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, 2002
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, 2002, the Registrant had outstanding 1,235,895 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
PART II - Other Information
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Securities Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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 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
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.
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,
2002 2001
---- ----
ASSETS
Cash and due from banks $ 716 $ 905
Federal funds sold 1,100 22,777
Interest-bearing deposit accounts in other financial institutions 17,176 4,227
------------ ------------
Total cash and cash equivalents 18,992 27,909
Securities available-for-sale 62,386 65,704
Loans receivable, net 148,716 134,788
Federal Home Loan Bank stock 5,261 5,133
Premises and equipment, net 2,761 2,712
Accrued interest receivable 1,695 1,659
Bank-owned life insurance 5,248 5,109
Other assets 541 434
------------ ------------
TOTAL ASSETS $ 245,600 $ 243,448
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 164,150 $ 163,074
Securities sold under repurchase agreements 10,572 10,658
Federal Home Loan Bank advances 39,000 39,000
Advances from borrowers for taxes and insurance 2,104 2,027
Accrued interest payable 251 830
Other liabilities 923 581
------------ ------------
Total liabilities 217,000 216,170
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized;
none issued or outstanding -- --
Common stock, $.01 par value, 9,000,000 shares authorized;
2,718,731 shares issued 27 27
Additional paid-in capital 26,964 26,600
Retained earnings 26,721 25,845
Treasury stock at cost - 1,482,836 and 1,470,536 shares, at cost (24,248) (24,019)
Unearned ESOP shares (1,055) (1,131)
Accumulated other comprehensive income (loss) 191 (44)
------------ ------------
Total stockholders' equity 28,600 27,278
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 245,600 $ 243,448
============ ============
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,
------------------------ ------------------------
2002 2001 2002 2001
---- ---- ---- ----
Interest income
Loans receivable $ 2,709 $ 2,078 $ 5,257 $ 4,023
Securities and other 1,064 2,005 2,090 4,119
Other interest-bearing deposits 37 130 119 213
---------- ---------- ---------- ----------
Total 3,810 4,213 7,466 8,355
Interest expense
Deposits and repurchase agreements 1,413 1,897 2,996 4,017
Federal Home Loan Bank advances 509 657 1,012 1,126
---------- ---------- ---------- ----------
Total 1,922 2,554 4,008 5,143
---------- ---------- ---------- ----------
Net interest income 1,888 1,659 3,458 3,212
Provision for loan losses 35 -- 50 --
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 1,853 1,659 3,408 3,212
Noninterest income
Gain on sale of securities available-for-sale 87 203 263 248
Gain on sale of real estate held for expansion 126 -- 126 --
Service fee income 66 55 137 107
Other operating income 81 92 169 120
---------- ---------- ---------- ----------
Total noninterest income 360 350 695 475
Noninterest expense
Compensation and benefits 751 851 1,501 1,635
Occupancy and equipment 157 155 312 297
Other operating expenses 326 237 598 497
---------- ---------- ---------- ----------
Total noninterest expense 1,234 1,243 2,411 2,429
---------- ---------- ---------- ----------
Income before income taxes 979 766 1,692 1,258
Income tax expense 326 255 548 417
---------- ---------- ---------- ----------
Net income $ 653 $ 511 $ 1,144 $ 841
========== ========== ========== ==========
Basic earnings per share $ .58 $ .37 $ 1.02 $ .60
Diluted earnings per share $ .56 $ .37 $ .98 $ .60
Comprehensive income (loss) $ 1,390 $ (282) $ 1,379 $ 2,140
========== ========== ========== ==========
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,
-----------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,144 $ 841
Adjustments to reconcile net income to net cash from
operating activities
Net premium amortization on securities 27 --
Gain on sale of securities available-for-sale (263) (248)
Gain on sale of real estate held for expansion (126) --
Increase in cash surrender value (139) --
Provision for loan losses 50 --
Depreciation 150 120
ESOP compensation expense 168 132
MRP compensation expense -- 191
Federal Home Loan Bank stock dividends (128) (66)
Dividend reinvestments (83) --
Net change in:
Accrued interest receivable (36) 95
Accrued interest payable (579) 273
Other assets (135) 53
Other liabilities 222 (104)
------------ ------------
Net cash from operating activities 272 1,287
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (18,289) (4,002)
Proceeds from sales, calls, and maturities of securities available-for-sale 18,883 9,170
Principal repayments on mortgage-backed securities 3,398 3,055
Net change in loans (13,978) (15,061)
Net change in real estate held for development -- 276
Proceeds from sale of real estate held for expansion 154 --
Purchase of premises and equipment (199) (610)
------------ ------------
Net cash from investing activities (10,031) (7,172)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 1,076 21,814
Net change in repurchase agreements (86) (2,214)
Net change in advances from borrowers for taxes and insurance 77 179
Net change in Federal Home Loan Bank advances -- 1,000
Dividends paid (268) (520)
Stock options exercised 272 --
Purchase of treasury stock (229) (793)
------------ ------------
Net cash from financing activities 842 19,466
------------ ------------
Net change in cash and cash equivalents (8,917) 13,581
Cash and cash equivalents at beginning of period 27,909 4,066
------------ ------------
Cash and cash equivalents at end of period $ 18,992 $ 17,647
============ ============
Supplemental disclosure of noncash activities
Amount due to broker for purchase of treasury stock $ -- $ 3,971
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 Total
Additional Unearned Unearned Compre- Stock-
Common Paid-in Retained ESOP MRP Treasury hensive holders'
Stock Capital Earnings Shares Awards Stock Income (Loss) Equity
----- ------- -------- ------ ------ ----- ------------- ------
2001
- ----
Balance at January 1, 2001 $ 27 $ 26,486 $ 24,852 $ (1,290) $ (223) $(17,956) $ (2,617) $ 29,279
Comprehensive income
Net income -- -- 841 -- -- -- -- 841
Change in fair value of securities
classified as available-for-sale, net
of reclassification and tax effects -- -- -- -- -- -- 1,299 1,299
--------
Total comprehensive income 2,140
Purchase of 270,600 shares of treasury stock -- -- -- -- -- (4,764) -- (4,764)
Dividends declared ($.24 per share) -- -- (340) -- -- -- -- (340)
ESOP shares earned -- 53 -- 79 -- -- -- 132
MRP shares earned -- -- -- -- 191 -- -- 191
-------- -------- -------- -------- -------- -------- ----------- --------
Balance at June 30, 2001 $ 27 $ 26,539 $ 25,353 $ (1,211) $ (32) $(22,720) $ (1,318) $ 26,638
======== ======== ======== ======== ======== ======== =========== ========
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 -- -- (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
======== ======== ======== ======== ======== ======== =========== ========
See notes to consolidated financial statements.
4
PARK BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(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, 2002 and December 31, 2001 and for the three-month and six-month periods
ended June 30, 2002 and 2001. 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 2001 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The December 31, 2001 balance sheet
presented herein has been derived from the audited financial statements included
in the Company's 2001 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, 2002. 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, 2002 and 2001 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, 2002 and 2001.
2002 2001
---- ----
Three Months Six Months Three Months Six Months
Ended June 30 Ended June 30 Ended June 30 Ended June 30
------------ ------------ ------------ ------------
Net income as reported $ 653 $ 1,144 $ 511 $ 841
Weighted average common
shares outstanding 1,128,922 1,123,514 1,373,274 1,396,993
------------ ------------ ------------ ------------
Basic earnings per share $ .58 $ 1.02 $ .37 $ .60
============ ============ ============ ============
Earnings per share assuming dilution
Net income available to common
shareholders $ 653 $ 1,144 $ 511 $ 841
============ ============ ============ ============
Weighted average common shares
outstanding 1,128,922 1,123,514 1,373,274 1,396,993
Dilutive effect of stock options 46,121 40,291 -- --
Average common shares and dilutive
potential common shares 1,175,043 1,163,805 1,373,274 1,396,993
------------ ------------ ------------ ------------
Diluted earnings per share $ .56 $ .98 $ .37 $ .60
============ ============ ============ ============
The effects of stock options diluted basic earnings per share in 2002 but were
not included in 2001 because to do so would have been anti-dilutive.
Note 3 - Recent Accounting Pronouncements
A new accounting standard dealing with asset retirement obligations will apply
for 2003. The Company does not believe that this standard will have a material
affect on its financial position or results of operations.
The Company adopted SFAS 144, "Accounting for the Impairment of Disposal of
Long-Lived Assets" on January 1, 2002. The statement requires that the Company
recognize an impairment loss on ling-lived assets when the carrying amount is
not recoverable and the measurement of the impairment loss is the difference
between the carrying amount and the fair value of the asset. This pronouncement
did not have a material effect on the Company's financial statements.
6
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, 2002
to its financial condition at December 31, 2001 and the results of operations
for the three-month and six-month periods ended June 30, 2002 to the same
periods in 2001. This discussion should be read in conjunction with the interim
financial statements and footnotes included herein.
FINANCIAL CONDITION
Total assets at June 30, 2002 were $245.6 million compared to $243.4 million at
December 31, 2001, an increase of $2.2 million. During the six months ended June
30, 2002, cash and cash equivalents decreased $8.9 million and securities
available-for-sale decreased $3.3 million. These funds were invested in loans
receivable, which increased $13.9 million. The increase in loans receivable
reflected purchases of $7.5 million in participation loans as well as continued
loan demand as a result of the low market rates of interest. The decrease in
securities available-for-sale reflected sales and calls of corporate notes,
municipal securities, and mortgage-backed securities. These proceeds were
utilized to fund the continued loan growth.
The allowance for loan losses was $550,000 and $500,000 at June 30, 2002 and
December 31, 2001, respectively. Nonaccrual loans were $508,000 and $122,000 at
June 30, 2002 and December 31, 2001, respectively.
Total liabilities at June 30, 2002 were $217.0 million compared to $216.2
million at December 31, 2001, an increase of $800,000, primarily due to an
increase in deposits.
Stockholders' equity at June 30, 2002 was $28.6 million compared to $27.3
million at December 31, 2001, an increase of $1.3 million. An increase in
additional paid-in capital of $272,000 from the exercise of 17,290 stock options
was offset by the purchase of treasury stock of $229,000 and the declaration of
dividends of $268,000. The net income of the Company was $1.1 million, and the
fair value of securities available-for-sale increased $235,000, net of deferred
taxes.
RESULTS OF OPERATIONS
Net income increased $142,000 to $653,000 for the quarter ended June 30, 2002
compared to the same period in 2001. Net income increased $303,000 to $1.1
million for the six months ended June 30, 2002 compared to the six months ended
June 30, 2001. Fluctuations on net income are discussed below.
Net interest income increased $229,000 to $1.9 million for the quarter ended
June 30, 2002 compared to the same period in 2001. Net interest income increased
$246,000 to $3.5 million for the six months ended June 30, 2002 compared to the
same period in 2001. The net interest margin increased to 3.22% and 2.97% for
the three-month and six-month periods ended June 30, 2002, respectively, from
2.73% and 2.72% for the three-month and six-month periods ended June 30, 2001,
respectively. This was largely due to an increase in the spread to 2.91% and
2.64% for the three-month and six-month periods ended June 30, 2002,
respectively, from 2.19% and 2.16% for the three-month and six-month periods
ended June 30, 2001, respectively. The increase in the spread was a result of
the yield on deposits and borrowings decreasing more rapidly in the current
interest rate environment than loans, which were slower to reprice. In addition,
the Company's earning assets shifted, resulting in a larger volume of loans and
a lesser volume of securities. Although the overall yield on earning assets
decreased, this shift resulted in an improvement to the yield on earning assets
due to the fact that loans yield a higher rate of return than securities. The
average yield on earning assets decreased to 6.51% and 6.41% for the three-month
and six-month periods ended June 30, 2002, respectively, from 6.93% and 7.06%
for the three-month and six-month periods ended June 30, 2001, respectively. The
average cost of funds also decreased to 3.60% and 3.77% for the three-month and
six-month periods ended June 30, 2002, respectively, from 4.74% and 4.90% for
the three-month and six-month periods ended June 30, 2001, respectively.
7
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 $35,000
and $50,000 for the three-month and six-month periods ended June 30, 2002,
respectively, and $0 for the three-month and six-month periods ended June 30,
2001. The increase in the provision for loan losses is a direct result of an
increase in the volume of loan participations purchased which generally have a
greater loss experience than other loans. In addition, the Company has
experienced a slight increase in delinquencies and nonaccrual loans in the first
two quarters of 2002.
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, 2002 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 increased $10,000 to $360,000 and increased $220,000 to
$695,000 for the three-month and six-month periods ended June 30, 2002,
respectively, compared to the same periods in 2001. The increase 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.
Other operating income also increased in both periods as a result of an increase
in the cash surrender value of life insurance totaling $68,000 and $139,000 for
the quarter and the six-month period, respectively. This was partially offset by
income totaling $92,000 for the six-month period in 2001 related to the Bank's
involvement in the Bank Enterprise Award Program.
Noninterest expense was stable at $1.2 million for the quarters ended June 30,
2002 and 2001, respectively, and $2.4 million for the six months ended June 30,
2002 and 2001. Compensation and benefits decreased in both periods as a result
of the stock awards fully vesting in 2001 and thus no expense was incurred
throughout the first six months of 2002. This decrease was partially offset by
increases in other operating expenses related to data processing and advertising
as a result of the increased volume of account activity. There were no other
significant changes in the various categories of noninterest expense during
these comparative periods.
The Company's federal income tax expense increased $71,000 to $326,000 for the
quarter ended June 30, 2002 compared to the same period in 2001, while income
tax expense increased $131,000 to $548,000 for the six-month period ended June
30, 2002 compared to the same period in 2001. The change in income tax was
attributable to the increase 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 31% at June 30, 2002.
8
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 $272,000 and $1.3 million in
2002 and 2001, respectively. Net cash from investing activities consisted
primarily of disbursements for loan originations and the purchase of securities,
offset by principal collections on loans, and proceeds from maturing securities
and paydowns on mortgage-backed securities. 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 $842,000 and $19.5
million in 2002 and 2001, respectively.
At June 30, 2002, the Bank exceeded all of its regulatory capital requirements
with a Tier 1 (core) capital level of $21.5 million, or 9.0% of adjusted total
assets, which is above the required level of $9.5 million, or 4.0%; and total
risk-based capital of $22.1 million, or 15.2% of risk-weighted assets, which is
above the required level of $11.6 million, or 8.0%. The Bank at June 30, 2002
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, 2002, cash and
short-term investments totaled $19.0 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, 2002, the Bank had outstanding commitments to originate mortgage
loans of $5.7 million, and $1.6 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, 2002 totaled $81.2 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.
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, 2002, the Bank's most recent sensitivity measure,
as measured by the OTS, resulting from a 200 basis point increase in interest
rates was (51)% and would result in a $13.4 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
March 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.
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 $ 6,177 $ (19,943) (76)% 2.83% (797 bp)
+ 200 bp 12,711 (13,409) (51) 5.62 (517 bp)
+ 100 bp 19,505 (6,615) (25) 8.33 (246 bp)
0 bp 26,120 -- -- 10.79 --
- 100 bp 29,934 3,814 15 12.10 131 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
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 23, 2002. John
J. Murphy and Victor H. Reyes 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, 2002.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
99.1 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.
99.2 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, 2002.
11
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 14, 2002 /s/ David A. Remijas
----------------------------------------
David A. Remijas
President and Chief Executive Officer
Date: August 14, 2002 /s/ Steven J. Pokrak
----------------------------------------
Steven J. Pokrak
Treasurer and Chief Financial Officer
12