SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of September 30, 1999, the Registrant had outstanding 1,931,139 shares of
common stock.
<PAGE>
PARK BANCORP, INC.
Form 10-Q Quarterly Report
Index
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
PART I - Financial Information
Item 1 Financial Statements 1
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk 10
PART II - Other Information
Item 1 Legal Proceedings 12
Item 2 Changes in Securities and Use of Proceeds 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 13
</TABLE>
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. 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
<PAGE>
future plans, strategies and expectations of the Company, are generally
identifiable by use of the words "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 which could have a material adverse affect on the operations
and future prospects of the Company and its wholly-owned subsidiaries include,
but are not limited to, changes in: interest rates; 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. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
<PAGE>
PARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,358 $ 1,273
Interest-bearing deposit accounts in other financial institutions 2,127 9,436
--------- ---------
Total cash and cash equivalents 3,485 10,709
Securities available-for-sale 130,119 108,506
Loans receivable, net 87,370 75,776
Federal Home Loan Bank stock 1,600 887
Real estate held for development 72 2,873
Premises and equipment, net 2,423 2,539
Accrued interest receivable 1,899 2,149
Other assets 2,688 349
--------- ---------
TOTAL ASSETS $ 229,656 $ 203,788
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 150,155 $ 148,350
Securities sold under repurchase agreements 12,344 6,418
Federal Home Loan Bank advances 32,000 10,000
Advances from borrowers for taxes and insurance 1,895 1,472
Accrued interest payable 305 238
Other liabilities 1,444 287
--------- ---------
Total liabilities 198,143 166,765
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized
and unissued -- --
Common stock, $.01 par value, 9,000,000 shares authorized;
2,701,441 shares issued 27 27
Additional paid-in capital 26,416 26,353
Retained earnings 23,938 22,211
Treasury stock at cost - 726,936 and 514,625 shares (12,224) (8,733)
Unearned ESOP shares (1,499) (1,628)
Unearned MRP shares (645) (933)
Accumulated other comprehensive income (loss) (4,500) (274)
--------- ---------
Total stockholders' equity 31,513 37,023
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 229,656 $ 203,788
========= =========
</TABLE>
1.
<PAGE>
PARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans receivable $1,624 $1,569 $ 4,715 $ 4,621
Securities 2,256 1,933 6,348 5,814
------ ------ ------- -------
Total 3,880 3,502 11,063 10,435
Interest expense
Deposits 1,693 1,741 5,093 5,109
Borrowed funds 451 123 844 354
------ ------ ------- -------
Total 2,144 1,864 5,937 5,463
------ ------ ------- -------
Net interest income 1,736 1,638 5,126 4,972
Provision for loan losses -- -- -- --
------ ------ ------- -------
Net interest income after provision for
loan losses 1,736 1,638 5,126 4,972
Noninterest income
Gain on sale of real estate held for
development 1,164 246 1,500 701
Gain on sale of securities available-for-sale 13 -- 32 4
Service fee income 49 52 128 146
Other operating income 21 2 64 18
------ ------ ------- -------
Total noninterest income 1,247 300 1,724 869
Noninterest expense
Compensation and benefits 787 704 2,278 2,106
Occupancy and equipment expense 159 131 454 395
Advertising 75 46 171 157
Other operating expense 218 222 665 646
------ ------ ------- -------
Total noninterest expense 1,239 1,103 3,568 3,304
------ ------ ------- -------
Income before income taxes 1,744 835 3,282 2,537
Income tax expense 583 278 1,098 879
------ ------ ------- -------
Net income $1,161 $ 557 $ 2,184 $ 1,658
====== ====== ======= =======
Basic earnings per share $ .61 $ .27 $ 1.12 $ .78
Diluted earnings per share $ .61 $ .26 $ 1.12 $ .77
</TABLE>
2.
<PAGE>
PARK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,184 $ 1,658
Adjustments to reconcile net income to net cash from
operating activities:
Net discount accretion on securities (87) (83)
Gain on sale of securities available-for-sale (32) (4)
Loss on sale of other real estate owned -- 6
Gain on sale of real estate held for development (1,500) (701)
Depreciation 271 162
ESOP compensation expense 192 247
MRP compensation expense 288 220
Net change in:
Accrued interest receivable 250 (226)
Accrued interest payable 67 83
Other assets (856) (2)
Other liabilities 1,157 274
-------- --------
Net cash from operating activities 1,934 1,634
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale (61,447) (47,017)
Purchase of securities held-to-maturity -- (40,238)
Proceeds from sales of securities available-for-sale 502 756
Proceeds from maturities and calls of securities available-for-sale 27,930 44,490
Proceeds from maturities and calls of securities held-to-maturity -- 21,000
Principal repayments on mortgage-backed securities 5,812 5,713
Net increase in loans (11,594) (6,420)
Change in FHLB stock (713) 37
Proceeds from sales of real estate held for development 7,340 2,611
Investment in real estate held for development (3,039) (2,351)
Proceeds from sale of other real estate owned -- 54
Purchase of premises and equipment (155) (240)
-------- --------
Net cash from investing activities (35,364) (21,605)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (457) --
Net increase in deposits 1,805 10,323
Net increase in repurchase agreements 5,926 1,731
Net increase in advances from borrowers for taxes and insurance 423 258
Net increase in Federal Home Loan Bank advances 22,000 10,000
Purchase of treasury stock (3,491) (4,040)
-------- --------
Net cash from financing activities 26,206 18,272
-------- --------
Net change in cash and cash equivalents (7,224) (1,699)
Cash and cash equivalents at beginning of period 10,709 7,812
-------- --------
Cash and cash equivalents at end of period $ 3,485 $ 6,113
======== ========
Cash paid during the period for interest $ 5,823 $ 5,380
</TABLE>
3.
<PAGE>
PARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Additional Unearned Unearned
Common Paid-in Retained ESOP MRP
Stock Capital Earnings Shares Awards
----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ 27 $26,222 $ 20,060 $(1,807) $(1,226)
Comprehensive income:
Net income -- -- 1,658 -- --
Change in fair value of securities classified
as available-for-sale, net of reclassification
and tax effects -- -- -- -- --
Total comprehensive income 2,240
Purchase of treasury stock -- -- -- -- --
ESOP shares earned -- 113 -- 134 --
MRP shares earned -- -- -- -- 220
------- ------- -------- ------- -------
Balance at September 30, 1998 $ 27 $26,335 $ 21,718 $(1,673) $(1,006)
======= ======= ======== ======= =======
Balance at January 1, 1999 $ 27 $26,353 $ 22,211 $(1,628) $ (933)
Comprehensive income:
Net income -- -- 2,184 -- --
Change in fair value of securities classified
as available-for-sale, net of reclassification
and tax effects -- -- -- -- --
Total comprehensive income (loss) (2,042)
Cash dividends ($.24 per share) -- -- (457) -- --
Purchase of treasury stock -- -- -- -- --
ESOP shares earned -- 63 -- 129 --
MRP shares earned -- -- -- -- 288
------- ------- -------- ------- -------
Balance at September 30, 1999 $ 27 $26,416 $ 23,938 $(1,499) $ (645)
======= ======= ======== ======= =======
</TABLE>
[WIDE TABLE CONTINUED]
<TABLE>
<CAPTION>
Accumulated
Other Total
Compre- Stock-
Treasury hensive holders'
Stock Income (Loss) Equity
----- ------------- ------
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ (4,693) $ 18 $ 38,601
Comprehensive income:
Net income -- -- 1,658
Change in fair value of securities classified
as available-for-sale, net of reclassification
and tax effects -- 582 582
--------
Total comprehensive income 2,240
Purchase of treasury stock (4,040) -- (4,040)
ESOP shares earned -- -- 247
MRP shares earned -- -- 220
-------- ------- --------
Balance at September 30, 1998 $ (8,733) $ 600 $ 37,268
======== ======= ========
Balance at January 1, 1999 $ (8,733) $ (274) $ 37,023
Comprehensive income:
Net income -- -- 2,184
Change in fair value of securities classified
as available-for-sale, net of reclassification
and tax effects -- (4,226) (4,226)
--------
Total comprehensive income (loss) (2,042)
Cash dividends ($.24 per share) -- -- (457)
Purchase of treasury stock (3,491) -- (3,491)
ESOP shares earned -- -- 192
MRP shares earned -- -- 288
-------- ------- --------
Balance at September 30, 1999 $(12,224) $(4,500) $ 31,513
======== ======= ========
</TABLE>
4.
<PAGE>
PARK BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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. (Company) and its wholly-owned subsidiaries, Park
Federal Savings Bank (Bank) and PBI Development Corporation (PBI) and the Bank's
subsidiaries, GPS Corporation and GPS Development Corporation (GPS), as of
September 30, 1999 and December 31, 1998 and for the nine- and three-month
periods ended September 30, 1999 and 1998, respectively. Significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all necessary adjustments, consisting only of normal recurring
accruals necessary for a fair presentation, have been included. The results of
operations for the nine-month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the entire
calendar year. These unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements for the year ended
December 31, 1998 and the notes thereto.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles 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 the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The collectibility of
loans, fair value of financial instruments, and status of contingencies are
particularly subject to change.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in stockholders'
equity, net of deferred income taxes. Realized gains and losses on disposition
are based on the net proceeds and the amortized cost of the securities sold,
using the specific identification method. Interest income includes amortization
of purchase premium or discount.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the allowance
balance required based on past loan loss experience, known and inherent risks in
the portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is available
for any loan that, in management's judgment, should be charged-off.
5.
<PAGE>
Real Estate Held for Development: The Company, through PBI and GPS, engages in
the development of residential real estate lots in partnership with local
developers. Since the Company and the Bank provide substantially all of the
financing for these projects, they have been reflected as wholly-owned
investments in real estate held for development. Land inventories and real
estate projects under development are valued at the lower of acquisition cost
plus development costs, or net realizable value. The cost of each unit sold
includes a proportionate share of the total projected development expense.
Holding costs associated with undeveloped land, completed units, and suspended
construction activities are expensed. General and administrative costs related
to the real estate development projects are expensed when incurred.
Repurchase Agreements: Repurchase agreement liabilities represent amounts
advanced by various customers. Securities are pledged to cover these
liabilities, which are not covered by federal deposit insurance.
Earnings Per Share: Basic earnings per share is based on net income divided by
weighted average number of shares outstanding during the period. Diluted
earnings per share shows the dilutive effect of, if any, additional common
shares issuable under stock options and unearned Management Recognition Plan
(MRP) shares.
Comprehensive Income: Comprehensive income consists of net income and the
unrealized gains and losses on securities available-for-sale, net of taxes.
Note 3 - Segment Information
The reportable segments are determined by the products and services offered,
primarily distinguished between banking and real estate development operations.
Loans, investments, and deposits provide the revenues in the banking operation,
and sales of single family residence lots provide the revenues in real estate
development operations. All operations are domestic.
The accounting policies used are the same as those described in the summary of
significant accounting policies. Transactions among segments are made at fair
value. Information reported internally for performance assessment follows for
the nine- and three-month periods ended for the years presented.
<TABLE>
<CAPTION>
Real Estate
Banking Development Total
------- ----------- -----
<S> <C> <C> <C>
Nine Months Ended September 30, 1999
- ------------------------------------
Net interest income $ 5,126 $ - $ 5,126
Gain on sale of real estate held for development - 1,500 1,500
Other revenue 224 - 224
Other expenses 3,568 - 3,568
Segment profit before income taxes 1,782 1,500 3,282
Three Months Ended September 30, 1999
- -------------------------------------
Net interest income $ 1,736 $ - $ 1,736
Gain on sale of real estate held for development - 1,164 1,164
Other revenue 83 - 83
Other expenses 1,239 - 1,239
Segment profit before income taxes 580 1,164 1,744
Segment assets as of September 30, 1999 229,584 72 229,656
</TABLE>
6.
<PAGE>
<TABLE>
<CAPTION>
Real Estate
Banking Development Total
------- ----------- -----
<S> <C> <C> <C>
Nine Months Ended September 30, 1998
- ------------------------------------
Net interest income $ 4,972 $ - $ 4,972
Gain on sale of real estate held for development - 701 701
Other revenue 168 - 168
Other expenses 3,304 - 3,304
Segment profit before income tax 1,836 701 2,537
Three Months Ended September 30, 1998
- -------------------------------------
Net interest income $ 1,638 $ - $ 1,638
Gain on sale of real estate held for development - 246 246
Other revenue 54 - 54
Other expenses 1,103 - 1,103
Segment profit before income tax 589 246 835
Segment assets as of September 30, 1998 192,885 2,711 195,596
</TABLE>
Note 4 - Earnings Per Share
The following table presents a reconciliation of the components used to compute
basic and diluted earnings per share for the nine and three-month periods ended
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30 September 30 September 30 September 30
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income as reported $ 1,161,000 $ 2,184,000 $ 557,000 $ 1,658,000
Weighted average common shares outstanding 1,910,046 1,945,169 2,093,674 2,135,274
----------- ----------- ----------- -----------
Basic earnings per share $ .61 $ 1.12 $ .27 $ .78
=========== =========== =========== ===========
Net income available to common shareholders $ 1,161,000 $ 2,184,000 $ 557,000 $ 1,658,000
Weighted average common shares outstanding 1,910,046 1,945,169 2,093,674 2,135,274
Dilutive effect of MRP - - 1,510 4,733
Dilutive effect of stock options - - 7,758 24,974
----------- ----------- ----------- -----------
1,910,046 1,945,169 2,102,942 2,164,981
----------- ----------- ----------- -----------
Diluted earnings per share $ .61 $ 1.12 $ .26 $ .77
=========== =========== =========== ===========
</TABLE>
7.
<PAGE>
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 September 30,
1999 to its financial condition at December 31, 1998 and the results of
operations for the nine months ended September 30, 1999 to the same period in
1998. This discussion should be read in conjunction with the interim financial
statements and footnotes included herein.
FINANCIAL CONDITION
Total assets at September 30, 1999 were $229.7 million compared to $203.8
million at December 31, 1998, an increase of $25.9 million. The growth in total
assets was primarily funded by Federal Home Loan Bank (FHLB) advances and
securities sold under repurchase agreements, as discussed below. During the nine
months ended September 30, 1999, loans increased $11.6 million while securities
increased $21.6 million. Loan growth was primarily in the first mortgage loan
category.
The allowance for loan losses was $500,000 at both September 30, 1999 and
December 31, 1998. Impaired loans, including all nonaccrual loans, were $28,000
at September 30, 1999 and $188,000 at December 31, 1998.
Total liabilities were $198.1 million at September 30, 1999 compared to $166.8
million at December 31, 1998, an increase of $31.3 million, primarily due to
increases in FHLB advances of $22.0 million and an increase in repurchase
agreements used to fund the increases in securities and loans noted above, as
well as the repurchase of the Company's common stock. Total deposits increased
by approximately $1.8 million during the nine months ended September 30, 1999.
The FHLB advances are secured by residential real estate loans. Interest rates
of FHLB advances range from 4.95% to 5.89% at September 30, 1999.
Stockholders' equity at September 30, 1999 was $31.5 million compared to $37.0
million at December 31, 1998 a decrease of $5.5 million. This decrease was
primarily attributable to the repurchase of 212,311 shares of Company common
stock, dividends paid of $457,000, and the decrease in the fair value of
securities available-for-sale of $4.2 million, net of deferred taxes, offset by
the net income of the Company. The decline in the fair value of the Company's
securities available-for-sale is directly attributable to overall increases in
interest rates during the quarter.
RESULTS OF OPERATIONS
Net income increased to $1.2 million for the quarter ended September 30, 1999
from $557,000 for the quarter ended September 30, 1998. Net income for the
nine-month period ended September 30, 1999 increased to $2.2 million from $1.7
million for the same period in 1998. Fluctuations in net income are discussed
below.
Net interest income increased by $98,000 to $1.7 million for the three-month
period ended September 30, 1999, compared to the same period in 1998. Net
interest income for the nine-month period ended September 30, 1999 also
increased $154,000 to $5.1 million compared to 1998. Both increases are
attributable primarily to growth in the average balance of loans and securities.
The net interest margin, defined as net interest income as a percent of average
earning assets, was 3.29% and 3.46% for the nine months ended September 30, 1999
and 1998, respectively.
Noninterest income for the Company increased to $1.2 million for the quarter
ended September 30, 1999 from $300,000 for the quarter ended September 30, 1998.
Similarly, noninterest income increased to $1.7 million for the nine-month
period ended September 30, 1999 from $869,000 for the same period in 1998. This
increase was primarily due to gains from the sale of real estate held for
development. Because of increased demand for lots from builders at PBI's Prairie
Trail South development in Batavia, Illinois, the Company
8.
<PAGE>
recognized profits more quickly than projected. A total of 85 lots were sold
during the quarter ended September 30, 1999 with the remaining 11 lots under
contract as of that date. The Company expects these closings to occur during the
final quarter of 1999. At September 30, 1999, GPS was involved in the Prairie
Ridge development, located in Naperville, Illinois. This project consists of 88
single-family lots, and as of September 30, 1999, 69 of the lots have been sold.
Management expects to close on the remaining lots by the end of the year 2000.
Noninterest expense increased to $1.2 million for the three-month period ended
September 30, 1999 from $1.1 million for the three-month period ended September
30, 1998. For the nine-month period, noninterest expense increased to $3.6
million as in 1999 compared to $3.3 million for the nine-month period ended
September 30, 1998. This increase is attributable to increased compensation
expense.
The Company's income tax expense increased to $583,000 for the quarter ended
September 30, 1999 from $278,000 for the quarter ended September 30, 1998.
Income tax expense increased to $1.1 million for the nine-month period ended
September 30, 1999 from $879,000 for the nine-month period ended September 30,
1998. These changes in income taxes were attributable to the increase in income
before income taxes. Income tax expense approximates 33% to 34% of income before
taxes for all periods discussed above.
LIQUIDITY
The Bank is required to maintain minimum levels of liquid assets as defined by
Bank regulators. The Bank's liquidity ratio does fluctuate, but has been in
excess of the required and targeted levels. The Bank's regulatory liquidity at
September 30, 1999 was 61.7%.
At September 30, 1999, the Bank had $2.1 million in commitments to originate
loans.
CAPITAL RESOURCES
The Bank is subject to three capital-to-asset requirements in accordance with
bank regulations. The following table summarizes the Bank's regulatory capital
requirements versus actual capital as of September 30, 1999:
<TABLE>
<CAPTION>
MINIMUM
ACTUAL REQUIRED EXCESS
------ -------- ------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Tier 1 (core) capital
(to adjusted total assets) $23,054 10.6% $8,697 4.0% $14,357 6.6%
Tier 1 (core) capital
(to risk-weighted assets) 23,054 27.6 3,346 4.0 19,708 23.6
Total capital
(to risk-weighted assets) 23,554 28.1 6,692 8.0 16,862 20.1
</TABLE>
NEW ACCOUNTING STANDARDS
Effective January 1, 1999, Statement of Financial Accounting Standards (SFAS)
No. 134, ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE
SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE,
became effective. SFAS No. 134 allows entities with mortgage banking operations
which convert pools of mortgages into securities to classify these securities as
available-for-sale, trading, or held-to-maturity, instead of the previous
requirement to classify as trading. This standard should not have a material
effect on the Company, since the Company does not securitize and sell mortgage
loans.
On September 8, 1999, the Financial Accounting Standards Board (FASB) issued an
exposure draft which proposes to eliminate pooling-of-interests accounting for
business combinations. Any business combination entered into after the effective
date of this new provision would be required to be accounted for using the
9.
<PAGE>
purchase method of accounting. The FASB will accept comments on this proposed
rule until December 7, 1999 and a final Statement is expected to become
effective during 2000. The elimination of pooling-of-interests accounting is not
expected to impact the Company
YEAR 2000 ISSUE
GENERAL. The Year 2000 (Y2K) issue confronting the Company and its suppliers,
customers, customers' suppliers, and competitors centers on the inability of
computer systems to recognize the year 2000. Many computer programs and systems
originally were programmed with six-digit dates that provided only two digits to
identify the calendar year in the date field. If not modified, these programs
and computers may recognize "00" as the year 1900 rather than the year 2000.
RISKS. Like most financial service providers, the Company and its operations may
be significantly affected by the Y2K issue due to dependence on technology and
date-sensitive data. Computer software and hardware and other equipment, both
within and outside the Company's direct control, and third parties with whom the
Company electronically or operationally interfaces (including without limitation
its customers and third party vendors) are likely to be affected. If computer
systems are not modified in order to be able to identify the year 2000, many
computer applications could fail or create erroneous results. As a result, many
calculations which rely on date field information, such as interest, payment due
dates, and all operating functions, could generate results which are
significantly misstated and the Company could experience an inability to process
transactions, prepare statements, or engage in similar normal business
activities. Likewise, under certain circumstances, a failure to adequately
address the Y2K issue could adversely affect the viability of the Company's
suppliers and creditors and the creditworthiness of its borrowers. Thus, if not
adequately addressed, the Y2K issue could result in a significant adverse impact
on the Company's operations and, in turn, its financial condition and results of
operations.
COMPANY RESOURCES INVESTED. The Company is expensing all costs associated with
required system changes as those costs are incurred, and such costs are being
funded through operating cash flows. The Company does not expect significant
increases in future data processing costs related to Y2K compliance.
CONTINGENCY PLANS. The Company has developed back-up or contingency plans for
each of its mission-critical systems. Virtually all of the Company's
mission-critical systems are dependent upon third party vendors or service
providers. Therefore, contingency plans include selecting a new vendor or
service provider and converting systems. Realistic trigger dates have been
established to allow for orderly and successful conversions. For some systems,
contingency plans consist of using spreadsheet software or reverting to manual
systems until system problems can be corrected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal objective of the Bank's interest rate risk management function is
to evaluate the interest rate risk included in certain balance sheet accounts;
determine the level of risk appropriate given the Bank's business focus,
operating environment, capital and liquidity requirements, and performance
objectives; and manage the risk consistent with Board approved guidelines.
Through such management, the Bank seeks to reduce the vulnerability of its
operations to changes in interest rates. The Bank monitors its interest rate
risk as such risk relates to its operating strategies. The Bank's executive
committee meets regularly and reviews the Bank's interest rate risk position and
makes recommendations for adjusting such position. In addition, the Bank's Board
of Directors reviews on a quarterly basis the Bank's asset/liability position,
including simulations of the effect on the Bank's capital of various interest
rate scenarios.
The Bank's interest rate sensitivity is monitored by management through the use
of a model which 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
10.
<PAGE>
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 Bank utilizes a
market value model prepared by the Office of Thrift Supervision (the OTS NPV
model), which is prepared quarterly, based on the Bank's quarterly Thrift
Financial Reports filed with the OTS. The OTS NPV model measures the Bank's
interest rate risk by approximating the Bank's NPV, which is the net present
value of expected cash flows from assets, liabilities, and any off-balance-sheet
contracts, under various market interest rate scenarios which range from a 300
basis-point increase to a 300 basis-point decrease in market interest rates. The
interest rate risk policy of the Bank provides that the maximum permissible
change at a 300 basis-point increase or decrease in market interest rates is a
90% change in the net portfolio value. 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 purpose of the
risk-based capital requirement. As of June 30, 1999, the Bank's sensitivity
measure, as measured by the OTS, resulting from a 200 basis-point increase in
interest rates was (0.97)% and would result in a $2.6 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 remain 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
June 30, 1999 assuming an instantaneous and sustained change in market interest
rates of 100, 200, and 300 basis points.
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NPV as a % of
-----------Net Portfolio Value--------- ------PV of Assets------
------------------- ------------
Change in Rates $ Amount $ Change % Change NPV Ratio Change
--------------- -------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
+300 bp $21,123 $(4,255) (17)% 10.51% -162 bp
+200 bp 22,743 (2,635) (10) 11.16 -97 bp
+100 bp 24,263 (1,115) (4) 11.74 -39 bp
0 bp 25,378 - - 12.13 -
-100 bp 25,795 417 2 12.22 +9 bp
-200 bp 25,962 584 2 12.19 +6 bp
-300 bp 26,000 622 2 12.11 -2 bp
</TABLE>
Management has not yet completed the computation of NPV as of September 30,
1999, but estimates that the results would not be materially different than
those presented above.
11.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - Financial Data Schedule.
(b) Reports on Form 8-K. An Form 8-K was filed on August
13, 1999 to announce the stock repurchase program, in
which the Board of Directors authorized the repurchase
of up to 10 percent of the Company's outstanding common
stock, up to 212,311 shares, over the next six months.
12.
<PAGE>
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: November 10, 1999 /s/ David A. Remijas
-------------------------------------------
David A. Remijas
President and Chief Executive Officer
Date: November 10, 1999 /s/ Steven J. Pokrak
-------------------------------------------
Steven J. Pokrak
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,358
<INT-BEARING-DEPOSITS> 2,127
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<LOANS> 87,870
<ALLOWANCE> 500
<TOTAL-ASSETS> 229,656
<DEPOSITS> 150,155
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<LONG-TERM> 0
0
0
<COMMON> 27
<OTHER-SE> 31,486
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<INTEREST-TOTAL> 11,063
<INTEREST-DEPOSIT> 5,093
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<NET-INCOME> 2,184
<EPS-BASIC> 1.12
<EPS-DILUTED> 1.12
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<ALLOWANCE-OPEN> 500
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