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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)

See notes to consolidated financial statements.

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Park Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In Thousands of dollars, except share data)
(Unaudited)

See notes to consolidated financial statements.

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Park Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands of dollars)
(Unaudited)

See notes to consolidated financial statements.

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Park Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 2003 and 2002
(In thousands of dollars, except share data)
(Unaudited)

See notes to consolidated financial statements.

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PARK BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(table amounts in thousands of dollars, except share data)

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Park Bancorp, Inc. (the Company) and its wholly-owned subsidiaries, Park Federal Savings Bank (the Bank) and PBI Development Company (PBI), and the Bank’s subsidiaries, GPS Company and GPS Development Company (GPS), as of September 30, 2003 and December 31, 2002 and for the nine-month and three-month periods ended September 30, 2003 and 2002. Significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by generally accepted accounting principles are not included herein. These interim statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2002 balance sheet presented herein has been derived from the audited financial statements included in the Company’s 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission, but does not include all disclosures required by generally accepted accounting principles.

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 nine-month and three-month periods ended September 30, 2003 and 2002 are not necessarily indicative of the results to be expected for the full year.

Note 2 — Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and 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.

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Note 3 — 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 nine-month periods ended September 30, 2003 and 2002.

The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition of FASB Statement No. 123, Accounting for Stock-Based Compensation.

Note 4 — Recently Adopted Accounting Standards

On January 1, 2003, the Company adopted Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees. On July 1, 2003, the Company adopted Statement 149, amendment of Statement 133 on Derivative Instruments and Hedging Activities, and Statement 150, Accounting of Certain Financial Instruments with Characteristics of both Liabilities and Equities. On October 1, 2003, the Company adopted Interpretation 46, Consolidation of Variable Interest Entities.

Because the Company does not have these instruments or is only nominally involved in these instruments, the new accounting standards will not materially affect the Company’s operating results or financial condition.

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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, 2003 to its financial condition at December 31, 2002 and the results of operations for the nine-month and three-month periods ended September 30, 2003 to the same periods in 2002. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

FINANCIAL CONDITION

Total assets at September 30, 2003 were $260.9 million compared to $251.5 million at December 31, 2002, an increase of $9.4 million. During the nine months ended September 30, 2003, securities increased $14.0 million, loans receivable increased $7.4 million and Federal Home Loan Bank stock increased $4.6 million offset by $17.7 million decrease in cash and cash equivalents.

The allowance for loan losses was $582,000 and $574,000 at September 30, 2003 and December 31, 2002, respectively. Non-performing assets were $461,000 and $290,000 at September 30, 2003 and December 31, 2002, respectively.

Total liabilities at September 30, 2003 were $231.8 million compared to $221.6 million at December 31, 2002, an increase of $10.2 million, primarily due to increases of $9.5 million in deposits and $3.9 million in Federal Home Loan Bank advances, offset by a decrease of $2.4 million in repurchase agreements. Deposits continued to increase as a result of consumers’ hesitancy to place funds in other investment vehicles such as the stock market in the current economic environment. Federal Home Loan Bank advances increased as a result of management taking advantage of low fixed rate term advances for asset/liability management purposes.

Stockholders’ equity at September 30, 2003 was $29.1 million compared to $29.9 million at December 31, 2002. The decrease was primarily attributable to the repurchase of 84,307 shares of common stock at an average price of $25.67 and dividends declared of $494,000 offset by the net income of the Company.

RESULTS OF OPERATIONS

Net income increased $231,000 to $692,000 for the quarter ended September 30, 2003 compared to the same period in 2002. Net income decreased $29,000 to $1.6 million for the six months ended September 30, 2003 compared to the nine months ended June 30, 2002.

Net interest income increased $170,000 to $2.0 million for the quarter ended September 30, 2003 compared to the same period in 2002. Net interest income increased $217,000 to $5.5 million for the nine months ended September 30, 2003 compared to the same period in 2002. The net interest margin increased to 3.13% for the three-month period ended September 30, 2003, from 3.06% for the three-month period ended September 30, 2002. This was largely due to an increase in the spread to 2.92% for the three-month period ended September 30, 2003, from 2.76% for three-month period ended September 30, 2002. The average yield on earning assets decreased to 5.44% and 5.43% for the three-month and nine-month periods ended September 30, 2003, respectively, from 6.20% and 6.33% for the three-month and nine-month periods ended September 30, 2002, respectively. The average cost of funds also decreased to 2.52% and 2.72% for the three-month and nine-month periods ended September 30, 2003, respectively, from 3.44% and 3.65% for the three-month and nine-month periods ended September 30, 2002, respectively.

Management establishes provisions for loan losses, which are charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, peer group information, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available

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or as future events change. The provision for loan losses was $0 for the three-month and nine-month periods ended September 30, 2003, respectively, and $30,000 and $80,000 for the three-month and nine-month periods ended September 30, 2002. The decrease in the provision for loan losses is a direct result of a decrease in the volume of loan participations purchased which generally have a greater loss experience than other loans.

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of September 30, 2003 is maintained at a level that represents management’s best estimate of inherent losses in the loan portfolio, and such losses were both probable and reasonably estimatible.

Noninterest income increased $182,000 to $374,000 and decreased $51,000 to $836,000 for the three-month and nine-month periods ended September 30, 2003, respectively, compared to the same periods in 2002. The increase for the three-month period reflects an increase in fee income and receipt of a Bank Enterprise Award from the Department of Treasury. The decrease for nine-month period reflects a $126,000 gain on sale of land held for expansion during 2002. This land was excess land that was adjacent to the Company’s Westmont branch location.

Noninterest expense increased $17,000 to $1.3 million and increased $255,000 to $4.0 million for the three-month and nine-month periods ended September 30, 2003, respectively, compared to the same periods in 2002. The increase for both periods are due to higher compensation costs primarily increases in employee benefits, health insurance and additional staffing.

The Company’s federal income tax expense increased $134,000 to $349,000 for the quarter ended September 30, 2003 compared to the same period in 2002, while income tax expense increased $20,000 to $783,000 for the nine-month period ended September 30, 2003 compared to the same period in 2002. The change in income tax was attributable to changes 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 46% at September 30, 2003.

The Company’s cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Cash flows provided by operating activities were $1.2 million and $851,000 in 2003 and 2002, respectively. Net cash from investing activities consisted primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, and proceeds from maturing securities and paydowns on mortgage-backed securities. The net cash used in investing activities were $26.5 million and $6.7 million in 2003 and 2002, respectively. Net cash from financing activities consisted primarily of the activity in deposit accounts, FHLB borrowings, and securities sold under repurchase agreements in addition to the purchase of treasury stock. The net cash from financing activities was $7.6 million and ($3.1) million in 2003 and 2002, respectively.

At September 30, 2003, the Bank exceeded all of its regulatory capital requirements with a Tier 1 (core) capital level of $ 24.0 million, or 9.4% of adjusted total assets, which is above the required level of $10.3 million, or 4.0%; and total risk-based capital of $24.6 million, or 15.6% of risk-weighted assets, which is above the required level of $12.6 million, or 8.0%. The Bank at September 30, 2003 was categorized as well capitalized. Management is not aware of any conditions or events since the most recent notification that would change the Bank’s category.

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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 September 30, 2003, cash and short-term investments totaled $6.3 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 September 30, 2003, the Bank had outstanding commitments to originate mortgage loans of $4.8 million, and $1.5 million in standby letters of credit. The Bank anticipates that it will have sufficient funds available to meet its current loan origination commitments. Certificate accounts that are scheduled to mature in less than one year from September 30, 2003 totaled $77.1 million. Management expects that a substantial portion of the maturing certificate accounts will be renewed at the Bank. However, if a substantial portion of these deposits is not retained, the Bank may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Subsequent to December 31, 2002, the Company entered into a $1.8 million contract to reconstruct the 55^th Street branch office. The construction started in 2003.

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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 June 30, 2003, the Bank’s most recent sensitivity measure, as measured by the OTS, resulting from a 200 basis point increase in interest rates was (17)% and would result in a $5.6 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 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 June 30, 2003 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)

The Bank and the Company do not maintain any securities for trading purposes. The Bank and the Company do not currently engage in trading activities or use derivative instruments in a material amount to control interest rate risk. In addition, interest rate risk is the most significant market risk affecting the Bank and the Company. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of the Company’s business activities and operations.

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Management has not yet completed the computation of NPV as of September 30, 2003 but estimates that the results would not be materially different than those presented above.

ITEM 4.   CONTROLS AND PROCEDURES

Management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(b), as of September 30, 2003. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective and no changes are required at this time.

In connection with the evaluation by management, including the Chief Executive Officer and Chief Financial Officer, of the Company’s internal control over financial reporting, pursuant to Exchange Act Rule 13a-15(d), no changes during the quarter ended September 30, 2003 were identified that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

ITEM 2.   CHANGES IN SECURITIES.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.

ITEM 5.   OTHER INFORMATION.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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