quarterly.
The following table shows the NPV and projected change in the NPV of the Bank at
December 31, 2002, the latest date for which information is available, assuming
an instantaneous and sustained change in market interest rates of 100, 200, and
300 basis points. On March 31, 2003, the yield on the three month Treasury bill
was below 2.00%. As a result, the net portfolio value analysis was unable to
produce results for the minus 200 and minus 300 basis point scenario for the
quarter ended March 31, 2003.
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
NPV as a % of
--------------Net Portfolio Value------------ -----------PV of Assets---------
------------------- ------------
Change in Rates $ Amount $ Change % Change NPV Ratio Change
--------------- -------- -------- -------- --------- ------
+ 300 bp $ 21,509 $ (9,950) (32)% 8.41% (316 bp)
+ 200 bp 25,556 (5,903) (19) 9.76 (181 bp)
+ 100 bp 29,228 (2,231) (7) 10.93 (64 bp)
0 bp 31,459 - - 11.57 -
- 100 bp 31,675 216 1 11.54 (3 bp)
- 200 bp N/A N/A N/A N/A N/A
- 300 bp N/A N/A N/A N/A N/A
10
The Bank and the Company do not maintain any securities for trading purposes.
The Bank and the Company do not currently engage in trading activities or use
derivative instruments in a material amount to control interest rate risk. In
addition, interest rate risk is the most significant market risk affecting the
Bank and the Company. Other types of market risk, such as foreign currency
exchange risk and commodity price risk, do not arise in the normal course of the
Company's business activities and operations.
Management has not yet completed the computation of NPV as of June 30, 2003 but
estimates that the results would not be materially different than those
presented above.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company's Chief
Executive Officer and Chief Financial Officer carried out an evaluation, with
the participation of other members of management as they deemed appropriate, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures as contemplated by Exchange Act Rule 13a-14. Based upon
and as of the date of that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective, in all materials respects, in timely alerting them to
material information relating to the Company (and its consolidated subsidiaries)
that is required to be included in the periodic reports the Company is required
to file and submit to the SEC under the Exchange Act.
There were no significant changes to the Company's internal controls or in other
factors that could significantly affect these internal controls subsequent to
the date the Company carried out its evaluation of its internal controls. There
were no significant deficiencies or material weaknesses identified in the
evaluation and therefore, no corrective actions were taken.
11
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
The annual meeting of stockholders was held on April 29, 2003.
Robert W. Krug and David A. Remijas were elected to three-year
terms as directors. In addition, the stockholders approved the
Park Bancorp, Inc. 2003 Incentive Plan and ratified the
selection of Crowe, Chizek and Company LLC as independent
public accountants for the Company for the year ending
December 31, 2003.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
31.1 Certification Pursuant to Exchange Act Rule 13a-14, As
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2 Certification Pursuant to Exchange Act Rule 13a-14, As
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
adopted to Section 906 of the Sarbanes-Oxley Act of 2002 from
the Company's Chief Executive Officer (attached as an exhibit
and incorporated herein by reference.)
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
adopted to Section 906 of the Sarbanes-Oxley Act of 2002 from
the Company's Chief Financial Officer (attached as an exhibit
and incorporated herein by reference.)
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
registrant during the quarter ended June 30, 2003.
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SIGNATURES
Pursuant to the requirements 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.
PARK BANCORP, INC.
Date: August 8, 2003 /s/ David A. Remijas
--------------------------------------
David A. Remijas
President and Chief Executive Officer
Date: August 8, 2003 /s/ Steven J. Pokrak
--------------------------------------
Steven J. Pokrak
Treasurer and Chief Financial Officer
13