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, 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 July 31, 1999, the Registrant had outstanding 2,123,118 shares of common
stock.
<PAGE>
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 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk 10
PART II - Other Information
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Securities Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
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. 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 "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>
JUNE 30, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,869 $ 1,273
Interest-bearing deposit accounts in other financial institutions 1,528 9,436
------------ ------------
Total cash and cash equivalents 3,397 10,709
Securities available-for-sale 126,161 108,506
Loans receivable, net 81,976 75,776
Federal Home Loan Bank stock 1,300 887
Real estate held for development 4,027 2,873
Premises and equipment, net 2,475 2,539
Accrued interest receivable 2,403 2,149
Other assets 1,969 349
------------ ------------
TOTAL ASSETS $ 223,708 $ 203,788
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 149,204 $ 148,350
Securities sold under repurchase agreements 10,536 6,418
Federal Home Loan Bank advances 26,000 10,000
Advances from borrowers for taxes and insurance 1,581 1,472
Accrued interest payable 222 238
Other liabilities 1,352 287
------------ ------------
Total liabilities 188,895 166,765
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 26,393 26,353
Retained earnings 22,750 22,211
Treasury stock at cost - 514,625 shares (8,733) (8,733)
Unearned ESOP shares (1,542) (1,628)
Unearned MRP shares (752) (933)
Accumulated other comprehensive income (loss) (3,330) (274)
------------ ------------
Total stockholders' equity 34,813 37,023
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 223,708 $ 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 1,584 $ 1,557 $ 3,151 $ 3,052
Securities 2,097 1,933 4,093 3,881
--------- --------- --------- ---------
Total 3,681 3,490 7,244 6,933
Interest expense:
Deposits 1,687 1,699 3,400 3,368
Federal Home Loan Bank advances 259 119 394 231
--------- --------- --------- ---------
Total 1,946 1,818 3,794 3,599
--------- --------- --------- ---------
Net interest income 1,735 1,672 3,450 3,334
Provision for loan losses -- -- -- --
--------- --------- --------- ---------
Net interest income after provision for
loan losses 1,735 1,672 3,450 3,334
Noninterest income:
Gain on sale of real estate held for development 264 231 336 455
Gain on sale of securities available-for-sale 19 1 19 4
Service fee income 40 54 79 94
Other operating income 13 2 43 16
--------- --------- --------- ---------
Total noninterest income 336 288 477 569
Noninterest expense:
Compensation and benefits 774 719 1,551 1,402
Occupancy and equipment expense 145 130 295 264
Data processing 39 33 77 66
Advertising 48 61 96 111
Other operating expenses 172 180 370 359
--------- --------- --------- ---------
Total noninterest expense 1,178 1,123 2,389 2,202
--------- --------- --------- ---------
Income before income taxes 893 837 1,538 1,701
Income tax expense 296 306 515 601
--------- --------- --------- ---------
Net income $ 597 $ 531 $ 1,023 $ 1,100
========= ========= ========= =========
Basic earnings per share $ .30 $ .25 $ .52 $ .51
Diluted earnings per share $ .30 $ .24 $ .52 $ .50
</TABLE>
2
<PAGE>
PARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,023 $ 1,100
Adjustments to reconcile net income to net cash from
operating activities:
Net discount accretion on securities (119) (31)
Gain on sale of securities available-for-sale (19) (4)
Loss on sale of real estate owned -- 6
Gain on sale of real estate held for development (336) (455)
Depreciation 184 162
ESOP compensation expense 126 164
MRP compensation expense 181 146
Net change in:
Accrued interest receivable (254) (483)
Accrued interest payable (16) 16
Other assets (46) (223)
Other liabilities 810 295
----------- -----------
Net cash from operating activities 1,534 693
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale (51,743) (8,964)
Purchase of securities held-to-maturity -- (40,238)
Proceeds from sales, calls, and maturities of securities available-for-sale 26,163 15,946
Proceeds from maturities and calls of securities held-to-maturity -- 21,000
Principal repayments on mortgage-backed securities 3,433 3,348
Net change in loans (6,200) (6,036)
Purchases of FHLB stock (413) 37
Net change in real estate held for development (818) (532)
Proceeds from sale of real estate owned -- 54
Purchase of premises and equipment (120) (199)
----------- -----------
Net cash from investing activities (29,698) (15,584)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (229) --
Net change in deposits 854 6,554
Net change in repurchase agreements 4,118 1,784
Net change in advances from borrowers for taxes and insurance 109 61
Net change in Federal Home Loan Bank advances 16,000 10,000
----------- -----------
Net cash from financing activities 20,852 18,399
----------- -----------
Net change in cash and cash equivalents (7,312) 3,508
Cash and cash equivalents at beginning of period 10,709 7,812
----------- -----------
Cash and cash equivalents at end of period $ 3,397 $ 11,320
=========== ===========
Cash paid during the period for
Interest $ 3,762 $ 3,352
</TABLE>
3
<PAGE>
PARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Other
Additional Unearned Unearned Compre- Stock-
Common Paid-in Retained ESOP MRP Treasury hensive holders'
Stock Capital Earnings Shares Awards Stock Income (Loss) Equity
-------- -------- -------- -------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ 27 $ 26,222 $ 20,060 $ (1,807) $ (1,226) $ (4,693) $ 18 $ 38,601
Comprehensive income:
Net income -- -- 1,100 -- -- -- -- 1,100
Change in fair value of securities
classified as available-for-sale,
net of reclassification and tax
effects -- -- -- -- -- -- 14 14
--------
Total comprehensive income 1,114
ESOP shares earned -- 75 -- 89 -- -- -- 164
MRP shares earned -- -- -- -- 146 -- -- 146
-------- -------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1998 $ 27 $ 26,297 $ 21,160 $ (1,718) $ (1,080) $ (4,693) $ 32 $ 40,025
======== ======== ======== ======== ======== ======== ======== ========
Balance at January 1, 1999 $ 27 $ 26,353 $ 22,211 $ (1,628) $ (933) $ (8,733) $ (274) $ 37,023
Comprehensive income:
Net income -- -- 1,023 -- -- -- -- 1,023
Change in fair value of securities
classified as available-for-sale,
net of reclassification and tax
effects -- -- -- -- -- -- (3,056) (3,056)
--------
Total comprehensive income (2,033)
Cash dividends declared ($.24 per share) -- -- (484) -- -- -- -- (484)
ESOP shares earned -- 40 -- 86 -- -- -- 126
MRP shares earned -- -- -- -- 181 -- -- 181
-------- -------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1999 $ 27 $ 26,393 $ 22,750 $ (1,542) $ (752) $ (8,733) $ (3,330) $ 34,813
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
4
<PAGE>
PARK BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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. (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, 1999 and December 31, 1998 and for the six- and three-month periods ended
June 30, 1999 and 1998. 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, 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 six-month period ended June 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 shareholders'
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 the 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: Substantially all 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
the weighted average number of shares outstanding during the period, including
allocated and committed to be released ESOP shares. Diluted earnings per share
shows the dilutive effect, if any, of 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 six- and three-month periods ended for the years presented.
<TABLE>
<CAPTION>
Real Estate
Banking Development Total
------- ----------- -----
<S> <C> <C> <C>
Six Months Ended June 30, 1999
- ------------------------------
Net interest income $ 3,450 $ -- $ 3,450
Gain on sale of real estate held for development -- 336 336
Other revenue 141 -- 141
Other expenses 2,389 -- 2,389
Income tax expense 515 -- 515
Segment profit 687 336 1,023
Three Months Ended June 30, 1999
- --------------------------------
Net interest income $ 1,735 $ -- $ 1,735
Gain on sale of real estate held for development -- 264 264
Other revenue 72 -- 72
Other expenses 1,178 -- 1,178
Income tax expense 296 -- 296
Segment profit 333 264 597
Segment assets as of June 30, 1999 219,681 4,027 223,708
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Real Estate
Banking Development Total
------- ----------- -----
<S> <C> <C> <C>
Six Months Ended June 30, 1998
- ------------------------------
Net interest income $ 3,334 $ -- $ 3,334
Gain on sale of real estate held for development -- 455 455
Other revenue 114 -- 114
Other expenses 2,202 -- 2,202
Income tax expense 601 -- 601
Segment profit 645 455 1,100
Three Months Ended June 30, 1998
- --------------------------------
Net interest income $ 1,672 $ -- $ 1,672
Gain on sale of real estate held for development -- 231 231
Other revenue 57 -- 57
Other expenses 1,123 -- 1,123
Income tax expense 306 -- 306
Segment profit 300 231 531
Segment assets as of June 30, 1998 193,556 3,257 196,813
</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 six- and three-month periods ended
June 30, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
Three Months Six Months Three Months Six Months
Ended June 30 Ended June 30 Ended June 30 Ended June 30
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income as reported $ 597 $ 1,023 $ 531 $ 1,100
Weighted average common
shares outstanding 1,963,021 1,961,125 2,158,650 2,156,418
---------- ---------- ---------- ----------
Basic earnings per share $ .30 $ .52 $ .25 $ .51
========== ========== ========== ==========
Net income available to
common stockholders $ 597 $ 1,023 $ 531 $ 1,100
Weighted average common
shares outstanding 1,963,021 1,961,125 2,158,650 2,156,418
Dilutive effect of MRP -- -- 7,539 7,447
Dilutive effect of stock options -- -- 34,128 34,497
---------- ---------- ---------- ----------
1,963,021 1,961,125 2,200,317 2,198,362
---------- ---------- ---------- ----------
Diluted earnings per share $ .30 $ .52 $ .24 $ .50
========== ========== ========== ==========
</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.
and its wholly-owned subsidiary, Park Federal Savings Bank, at June 30, 1999 to
its financial condition at December 31, 1998 and the results of operations for
the six- and three-month periods ended June 30, 1999 to the same periods in
1998. This discussion should be read in conjunction with the interim financial
statements and footnotes included herein.
FINANCIAL CONDITION
Total assets at June 30, 1999 were $223.7 million compared to $203.8 million at
December 31, 1998, an increase of $19.9 million. The growth in total assets was
primarily funded by Federal Home Loan Bank advances and securities sold under
repurchase agreements, as discussed below. During the six months ended June 30,
1999, loans increased $6.2 million while securities increased $17.7 million.
Loan growth was primarily in the first mortgage loan category.
The allowance for loan losses was $500,000 at both June 30, 1999 and December
31, 1998. Impaired loans, including all nonaccrual loans, were less than
$188,000 at both June 30, 1999 and December 31, 1998.
Total liabilities at June 30, 1999 were $188.6 million compared to $166.8
million at December 31, 1998, an increase of $21.8 million, primarily due to a
$16.0 million increase in Federal Home Loan Bank (FHLB) advances and a $4.1
million increase in repurchase agreements. The FHLB advances are secured by
residential real estate loans. Interest rates of FHLB advances range from 4.70%
to 5.98% at June 30, 1999.
Stockholders' equity at June 30, 1999 was $34.8 million compared to $37.0
million at December 31, 1998, a decrease of $2.2 million. This decrease was
primarily attributable dividends declared of $484,000 and the decrease in the
fair value of securities available-for-sale of $3.1 million, net of deferred
taxes, offset by net income for the six months ended June 30, 1999 of $1.0
million. 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 second quarter.
RESULTS OF OPERATIONS
Net income increased $66,000, or 12.4%, to $597,000 for the quarter ended June
30, 1999 compared to the same period in 1998. Net income decreased $77,000, or
7.0%, to $1.0 million for the six months ended June 30, 1999 compared to the six
months ended June 30, 1998. Fluctuations on net income are discussed below.
Net interest income increased $63,000, or 3.8%, for the quarter ended June 30,
1999 compared to the same period in 1998. Net interest income increased
$116,000, or 3.5%, for the six-month period ended June 30, 1999 compared to the
same period in 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 3.49% for
the six months ended June 30, 1999 and 1998, respectively.
Noninterest income increased $48,000 to $336,000 and decreased $92,000 to
$477,000 for the three- and six-month periods ended June 30, 1999 compared to
the same periods in 1998. These changes are primarily due to the timing of real
estate sales. The Company and the Bank engage in the business of purchasing
unimproved land for development into residential subdivisions of primarily
single-family lots through their wholly-owned subsidiaries, PBI Development
Corporation ("PBI") and GPS Development Corp. ("GPS"). The Company has been
engaged in this activity since 1985 and, since that time, has developed and sold
over 500 lots in four different subdivisions in the western suburbs of Chicago.
Both PBI and GPS act as joint venture partners in their developments. For the
joint ventures they engage in, PBI and GPS provide essentially all of
8
<PAGE>
the capital for the project in exchange for an ownership interest which entitles
them to a percentage of the profit or loss generated by the venture. PBI and GPS
only invest in real estate development projects which they believe they can
monitor effectively. Both PBI and GPS have a percentage interest in the net
profit of each joint venture with the percentage based upon a number of factors,
including characteristics of the venture, the perceived risks involved, and the
time to completion. The net profit distributions are defined in the joint
venture agreement as the gross profits of the joint venture from sales, less all
expenses, loan repayments, capital contributions, and an agreed-upon rate of
return to PBI and GPS on such capital contribution.
At June 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
June 30, 1999, 66 of the lots have been sold.
During 1998, PBI purchased and began development of the Prairie Trail South
development located in Batavia, Illinois. The project consists of 96
single-family lots and management expects sales to begin in the third quarter.
Noninterest expense increased to $1,178,000 for the quarter ended June 30, 1999
from $1,123,000 for the quarter ended June 30, 1998 and increased to $2,389,000
for the six months ended June 30, 1999 from $2,202,000 for the same period in
1998. Both increases are primarily due to increased compensation and benefits
due to accelerated vesting of stock awards resulting from the death of a
director.
The Company's federal income tax expense decreased $10,000, or 3.3%, to $296,000
for the quarter ended June 30, 1999 compared to the same period in 1998 while
income tax expense decreased $86,000, or 14.3%, to $515,000 for the six-month
period ended June 30, 1999 compared to the same period in 1998.
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
June 30, 1999 was 59.5%.
At June 30, 1999, the Bank had $3,459,000 in commitments to originate loans and
$2,115,000 in standby letters of credit.
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 June 30, 1999:
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
------ -------- ------
AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Tier 1 (core) capital (to
adjusted total assets) $22,531 10.8% $ 8,310 4.0% $14,221 6.8%
Tier 1 (core) capital (to
risk-weighted assets) 22,531 31.8 3,184 4.0 19,347 27.8
Total capital (to risk-
weighted assets 23,031 28.9 6,368 8.0 16,663 20.9
</TABLE>
9
<PAGE>
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.
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. With the impending new millennium,
these programs and computers will 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 its 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 on 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 their system. In the event a current vendor's
system fails during the validation phase and it is determined that the vendor is
unable or unwilling to correct the failure, the Company will convert to a new
system from a pre-selected list of prospective vendors. In each case, 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,
10
<PAGE>
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 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 OTS
(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 purposes of the risk-based capital requirement. As of March 31,
1999, the Bank's most recent sensitivity measure, as measured by the OTS,
resulting from a 200 basis point increase in interest rates was (0.60)% and
would result in a $1.8 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 requires 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.
11
<PAGE>
The following table shows the NPV and projected change in the NPV of the Bank at
March 31, 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)
NPV as a % of
-------Net Portfolio Value------- ---PV of Assets---
------------------- ------------
Change in Rates $ Amount $ Change % Change NPV Ratio Change
- --------------- -------- -------- -------- --------- ------
+ 300 bp $22,825 $(3,160) (12)% 11.74% -114bp
+ 200 bp 24,206 (1,779) (7) 12.28% -60bp
+ 100 bp 25,340 (645) (2) 12.70% -18bp
0 bp 25,985 -- -- 12.88% --
- 100 bp 26,364 379 1 12.94% 6bp
- 200 bp 26,453 468 2 12.87% -1bp
- 300 bp 26,667 682 3 12.85% -3bp
Management has not yet completed the computation of NPV as of June 30, 1999 but
estimates that the results would not be materially different than those
presented above.
12
<PAGE>
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 21, 1999.
Joseph M. Judickas and John J. Murphy were elected to three-year
terms as directors. In addition, the stockholders ratified the
selection of Crowe, Chizek and Company LLP as independent public
accountants for the Company for the year ending December 31,
1999.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - Not applicable.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by
the registrant during the quarter ended June 30, 1999.
13
<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: August 10, 1999 /s/ David A. Remijas
-----------------------------------------
David A. Remijas
President and Chief Executive Officer
Date: August 10, 1999 /s/ Steven J. Pokrak
-----------------------------------------
Steven J. Pokrak
Treasurer and Chief Financial Officer
14
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