PARK BANCORP INC - FORM 10-K

PARK BANCORP INC - FORM 10-K - March 31, 2011

Attached files

Attached files

PARK BANCORP INC Reports

Also read

file	filename
EX-32.1 - SECTION 906 CERTIFICATION OF CEO - PARK BANCORP INC	dex321.htm
EX-21.1 - LIST OF SUBSIDIARIES - PARK BANCORP INC	dex211.htm
EX-23.0 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - PARK BANCORP INC	dex230.htm
EX-31.1 - CERTIFICATION OF CEO - PARK BANCORP INC	dex311.htm
EX-32.2 - SECTION 906 CERTIFICATION OF CFO - PARK BANCORP INC	dex322.htm
EX-31.2 - CERTIFICATION OF CFO - PARK BANCORP INC	dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-20867

PARK BANCORP, INC.

(Exact name of Registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

36-4082530

(I.R.S. Employer

Identification Number)

5400 South Pulaski Road

Chicago, Illinois 60632

(Address of principal executive offices)

(Registrant’s telephone number, including area code): (773) 582-8616

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, $0.01, par value per share		Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the registrant’s outstanding common stock held by non-affiliates was approximately $3,180,000 based on the closing price of the common stock of $4.30 per share on June 30, 2010.

As of March 31, 2011, the Registrant had outstanding 1,193,174 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the definitive Proxy Statement for the Registrant’s Annual Meeting of Stockholders to be held on May 17, 2011 are incorporated into Part III.

PARK BANCORP, INC.

2010 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS


PART I.
	Item 1.	Business	1
		General	1
		Market Area and Competition	1
		Lending Activities	1
		Investment Activities	8
		Sources of Funds	9
		Subsidiary Activities	10
		Employees	10
		Supervision and Regulation	10

	Item 1A.	Risk Factors	18

	Item 1B.	Unresolved Staff Comments	22

	Item 2.	Properties	22

	Item 3.	Legal Proceedings	22

	Item 4.	(Removed and Reserved)	22

PART II.
	Item 5.	Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23

	Item 6.	Selected Consolidated Financial Data and Other Data	24

	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
		Overview and Recent Developments	25
		Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995	25
		Average Statement of Financial Condition	26
		Rate/Volume Analysis	27
		Comparison of Financial Condition at December 31, 2010 and December 31, 2009	27
		Comparison of Operating Results for the Years Ended December 31, 2010 and 2009	27
		Liquidity and Capital Resources	29
		Critical Accounting Policies	29
		Commitments	30
		Impact of Inflation and Changing Prices	31

	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	31

	Item 8.	Financial Statements and Supplementary Data	32

	Item 9.	Changes in and Disagreements with Accountants on Accounting Financial Disclosure	32

	Item 9A.	Controls and Procedures	32

	Item 9B.	Other Information	32

PART III.
	Item 10.	Directors, Executive Officers and Corporate Governance	33

	Item 11.	Executive Compensation	33

	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33

	Item 13.	Certain Relationships and Related Transactions, and Director Independence	34

	Item 14.	Principal Accountant Fees and Services	34

PART IV.
	Item 15.	Exhibits and Financial Statement Schedules	35

		Signatures	36

PART I

ITEM 1.

BUSINESS

General

Park Bancorp, Inc. (the “Company”) was incorporated under the laws of the state of Delaware in 1996, as the holding company for Park Federal Savings Bank (“Bank”), our banking subsidiary, and PBI Development Corporation (“PBI”), which conducted real estate development activities. The Bank, which was organized as a mutual savings and loan association and has been operating since 1921, formed the holding company in connection with its conversion from a mutual to a stock savings institution. The Bank is engaged in the business of retail banking, with operations conducted through its main office and three branch offices located in Chicago and Westmont, Illinois. We also engaged in residential real estate development through our subsidiary, GPS Development Corporation (“GPS”). The real estate development subsidiaries are inactive.

The Bank attracts retail deposits from the general public in the areas surrounding its offices and invests those deposits, together with funds generated from operations and other borrowings, primarily in fixed-rate, one-to-four-family residential mortgage loans and securities. The Bank makes, on a limited basis, investments in multi-family mortgage, commercial real estate, construction, land, and consumer loans. The Bank’s revenues are derived principally from interest on its loans and securities. The Bank’s primary sources of funds are deposits, advances from the Federal Home Loan Bank (“FHLB”), securities sold under repurchase agreements, and principal and interest payments on loans and securities.

Market Area and Competition

The Bank is a community-oriented savings bank. The Bank’s primary deposit gathering area is concentrated in the communities surrounding its offices, while its lending activities primarily include areas throughout Cook, DuPage, and Will Counties in Illinois.

The Bank’s market area is both an urban and suburban area with the manufacturing industry as the major industrial group, followed by the services sector, and then the wholesale/retail sector. The Bank’s Chicago offices are located in diverse communities, which have a high percentage of customers of various ethnic backgrounds. Management of the Bank believes that its urban communities served by its Chicago offices are stable, residential neighborhoods of predominantly one-to-four-family residences and low to middle income families. The Bank’s Westmont office is located in DuPage County, which consists predominantly of middle to upper income families.

The officers and directors of the Bank maintain relationships with area contractors and real estate agents, which enable them to continually monitor the trends in housing construction and real estate sales in the Bank’s primary market areas. In addition, the Bank obtains information on real estate sales on a periodic basis through public records and is aware of a decline in the real estate market within its lending area due to the current economic environment. The Bank’s competition for loans comes principally from other savings institutions, mortgage banking companies, and commercial banks. Its most direct competition for deposits has historically come from savings institutions, commercial banks, and credit unions. In addition, the Bank faces increasing competition for deposits and other financial products from nonbank institutions such as brokerage firms and insurance companies in such areas as short-term money market funds, corporate and government securities funds, mutual funds, and annuities.

Lending Activities

General. The Bank’s loan portfolio consists primarily of conventional first mortgage loans secured by one-to-four-family residences. At December 31, 2010, the Bank had total gross loans of $141.9 million, of which $98.2 million were one-to-four family residential mortgage loans, or 69.15% of the Bank’s total gross loans. The remainder of the portfolio consists of $15.1 million of multi-family mortgage loans, or 10.66% of total gross loans; $13.0 million of commercial real estate loans, or 9.18% of total gross loans; $3.8 million of construction and land loans, or 2.67% of total gross loans; and consumer and other loans of $11.8 million, or 8.34% of total gross loans. The Bank had no loans held for sale at December 31, 2010.

Loan Approval Procedures and Authority. The Board of Directors establishes the lending policies of the Bank and delegates lending authority and responsibility to the Executive Committee, a management committee of the Bank. All real estate loans must be approved by the Executive Committee. The maximum loan amount is $500,000 unless approved by the Board of Directors. Pursuant to Office of Thrift Supervision (“OTS”) regulations, loans to one borrower cannot exceed 15% of the Bank’s unimpaired capital and surplus without regulatory notification. At December 31, 2010, the Bank has multiple loans to investment companies controlled by two individuals that are collectively in excess of regulatory limits due to the decrease in the Bank’s equity from 2009.

All dollar amounts in the tables throughout this Form 10-K are in thousands, except share and per share data.

The following table sets forth the composition of the Bank’s loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated.


	At December 31,
	2010						2009						2008						2007						2006
	Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total
Real estate
Residential
One-to-four- family	$	98,179			69.15	%	$	96,677			65.27	%	$	92,829			65.90	%	$	86,427			58.08	%	$	87,417			57.41	%
Multi-family		15,135			10.66			17,832			12.04			19,338			13.73			23,882			16.05			22,748			14.94
Commercial		13,032			9.18			13,626			9.20			13,549			9.62			12,782			8.59			16,494			10.83
Construction and land		3,796			2.67			6,005			4.05			5,358			3.80			9,542			6.41			13,371			8.78

Consumer and other		11,844			8.34			13,981			9.44			9,788			6.95			16,176			10.87			12,239			8.04


Total gross loans		141,986			100.00	%		148,121			100.00	%		140,862			100.00	%		148,809			100.00	%		152,269			100.00	%


Undisbursed portion of loans		(1,091	)					(2,191	)					(1,287	)					(1,857	)					(3,083	)
Net deferred loan origination fees		(192	)					(155	)					(220	)					(275	)					(373	)

Allowance for loan losses		(5,144	)					(2,851	)					(775	)					(640	)					(637	)


Total loans, net	$	135,559					$	142,924					$	138,580					$	146,037					$	148,176

Loan Maturity. The following table shows the contractual maturity of the Bank’s gross loans at December 31, 2010. The table does not include principal prepayments.


	One-to- Four- Family		Multi- Family		Commercial		Construction and Land		Consumer and Other		Total Gross Loans
Amounts due
One year or less	$	31	$	3,304	$	—	$	3,304	$	1,100	$	7,739

More than one year to three years		341		3,276		1,344		270		3,192		8,423
More than three years to five years		729		2,532		2,493		75		4,689		10,518
More than five years to ten years		10,041		2,538		3,821		—		178		16,578
More than ten years		87,037		3,485		5,374		147		2,685		98,728


Total due after December 31, 2011		98,148		11,831		13,032		492		10,744		134,247


Total gross loans	$	98,179	$	15,135	$	13,032	$	3,796	$	11,844	$	141,986

The following table sets forth at December 31, 2010 the dollar amount of total gross loans contractually due after December 31, 2011 and whether such loans have fixed interest rates or adjustable interest rates.


	Due After December 31, 2011
	Fixed		Adjustable		Total
Real estate loans
Residential
One-to-four-family	$	83,593	$	14,555	$	98,148
Multi-family		11,831		—		11,831
Commercial		13,032		—		13,032
Construction and land		345		147		492
Consumer and other		6,119		4,625		10,744


Total gross loans	$	114,920	$	19,327	$	134,247

Origination and Purchase of Loans. The Bank’s mortgage lending activities are conducted through its home office and three branch offices. Although the Bank may originate adjustable-rate mortgage loans, the substantial majority of the Bank’s loan originations are fixed-rate mortgage loans. While the Bank retains for its portfolio all of the mortgage loans that it originates, the Bank may, in the future, sell mortgage loans that it originates depending on market conditions and the financial condition of the Bank. The Bank has purchased loans or participated in loans originated by other institutions based upon the Bank’s investment needs and market opportunities.

The following table sets forth the Bank’s loan originations, purchases, and principal repayments for the periods indicated:


	For the Year Ended December 31,
	2010			2009			2008
Beginning balance, net	$	142,924		$	138,580		$	146,037
Loans originated
One-to-four-family		13,123			13,119			22,094
Multi-family		1,013			1,330			780
Commercial		3,419			2,067			3,337
Construction and land		335			1,289			1,492
Consumer		1,065			2,057			1,588

Total loans originated		18,955			19,862			29,291
Loan participations		(1,677	)		1,240			1,718

		17,278			21,102			31,009

Principal payments		(21,845	)		(13,618	)		(38,172	)
Transfer to real estate owned		(1,605	)		(160	)		(729	)
Change in allowance for loan losses		(2,293	)		(2,076	)		(135	)
Change in undisbursed loan funds		1,100			(904	)		570


Ending balance, net	$	135,559		$	142,924		$	138,580

One-to-Four-Family Mortgage Lending. The Bank offers mortgage loans secured by one-to-four-family residences located in the Bank’s primary market area. Loan applications are obtained by the Bank’s loan officers through their contacts with the local real estate industry, customers, and members of the local communities. The Bank’s policy is to originate one-to-four-family residential mortgage loans in amounts up to 80% of the lower of the appraised value or the selling price of the property securing the loan and up to 95% of the appraised value or selling price if private mortgage insurance is obtained. The residential mortgage loans originated by the Bank are for maturity terms of up to 30 years.

The Bank offers adjustable rate mortgage (“ARM”) loans as a means of reducing its exposure to changes in interest rates. However, the volume and types of ARM loans originated by the Bank have been affected by such market factors as the level of interest rates, competition, consumer preferences, and the availability of funds. In recent years, the Bank has not originated a significant amount of ARM loans as compared to its originations of fixed-rate loans. ARM loans pose credit risks different from the risks inherent in fixed rate loans, primarily because as interest rates rise, the underlying payments of the borrower rise, thereby increasing the potential for default. The ARM loans currently offered by the Bank do not provide for initial deep discount “teaser” interest rates. Although the Bank will continue to offer ARM loans, there can be no assurance that in the future the Bank will be able to originate a sufficient volume of ARM loans to constitute a significant portion of the Bank’s loan portfolio.

Multi-Family Lending. The Bank originates multi-family mortgage loans secured by properties located in the Bank’s primary market area. The amount of multi-family loans originated by the Bank depends upon market conditions.

Pursuant to the Bank’s current underwriting policies, a multi-family mortgage loan may be made in an amount up to 75% of the appraised value of the underlying property. In addition, the Bank generally requires a debt service ratio of 120%. Properties securing a multi-family loan are appraised by an independent appraiser. Title and property insurance are required on all multi-family loans.

The Bank’s underwriting policies require that the borrower be able to demonstrate strong management skills and the ability to maintain the property for current rental income. The borrower is required to present evidence of the ability to repay the mortgage and a satisfactory credit history. In making its assessment of the creditworthiness of the borrower, the Bank reviews the financial statements and the employment and credit history of the borrower as well as other related documentation. Loans secured by multi-family residential properties generally involve a greater degree of risk than one-to-four-family residential mortgage loans. Because payments on loans secured by multi-family properties are often dependent on successful operation or management of the properties, repayment of such loans may be subject to a greater extent to adverse conditions in the real estate market or the economy. The Bank seeks to minimize these risks through its underwriting policies, which require such loans to be qualified at origination on the basis of the property’s income and debt coverage ratio.

Commercial Real Estate Lending. The Bank originates commercial real estate loans that are generally secured by properties used for business purposes such as small office buildings or retail facilities located in its primary market areas. The Bank’s underwriting procedures provide that commercial real estate loans may be made in amounts up to the lesser of 75% of the appraised value of the property or the sales price. The Bank has generally required that the properties securing commercial real estate loans have debt service coverage ratios of at least 120%.

Loans secured by commercial real estate properties are generally larger and involve a greater degree of risk than one-to-four-family residential mortgage loans. Because payments on loans secured by commercial real estate properties are often dependent on successful operation or management of the properties, repayment of such loans is subject to adverse conditions in the real estate market or the economy. The Bank seeks to minimize these risks through its underwriting standards, which require such loans to be qualified on the basis of the property’s income and debt service ratio.

Construction and Land Lending. The Bank originates construction and land loans in its primary market areas. The Bank’s construction loans primarily are made to finance development of one-to-four-family residential properties. These loans are primarily fixed-rate loans with maturities of one year or less. The Bank’s policies provide that construction loans may be made in amounts up to 75% of the appraised value of the property for construction of one-to-four-family residences. The Bank requires an independent appraisal of the property. Loan proceeds are disbursed in increments as construction progresses and as regular inspections warrant. Land loans generally do not exceed 70% of the actual cost or current appraised value of the property at the date of origination, whichever is less.

Construction lending may be viewed as involving a greater degree of risk than one-to-four family mortgage lending. The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject property. Construction delays or the financial impairment of the builder may further impair the borrower’s ability to repay the loan.

Consumer and Other Lending. The Bank’s consumer and other loans generally consist of home equity lines of credit, automobile loans, second mortgage loans, loans secured by deposits, commercial lines of credit secured by real estate, and participations purchased.

The Bank invests in loan participations from other financial institutions in its primary market area. At December 31, 2010, the Bank had $6.1 million in loan participations serviced by others, totaling 4.30% of the gross loan portfolio. The Bank may invest in loan participations to supplement reduced loan demand, as needed. Loan participations must meet the same underwriting criteria as loans originated by the Bank. The participation and purchased loans consist of $3.0 million in one-to-four family loans and $3.1 million of commercial real estate loans.

Delinquencies and Classified Loans. The Board of Directors and management perform a monthly review of all loans sixty days or more past due. The procedures taken by the Bank with respect to delinquencies vary depending on the nature of the loan and period of delinquency. The Bank sends the borrower a written notice of nonpayment after the loan is sixteen days past the due date. If the loan is not brought current and it becomes necessary to take legal action, which occurs after a loan is delinquent at least 60 days, the Bank may commence foreclosure proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan is foreclosed upon and sold.

Federal regulations and the Bank’s Classification of Assets Policy require that the Bank utilize an internal asset classification system as a means of reporting problem and potential problem loans. The Bank has incorporated the OTS internal asset classifications as a part of its credit monitoring system. The Bank currently classifies problem and potential problem loans as “Substandard,” “Doubtful,” or “Loss” assets, depending upon the severity of the delinquency status or repayment capacity of the borrower. The likelihood of collection on the loan declines with each classification, and loans classified as “Loss” are those considered “uncollectible” and of such little value that their continuance as loans without the establishment of a specific loss allowance is not warranted. Loans that do not currently expose the Bank to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated “Special Mention.”

The Bank’s Executive Committee reviews and classifies the Bank’s loans monthly and reports the results of its review to the Board of Directors. The Bank classifies loans in accordance with the management guidelines described above. At December 31, 2010, the Bank had loans, net of undisbursed funds, classified as “Special Mention” of $1.6 million and $12.3 million of loans classified as “Substandard.” No loans were classified as “Doubtful” or “Loss.”

Nonaccrual and Past-Due Loans. The following table sets forth information regarding nonaccrual loans net of LIP and deferred fees, and other real estate owned (“REO”). It is the policy of the Bank to cease accruing interest on loans 90 days or more past due unless management determines all principal and interest due on the loan will be collected in the future. At December 31, 2010, there were six loans totaling $1.0 million that were 60 to 89 days delinquent and still accruing interest and three loans totaling $698,000 that were 90 days or more past due and still accruing interest.


	At December 31,
	2010		2009		2008		2007		2006
Nonaccrual loans
Residential real estate
One-to-four-family	$	7,950	$	5,892	$	780	$	190	$	461
Multi-family		2,195		1,155		—		—		—
Commercial		822		3,472		—		—		1,835
Construction and land		734		486		—		—		—
Consumer and other		605		323		—		—		45

Total nonaccrual loans		12,306		11,328		780		190		2,341
Total past due over 90 days still on accrual		—		—		—		—		—

Total non-performing loans		12,306		11,328		780		190		2,341
REO		1,794		1,611		1,874		2,449		2,261


Total non-performing assets	$	14,100	$	12,939	$	2,654	$	2,639	$	4,602

The Bank had $1.6 million in troubled debt restructured loans at December 31, 2010, of which $193,000 were classified as nonperforming and are included in one-to-four-family nonaccrual loans in the table above. The remaining $1.4 million of the troubled debt restructured loans are classified as performing and consist of one-to-four-family loans. At December 31, 2009, there were troubled debt restructured loans of $725,000 none of which were classified as nonperforming at that date.

Allowance for Loan Losses. Management recognizes that loan losses may occur over the life of a loan and that the allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. The assessment includes analysis of several different factors, including delinquency, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions such as unemployment rates, bankruptcies and vacancy rates of business and residential properties. The allowance is increased by the provision for loan losses, which is charged against current period earnings and decreased by the amount of actual loan charge-offs, net of recoveries.

Our methodology for analyzing the allowance for loan losses consists of two components: formula and specific allowances. The formula allowance is determined by applying an estimated loss percentage to various groups of loans. The loss percentages are generally based on various historical measures such as the amount and type of classified loans, past due ratios and loss experience, which could affect the collectability of the respective loan types. The specific allowance component is created when management believes that the collectability of a specific large loan, such as a real estate, multi-family or commercial real estate loan, has been impaired and a loss is probable

The following table sets forth activity in the Bank’s allowance for loan losses for the years set forth in the table.


	At December 31,
	2010			2009			2008			2007			2006
Balance at beginning of year	$	2,851		$	775		$	640		$	637		$	2,368
Provision for loan losses		4,130			2,222			184			75			249
Charge-offs
One-to-four-family		(473	)		(95	)		(36	)		(8	)		—
Multi-family		—			—			—			(27	)		(1,615	)
Commercial		(923	)		—			—			—			(437	)
Construction and land		(198	)		—			—			—			—
Consumer and other		(247	)		(51	)		(14	)		(37	)		(5	)

Total charge-offs		(1,841	)		(146	)		(50	)		(72	)		(2,057	)
Recoveries		4			—			1			—			77


Balance at end of year	$	5,144		$	2,851		$	775		$	640		$	637


	At December 31,
	2010			2009			2008			2007			2006
Net charge-offs to average gross loans outstanding		1.27	%		0.10	%		0.03	%		0.05	%		1.24	%

Allowance for loan losses as a percent of gross loans receivable		3.62			1.92			0.55			0.43			0.43

Allowance for loan losses as a percent of total non-performing loans		41.80			25.17			99.36			336.84			27.21

Non-performing loans as a percent of gross loans receivable⁽¹⁾		8.67			7.65			0.55			0.13			1.54

Non-performing assets as a percentage of total assets⁽²⁾		6.66			5.92			1.21			1.20			2.03

⁽¹⁾	Non-performing loans consist of nonaccrual loans and 90 days delinquent and still accruing interest.

⁽²⁾	Non-performing assets consist of non-performing loans and REO.

The following table sets forth the amount of the Bank’s allowance for loan losses by loan category, the percent of allowance for loan losses by loan category to total allowance, and the percent of gross loans by loan category to total gross loans at the dates indicated.


	At December 31,
	2010								2009								2008								2007								2006
	Amount		Percent of Allowance to Total Allowance			Percent of Gross Loans in Each Category to Total			Amount		Percent of Allowance to Total Allowance			Percent of Gross Loans in Each Category to Total			Amount		Percent of Allowance to Total Allowance			Percent of Gross Loans in Each Category to Total			Amount		Percent of Allowance to Total Allowance			Percent of Gross Loans in Each Category to Total			Amount		Percent of Allowance to Total Allowance			Percent of Gross Loans in Each Category to Total
One-to-four-family	$	3,839		74.63	%		69.15	%	$	2,026		71.05	%		65.27	%	$	529		68.26	%		65.90	%	$	319		49.85	%		58.08	%	$	139		21.82	%		57.41	%
Multi-family		410		7.97			10.66			102		3.57			12.04			108		13.93			13.73			47		7.34			16.05			68		10.67			14.94
Commercial		135		2.63			9.18			94		3.31			9.20			48		6.19			9.62			63		9.84			8.59			174		27.32			10.83
Construction and land		585		11.37			2.67			491		17.21			4.05			14		1.81			3.80			40		6.25			6.41			127		19.94			8.78
Consumer and other		175		3.40			8.34			138		4.86			9.44			76		9.81			6.95			171		26.72			10.87			129		20.25			8.04

Total allowance for loan losses	$	5,144		100.00	%		100.00	%	$	2,851		100.00	%		100.0	%	$	775		100.00	%		100.00	%	$	640		100.00	%		100.00	%	$	637		100.00	%		100.00	%

Investment Activities

The investment policies of the Company and the Bank as established by the Board of Directors attempt to provide and maintain liquidity, generate a favorable return on investments without incurring undue interest rate and credit risk, and complement the Bank’s lending activities. The policies provide the authority to invest in government agency and sponsored enterprises securities, mortgage-backed securities, corporate bonds, municipal securities, and equity securities.

Investments in mortgage-backed securities involve a risk that actual prepayments will be greater than estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby reducing or increasing, respectively, the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities. In addition, the market value of debt securities may be adversely affected by changes in interest rates.

All government sponsored enterprises securities held at December 31, 2010 are callable at the option of the issuer, which also presents prepayment risk to the Company.

The following table sets forth information regarding the carrying amount and fair values of the Company’s securities at the dates indicated.


	At December 31,
	2010				2009				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
Government sponsored enterprises	$	12,004	$	11,936	$	16,981	$	16,762	$	25,091	$	25,326
Corporate		5,004		5,073		5,010		5,095		4,089		3,816
Municipal		502		533		502		512		—		—
Mortgage-backed residential
FNMA (1)		3,599		3,726		4,167		4,228		5,526		5,432
FHLMC (2)		2,048		2,134		2,398		2,467		3,102		3,070
GNMA (3)		1,866		1,882		1,020		1,042		1,230		1,189
Equity (4)		4,486		4,747		4,493		4,672		4,762		4,762


Total available for sale	$	29,509	$	30,031	$	34,571	$	34,778	$	43,800	$	43,595

(1)	Federal National Mortgage Association.

(2)	Federal Home Loan Mortgage Corporation.

(3)	Government National Mortgage Association.

(4)

$4.7 million is invested in a mutual fund that invests primarily in Government sponsored enterprise securities backed by or representing an interest in mortgages or domestic residential housing or manufactured housing, with additional investments in U.S. government agency securities. The remaining investment of $17,000 consists of an investment in the common stock of one financial institution. During January, 2011 the Company sold its interest in the mutual fund. Gross proceeds from the sale were $4.7 million and generated a gain on the sale of $270,000.

The table below sets forth certain information regarding the carrying amount, weighted average yields, and contractual maturities of the Company’s securities as of December 31, 2010. All of the Company’s securities are classified as available for sale. Securities not due at a single maturity date, primarily mortgage-backed and equity securities, are shown in the total column only.


	At December 31, 2010
	One Year or Less					More than One Year to Five Years					More than Five Years to Ten Years					More than Ten Years					Total
	Carrying Amount		Weighted Average Yield			Carrying Amount		Weighted Average Yield			Carrying Amount		Weighted Average Yield			Carrying Amount		Weighted Average Yield			Carrying Amount		Weighted Average Yield
Government sponsored enterprises	$	—		—	%	$	1,003		1.37	%	$	7,957		2.17	%	$	2,976		2.35	%	$	11,936		2.15	%
Corporate		2,004		3.68			2,063		5.19			1,006		3.08			—		—			5,073		4.18
Municipal		—		—			533		3.89			—		—			—		—			533		3.89
Mortgage-backed residential
FNMA		—		—			—		—			—		—			—		—			3,726		2.38
FHLMC		—		—			—		—			—		—			—		—			2,134		2.49
GNMA		—		—			—		—			—		—			—		—			1,882		3.13
Equity		—		—			—		—			—		—			—		—			4,747		2.82


Total securities	$	2,004		3.68	%	$	3,599		3.93	%	$	8,963		2.27	%	$	2,976		2.35	%	$	30,031		2.74	%

All government sponsored enterprise securities are callable at the option of the issuing agency. Callable rate FHLB advances totaled $28.0 million at December 31, 2010. The Company has call risk on both the investing and borrowing positions.

Sources of Funds

General. Deposits, loan payments, cash flows generated from operations, and FHLB advances are the primary sources of the funds we use in lending, investing, and for other general purposes.

Deposits. The Bank offers a variety of deposit accounts with a range of interest rates and terms. The Bank’s deposits consist of passbook savings, NOW accounts, money market accounts, and certificates of deposit. The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates, and competition. At December 31, 2010, the Bank had $51.5 million of certificate accounts maturing in a year or less. The Bank’s deposits are obtained predominantly from the areas surrounding its banking offices. The Bank relies primarily on customer service and competitive rates to attract and retain these deposits.

At December 31, 2010, the Bank had $35.9 million in certificate accounts in amounts of $100,000 or more maturing as follows:


Maturity Period	Amount		Weighted Average Rate
Three months or less	$	3,877		1.63	%
Over three through six months		7,341		1.68
Over six through twelve months		8,520		1.19
Over twelve months		16,122		2.61


Total	$	35,860		1.98	%

The following table sets forth the distribution of the Bank’s deposit accounts for the years indicated.


	December 31,
	2010					2009					2008
	Amount		Percent of Total			Amount		Percent of Total			Amount		Percent of Total
Passbook accounts	$	30,388		20.42	%	$	29,382		19.51	%	$	27,459		19.95	%
Money market savings accounts		11,119		7.47			12,357		8.20			8,084		5.87
NOW accounts		10,010		6.73			9,573		6.36			8,500		6.18
Non-interest-bearing accounts		6,525		4.39			6,810		4.52			6,152		4.47

Total transaction accounts		58,042		39.01			58,122		38.59			50,195		36.47

Certificate accounts
0.00% to 0.99%		18,886		12.69			652		0.43			—		—
1.00% to 1.99%		35,904		24.13			28,593		18.98			2,519		1.83
2.00% to 2.99%		19,528		13.12			29,425		19.54			18,243		13.25
3.00% to 3.99%		13,601		9.14			25,079		16.65			41,271		29.98
4.00% to 4.99%		2,812		1.89			8,611		5.72			22,294		16.20
5.00% to 5.99%		24		0.02			140		0.09			3,127		2.27

Total certificate accounts		90,755		60.99			92,500		61.41			87,454		63.53

Total deposits	$	148,797		100.00	%	$	150,622		100.00	%	$	137,649		100.00	%

The following table presents, by various rate categories, the amount of certificate accounts outstanding at the dates indicated and the periods to maturity of the certificate accounts outstanding at December 31, 2010.


	Period to Maturity from December 31, 2010
	Less than 1 Year		1 to 2 Years		2 to 3 Years		3 to 4 Years		More than 4 Years		Total
Certificate accounts
0.00% to 0.99%	$	17,365	$	1,521	$	—	$	—	$	—	$	18,886
1.00% to 1.99%		19,457		13,285		2,674		275		213		35,904
2.00% to 2.99%		11,720		2,980		512		575		3,741		19,528
3.00% to 3.99%		1,677		21		1,304		5,928		4,671		13,601
4.00% to 4.99%		1,230		654		928		—		—		2,812
5.00% to 5.99%		24		—		—		—		—		24


Total	$	51,473	$	18,461	$	5,418	$	6,778	$	8,625	$	90,755

Borrowings. Although deposits are the Bank’s primary source of funds, the Bank’s policy has been to utilize borrowings, such as advances from the FHLB.

The Bank obtains advances from the FHLB upon the security of its capital stock in the FHLB of Chicago and a portion of its mortgage loans. Such advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will advance to member institutions fluctuates in accordance with the policies of the OTS and the FHLB. The Bank had $39.8 million of FHLB advances outstanding at December 31, 2010, with interest rates ranging from 1.89% to 4.68%, and that mature on various dates through October 2018. Advances totaling $28.0 million were subject to certain call options by the FHLB. If FHLB advances are called, the Company generally has the ability to refinance them, although the interest rates on new advances may be higher.

The Company’s borrowings also include collateralized borrowings through securities sold under repurchase agreements. The Company maintains physical control over the securities.

Information concerning securities sold under agreements to repurchase is summarized as follows:


	2010			2009			2008
Balance at year end	$	2,600		$	2,600		$	3,239
Maximum month-end balance during the year		2,600			3,239			3,239
Average balance during the year		2,600			2,901			3,235
Average interest rate at year end		3.15	%		3.11	%		3.92	%
Average interest rate during the year		3.15	%		3.29	%		3.96	%

Subsidiary Activities

The Company has engaged in the business of purchasing unimproved land for development into residential subdivisions of primarily single-family lots through its wholly owned subsidiaries, PBI and GPS. During the years ended December 31, 2010 and 2009 these subsidiaries were inactive.

Employees

At December 31, 2010, the Company had 57 full-time equivalent employees. None of the Company’s employees are represented by any collective bargaining group. Management considers its relationship with employees to be excellent.

SUPERVISION AND REGULATION

Banking is a highly regulated industry. The Company and the Bank are subject to numerous laws and regulations and supervision and examination by various regulatory agencies. Certain of the regulatory requirements that are or will be applicable to us are described below. This description is not intended to be a complete explanation of such statutes and regulations and their effect on us and is qualified in its entirety by reference to the actual statutes and regulations. These statutes and regulations may change in the future, and we cannot predict what effect these changes, if made, will have on our operations.

The Company, as a savings and loan holding company, is required to file certain reports with, is subject to examination by, and otherwise must comply with the rules and regulations of, the Office of Thrift Supervision (“OTS”). The Bank is subject to extensive regulation, examination and supervision by the OTS, as its primary federal regulator, and the Federal Deposit Insurance Corporation (the “FDIC”), as the insurer of its deposits; however, as discussed below in more detail, the Office of the Comptroller of the Currency (the “OCC”) will become the primary regulator of the Bank and the Board of Governors of the Federal Reserve System (the “Federal Reserve”) will become the primary federal regulator of the Company upon the merger of the OTS into the OCC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd- Frank Act”). The Bank is also a member of the Federal Home Loan Bank (the “FHLB”) of Chicago and may be subject to examination by the FHLB of Chicago. The Bank’s deposit accounts are insured up to applicable limits by the FDIC’s Deposit Insurance Fund. The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other financial institutions. The OTS and, under certain circumstances, the FDIC perform periodic examinations to evaluate the Bank’s safety and soundness and compliance with various regulatory requirements. This regulatory structure is intended primarily for the protection of customers, the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion with respect to their supervisory and enforcement activities and examination policies, including policies governing the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the OTS, the FDIC or Congress, could have a material adverse impact on us and our operations. Within approximately one year from the passage of the Dodd-Frank Act, the OCC and the Federal Reserve will assume the regulatory duties of the OTS with respect to the Bank and the Company, respectively. Consequently, the Bank will file the foregoing reports, seek regulatory approval from, and be subject to examinations by, the OCC and the Company will be subject to examinations by the Federal Reserve.

The Bank entered into a Supervisory Agreement (“the Supervisory Agreement”) with the OTS effective February 26, 2007. The Supervisory Agreement provides that the Bank will take a number of actions including, but not limited to, (1) adherence to certain regulatory compliance standards; (2) preparation of an updated three-year business plan; (3) adoption of policies and procedures relating to the preparation and filing of suspicious activities reports; (4) adoption of revised policies for the classification of assets, loan underwriting, and allowance for loan and lease losses; (5) board of director monitoring and preparation of a resolution plan for certain real estate owned property; and (6) the establishment of a board committee which will oversee corrective action relating to the recent OTS examination report, third-party reviews, and internal and external audits.

In July 2008, the Bank received notice from the OTS supplementing the Supervisory Agreement. The notification requires the Bank to obtain OTS approval for any capital distribution, including payment of a dividend from the Bank to the Company. The Bank received approval from the OTS for a $1.0 million dividend from the Bank to the Company in 2008.

On January 24, 2011, the Company entered into a Memorandum of Understanding (“Memorandum”) with the OTS. Under the terms of the MOU, the Company agreed with the OTS to, among other things, (1) provide the OTS with periodic cash flow plans, (2) not incur or redeem any debt or declare or pay any dividends without prior OTS approval, (3) submit any proposed Board or management changes to the OTS for prior approval, and (4) not enter into, revise or renew any existing compensation or employment agreements without OTS approval. Prior to the issuance of the MOU, the Company had already undertaken a number of the steps specified in the MOU including, but not limited to, the Company’s prior suspension of dividends and redemption of stock. The Company believes that it is currently in compliance with the MOU.

The Memorandum requires that a number of the above items be completed over various time frames. Failure to meet these time deadlines or comply with the Memorandum could result in the initiation of a formal enforcement action by the OTS. The Memorandum will remain in effect until terminated, modified, or suspended in writing by the OTS.

On January 24, 2011, the Bank entered into a Stipulation and Consent to Issuance of an Order to Cease and Desist (“Order”) with the OTS. Under the terms of the Order, the Bank cannot declare dividends without the prior written approval of the OTS. Other material provisions of the Order require the Bank to:

•

Submit a revised Capital and Business Plan;

•

Revise its policy with respect to the allowance for loan losses;

•

Revise its internal asset review and classification program;

•

Develop a plan for the resolution of all REO properties and any adversely classified loans in excess of $500,000;

•

Not extend additional credit to borrowers whose loan had been charged off or classified as “loss” and is uncollected;

•

Revise its Credit Concentration Program;

•

Limit its quarterly growth of average assets to net interest credited on deposits;

•

Revise its lending and collection policies and practices;

•

Enhance its written funds management and liquidity policy;

•

Obtain an independent study of management and the personnel structure of the Bank; and

•

Prepare and submit progress reports to the OTS.

The Order requires that a number of the above items be completed over various time frames. Failure to meet these time deadlines or comply with the Order could result in the initiation of further enforcement actions by the OTS. The Order will remain in effect until terminated, modified, or suspended in writing by the OTS. The Supervisory Agreement described above has been superseded by the Order.

Recent Developments

Dodd-Frank Act. On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act will likely result in dramatic changes across the financial regulatory system, some of which became effective immediately and some of which will not become effective until various future dates. Implementation of the Dodd-Frank Act will require many new rules to be issued by various federal regulatory agencies over the next several years. There will be a significant amount of uncertainty regarding the overall impact of this new law on the financial services industry until final rulemaking is complete. The ultimate impact of this law could have a material adverse impact either on the financial services industry as a whole or on the Company’s business, results of operations, and financial condition. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits, and interchange fees could increase the costs associated with deposits and place limitations on certain revenues those deposits may generate. The Dodd-Frank Act also includes provisions that, among other things, will:

•

Eliminate the OTS one year from the date of the act’s passage, and the OCC, which is currently the primary federal regulator for national banks, will become the primary federal regulator for federal thrifts, including the Bank. In addition, the Federal Reserve will supervise and regulate all savings and loan holding companies that were formerly regulated by the OTS, including the Company. It is expected that the OCC and the Federal Reserve will maintain most of the current regulations applicable to federal thrifts and their holding companies, however, these agencies will have the authority to revise such regulations in the future and it is uncertain if and when these agencies may amend or revise the regulations applicable to federal thrifts and their holding companies. In addition, the Federal Reserve will have authority to set capital levels for savings and loan holding companies.

•

Centralize responsibility for consumer financial protection by creating a new agency, the Bureau of Consumer Financial Protection, responsible for implementing, examining, and enforcing compliance with federal consumer financial laws.

•

Create the Financial Stability Oversight Council that will recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.

•

Provide mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring that the ability to repay variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans and new disclosures. In addition, certain compensation for mortgage brokers based on certain loan terms will be restricted.

•

Require financial institutions to make a reasonable and good faith determination that borrowers have the ability to repay loans for which they apply. If a financial institution fails to make such a determination, a borrower can assert this failure as a defense to foreclosure.

•

Require financial institutions to retain a specified percentage (5% or more) of certain non-traditional mortgage loans and other assets in the event that they seek to securitize such assets.

•

Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the DIF, and increase the floor on the size of the DIF, which generally will require an increase in the level of assessments for institutions with assets in excess of $10 billion.

•

Make permanent the $250,000 limit for federal deposit insurance and provide unlimited federal deposit insurance until January 1, 2013 for noninterest-bearing demand transaction accounts at all insured depository institutions.

•

Implement corporate governance revisions, including with regard to executive compensation, including say on pay votes, proxy access by shareholders, and clawback policies which apply to all public companies, not just financial institutions.

•

Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transactions and other accounts.

•

Amend the Electronic Fund Transfer Act (EFTA) to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

•

Limit the hedging activities and private equity investments that may be made by various financial institutions.

As noted above, the Dodd-Frank Act requires that the federal regulatory agencies draft many new regulations which will implement the foregoing provisions as well as other provisions contained in the Dodd-Frank Act, the ultimate impact of which will not be known for some time.

S.A.F.E. Act Requirements.

On July 28, 2010, the OTS jointly issued final rules with the Federal Reserve, OCC, FDIC, Farm Credit Administration and National Credit Union Administration which require residential mortgage loan originators who are employees of institutions regulated by the foregoing agencies, including federal savings banks, to meet the registration requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act). The S.A.F.E. Act requires residential mortgage loan originators who are employees of regulated financial institutions to be registered with the Nationwide Mortgage Licensing System and Registry, a database created by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators by the states. Employees of regulated financial institutions are generally prohibited from originating residential mortgage loans unless they are registered. According to the final rule, due to various system modifications and enhancements required to make the existing system capable to accept federal registrants, the system was not able to accept federal registrants until January 31, 2011. The Bank must register its employees before July 31, 2011 to be in compliance with the final rule.

Regulation of Federal Savings Institutions

Business Activities. Federal law and regulations, primarily the Home Owners’ Loan Act and the regulations of the OTS, govern the activities of federal savings institutions such as the Bank. These laws and regulations delineate the nature and extent of the activities in which federal savings institutions may engage. In particular, certain lending authority for federal savings institutions with respect to commercial, nonresidential real property loans and consumer loans is limited to a specified percentage of an institution’s capital or assets. As noted above, the OTS currently has responsibility for ensuring that the Bank complies with these laws and regulations, but the OCC will assume such responsibilities and duties after the OTS is merged into the OCC pursuant to the Dodd-Frank Act.

Branching. Federal savings institutions are authorized to establish branch offices in any state or states of the United States and its territories, subject to the approval or non-objection, as applicable, of the OTS.

Capital Requirements. The OTS capital regulations require federal savings institutions to meet three minimum capital standards: a 1.5% tangible capital to adjusted total assets ratio, a 4% core capital to adjusted total assets ratio (“leverage ratio”) (3% for institutions receiving the highest examination rating), and an 8% risk-based capital ratio. In addition to the above ratios, the prompt corrective action standards discussed below also establish, in effect, certain minimum ratios, which, if not met, will result in supervisory actions.

The risk-based capital standard requires federal savings institutions to maintain a Tier 1, or “core,” capital to risk-weighted assets ratio of at least 4% and a total capital to risk-based assets ratio of at least 8%. Risk-weighted assets include the following: all assets (including certain off-balance-sheet assets), certain recourse obligations, and direct credit substitutes, multiplied by a risk-weight factor of 0% to 100%, which is assigned by the OTS capital regulation based on the risks believed to be inherent in each type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and related surplus, minority interests in equity accounts of consolidated subsidiaries, non-withdrawable accounts and pledged deposits meeting certain criteria and a certain amount of remaining goodwill; less certain intangible assets, certain servicing rights, certain credit-enhancing interest-only strips and certain investments in certain subsidiaries. The components of supplementary capital include certain permanent capital instruments, certain maturing capital investments, allowances for loan and lease losses (limited to a maximum of 1.25% of risk-weighted assets), and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The OTS also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of particular circumstances. At December 31, 2010, the Bank met each of the foregoing capital requirements.

Prompt Corrective Regulatory Action. The OTS is required to take certain supervisory actions against institutions that do not meet certain minimum capital ratios, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a savings institution that has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or a leverage ratio of less than 4% (or less than 3% for institutions with the highest examination rating) is considered to be “undercapitalized.” A savings institution that has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3% is considered to be “significantly undercapitalized.” A savings institution that has a ratio of tangible equity to total assets equal to or less than 2% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the OTS is required to appoint a receiver or conservator within specified time frames for an institution that is “critically undercapitalized.” If an institution receives notice that it is “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” the institution must file a capital restoration plan with the OTS within 45 days of the receipt of such notice. Compliance with the capital restoration plan must be guaranteed by the parent holding company. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. “Significantly undercapitalized” and “critically undercapitalized” institutions are subject to more extensive mandatory regulatory actions. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

Loans to One Borrower. Federal law provides that savings institutions generally are subject to the limits on loans to one borrower applicable to national banks. A savings institution may not make a loan or extend credit, if not fully secured, to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent or extended, equal to an additional 10% of the institution’s unimpaired capital and surplus, if such additional amount is fully secured by readily marketable collateral.

Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted interagency guidelines prescribing standards for safety and soundness. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. These standards relate to, among other matters, internal controls, information systems, audit systems, loan documentation, credit underwriting, interest rate exposure, compensation, and other operational and managerial matters. If the OTS determines that a savings institution fails to meet any standard prescribed by the guidelines, the OTS may require the institution to submit an acceptable plan to achieve compliance with the standard. As referred to above, the Company has received an MOU and the Bank has received an Order from the OTS on January 24, 2011.

Limitation on Capital Distributions. OTS regulations impose limitations upon all capital distributions by a savings institution, including cash dividends, payments to repurchase its shares, and payments to stockholders of another institution in a cash-out merger. Under the regulations, an application to and the prior approval of the OTS is required before the institution makes any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under OTS regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two highest categories); if the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years; if the institution would be undercapitalized following the distribution; or if the distribution would otherwise be contrary to a statute, regulation, agreement with the OTS or condition imposed by the OTS. If an application is not required, the institution must still provide prior notice to the OTS of the capital distribution if the institution meets certain criteria (e.g., if the institution is a subsidiary of a holding company). If the Bank’s capital were to fall below its regulatory requirements or the OTS notified the Bank of necessary increased supervision, its ability to make capital distributions could be restricted (as is currently the case pursuant to the terms of the Order). In addition, the OTS could prohibit a proposed capital distribution that would otherwise be permitted by the regulations if the OTS determined that such distribution would constitute an unsafe or unsound practice.

Qualified Thrift Lender Test. Federal law requires savings institutions to meet a qualified thrift lender test. Under the test, a savings institution is required to either qualify as a “domestic building and loan association” under the Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain “qualified thrift investments” in at least nine months out of each twelve-month period. “Qualified thrift investments” primarily consist of residential mortgages and related investments, including certain mortgage-backed securities.

A savings institution that fails the qualified thrift lender test is subject to certain operating restrictions, such as restrictions on investments, activities and branching. As of December 31, 2010, the Bank maintained 93.50% of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.

Transactions with Related Parties. Federal law limits the Bank’s authority to extend credit to, and engage in certain other transactions (collectively, “covered transactions”) with, “affiliates” (e.g., any company that controls or is under common control with an institution, including the Company and its non-savings institution subsidiary). The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the unimpaired capital and surplus of the savings institution.

The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings institution’s unimpaired capital and surplus. Loans and other specified transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law. The purchase of low-quality assets from affiliates is permitted only under certain circumstances. Transactions with affiliates must be on terms and under circumstances that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliates. In addition, savings institutions are generally prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies; and no savings institution may purchase the securities of any affiliate other than a subsidiary.

The Dodd-Frank Act also included specific changes to the law related to the definition of “covered transaction” in Sections 23A and 23B and limitations on asset purchases from insiders. With respect to the definition of “covered transaction,” the Dodd-Frank Act now defines that term to include the acceptance of debt obligations issued by an affiliate as collateral for an institution’s loan or extension of credit to another person or company. In addition, a “derivative transaction” with an affiliate is now deemed to be a “covered transaction” to the extent that such a transaction causes an institution or its subsidiary to have a credit exposure to the affiliate. A separate provision of the Dodd-Frank Act states that an insured depository institution may not “purchase an asset from, or sell an asset to” a bank insider (or their related interests) unless (1) the transaction is conducted on market terms between the parties, and (2) if the proposed transaction represents more than 10 percent of the capital stock and surplus of the insured institution, it has been approved in advance by a majority of the institution’s non-interested directors.

The Bank’s authority to extend credit to its executive officers, directors and stockholders that own, control or have the power to vote more than 10% of any class of the institution’s voting stock (“insiders”), as well as entities affiliated with such persons, is limited. The Bank is restricted both in the individual and the aggregate amount of loans it may make to insiders based, in part, on the Bank’s capital position and the requirement that the Bank follow certain board approval procedures. Such loans must be made on terms substantially the same as those offered to non-insiders and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Certain additional restrictions apply to loans or extensions of credit to executive officers.

Enforcement. The OTS has primary enforcement responsibility over federal savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, attorneys, appraisers, and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors or termination of deposit insurance. An insured institution or institution-affiliated party may also be assessed civil money penalties and/or criminal penalties for certain violations.

Assessments. Federal savings institutions must pay assessments to the OTS to fund its operations. The general assessments, paid on a semiannual basis, are based upon the savings institution’s size, condition, and complexity of business.

Insurance of Deposit Accounts. Due to the recent difficult economic conditions in the United States, deposit insurance per account owner was increased from $100,000 to $250,000 through December 31, 2013. The Dodd-Frank Act has now made this change in deposit insurance permanent and, as a result, each account owner’s deposits will be insured up to $250,000 by the FDIC.

In addition, the FDIC adopted an optional Temporary Liquidity Guarantee Program (“TLGP”) in October of 2008 by which, for a fee, noninterest bearing transaction accounts received unlimited FDIC insurance coverage through December 31, 2010 and certain senior unsecured debt issued by institutions and their holding companies would be guaranteed by the FDIC through December 31, 2012. We elected to participate in both the unlimited non-interest bearing transaction account coverage and the unsecured debt guarantee program.

Under the Transaction Account Guarantee Program (“TAGP”), the FDIC provided unlimited deposit insurance coverage initially through December 31, 2009 for non-interest bearing transaction accounts (typically business checking accounts) and certain funds swept into non-interest bearing savings accounts. Institutions that participated in the TAGP paid a 10 basis points fee (annualized) on the balance of each covered account in excess of $250,000, while the additional deposit insurance was in place. The FDIC authorized an extension of the TAGP through December 31, 2010 for institutions participating in the original TAGP, unless an institution opted out of the extension period. During the extension period, fees increased to 15 to 25 basis points depending on an institution’s risk category for deposit insurance purposes. Importantly, the Dodd-Frank Act now provides for unlimited deposit insurance coverage on non-interest bearing transaction accounts, including IOLTA’s but excluding interest bearing NOW accounts, without an additional fee at insured institutions such as the Bank through December 31, 2012.

The TLGP also included the Debt Guarantee Program (“DGP”), under which the FDIC guarantees certain senior unsecured debt issued by FDIC-insured institutions and their holding companies. The Company did not issue any debt under the DGP. The FDIC also established an emergency debt guarantee facility through April 30, 2010 through which institutions that are unable to issue non-guaranteed debt to replace maturing senior unsecured debt because of market disruptions or other circumstances beyond their control may apply on a case-by-case basis to issue FDIC-guaranteed senior unsecured debt. The FDIC guarantee of any debt issued under this emergency facility would be subject to an annualized assessment rate equal to a minimum of 300 basis points. The Company did not issue any debt under this program. The Dodd-Frank Act also authorizes the FDIC to guarantee debt of solvent institutions and their holding companies in a manner similar to the DGP; however, the FDIC and the Federal Reserve must make a determination that there is a liquidity event that threatens the financial stability of the United States and the United States Department of the Treasury must approve the terms of the guarantee program.

The Bank’s deposits are insured up to the applicable limits under the DIF. The DIF is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund. The FDIC maintains the DIF by assessing depository institutions an insurance premium. Pursuant to the Dodd-Frank Act, the FDIC is required to set a DIF reserve ratio of 1.35% of estimated insured deposits and is required to achieve this ratio by September 30, 2020. Also, the Dodd-Frank Act has eliminated the 1.50% ceiling on the reserve ratio and provides that the FDIC is no longer required to refund amounts in the DIF that exceed 1.50% of insured deposits.

Under the FDIC’s risk-based assessment system, insured institutions are required to pay deposit insurance premiums based on the risk that each institution poses to the DIF. An institution’s risk to the DIF is measured by its regulatory capital levels, supervisory evaluations, and certain other factors. Each depository institution is assigned to one of three capital groups: “well capitalized,” “adequately capitalized,” or “undercapitalized.” Within each capital group, institutions are assigned to one of three supervisory subgroups: “A” (institutions with few minor weaknesses); “B” (institutions demonstrating weaknesses that, if not corrected, could result in significant deterioration of the institution and increased risk of loss to the DIF); and “C” (institutions that pose a substantial probability of loss to the DIF unless effective corrective action is taken). Accordingly, there are nine combinations of capital groups

and supervisory subgroups to which varying assessment rates would be applicable. An institution’s assessment rate depends on the capital category and supervisory category to which it is assigned. As noted above, pursuant to the Dodd-Frank Act, the FDIC will calculate an institution’s assessment level based on its total average consolidated assets during the assessment period less average tangible equity (i.e., Tier 1 capital) as opposed to an institution’s deposit level which was the previous basis for calculating insurance assessments.

Prior to the passage of the Dodd-Frank Act, assessments for FDIC deposit insurance ranged from seven to seventy-seven basis points per $100 of assessable deposits. On May 22, 2009, the FDIC imposed a special assessment of five basis points on each institution’s assets minus Tier 1 capital as of June 30, 2009, which was payable to the FDIC on September 30, 2009. The Bank paid a total of $2.2 million in deposit insurance assessments in 2009 including $495,000 related to the special assessment. No institution may pay a dividend if it is in default on its federal deposit insurance assessment. Also during 2009, the FDIC adopted a rule requiring each insured institution to prepay on December 30, 2009 the estimated amount of its quarterly assessments for the fourth quarter of 2009 and all quarters through the end of 2012 (in addition to the regular quarterly assessment for the third quarter which was due on December 30, 2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will continue to record quarterly expenses for deposit insurance. Collection of the prepayment amount does not preclude the FDIC from changing assessment rates or revising the risk-based assessment system in the future. If events cause actual assessments during the prepayment period to vary from the prepaid amount, institutions will pay excess assessments or receive a rebate of prepaid amounts not fully utilized after the collection of assessments due in June 2013. The amount of the Bank’s prepayment was $6.6 million.

In connection with the Dodd-Frank Act’s requirement that insurance assessments be based on assets, the FDIC has recently issued the final rule that provides that assessments be based on an institution’s average consolidated assets (less average tangible equity) as opposed to its deposit level. The FDIC has stated that the new assessment schedule, which will be effective as of April 1, 2011, should result in the collection of assessment revenue that is approximately revenue neutral compared to the current method of calculating assessments. Pursuant to this new rule, the assessment base will be larger than the current assessment base, but the new rates are lower than current rates, ranging from approximately 2.5 basis points to 45 basis points (depending on applicable adjustments for unsecured debt and brokered deposits) until such time as the FDIC’s reserve ratio equals 1.15%. Once the FDIC’s reserve ratio equals or exceeds 1.15%, the applicable assessment rates may range from 1.5 basis points to 40 basis points.

In addition to the FDIC insurance premiums, the Bank is required to make quarterly payments on bonds issued by the Financing Corporation (FICO), an agency of the Federal government established to recapitalize a predecessor deposit insurance fund. During 2010, the Bank’s FICO assessment totaled approximately $15,000. These assessments will continue until the FICO bonds are repaid between 2017 and 2019.

Federal Home Loan Bank (FHLB) System. The Bank is a member of the FHLB of Chicago. The FHLB system consists of twelve regional Federal Home Loan Banks. The FHLB provides a central credit facility primarily for member institutions. The Bank, as a member of the FHLB of Chicago, is required to acquire and hold shares of capital stock in the FHLB in an amount at least equal to 1.0% of the aggregate principal amount of its unpaid loans, or 5% of its aggregate amount of outstanding advances (borrowings) from the FHLB, whichever is greater. The Bank was in compliance with this requirement with an investment in FHLB stock at December 31, 2010, of $5.4 million.

The Federal Home Loan Banks are required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and could also result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. The FHLB of Chicago has not paid a dividend from 2007 through 2010; the elimination of the dividend has reduced our net interest income. During the first quarter of 2011, the Bank did receive a dividend; however, future dividends will be dependent on the financial results of the FHLB of Chicago. If interest on future Federal Home Loan Bank advances were increased, our net interest income would likely also be reduced.

Community Reinvestment Act. Under the Community Reinvestment Act, as implemented by OTS regulations, a savings institution has a continuing and affirmative obligation consistent with safe and sound operations to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the safe and sound operations. The Community Reinvestment Act requires the OTS, in connection with its examination of a savings institution, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the institution.

The Community Reinvestment Act requires public disclosure of an institution’s Community Reinvestment Act examination rating and requires the OTS to provide a written evaluation of a bank’s Community Reinvestment Act performance utilizing a four-tiered descriptive rating system. The Bank received an “outstanding” rating as a result of its most recent Community Reinvestment Act assessment.

Liquidity. A federal savings institution is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.

Prohibitions Against Tying Arrangements. Federal savings institutions are prohibited, subject to certain exceptions, from extending credit or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Privacy Requirements. Federal laws and regulations govern an institution’s treatment of nonpublic personal information with respect to an institution’s consumers. Generally, the law requires an institution to provide notice to consumer customers about its privacy policies and practices, permits an institution to disclose nonpublic personal information about consumer customers to nonaffiliated third parties only under certain conditions, and requires an institution to provide consumer customers with a method and reasonable opportunity to “opt out” before the institution discloses any of the consumer customer’s information to certain nonaffiliated third parties.

Anti-Money Laundering and the Bank Secrecy Act. Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required to report cash transactions involving more than $10,000 to the United States Treasury. In addition, financial institutions are required to file suspicious-activity reports for transactions that involve more than $5,000 and that the financial institution knows, suspects or has reason to suspect involve illegal funds, are designed to evade the requirements of the BSA or have no lawful purpose.

The USA PATRIOT Act of 2001 (the “PATRIOT Act”), which amended the BSA, contains anti-money laundering and financial transparency provisions, as well as enhanced information collection tools and enforcement mechanisms for the U.S. government. PATRIOT Act provisions include the following: standards for verifying customer identification when opening accounts; rules to promote cooperation among financial institutions, regulators and law enforcement; and due diligence requirements for financial institutions that administer, maintain or manage certain bank accounts.

The Bank is subject to BSA and PATRIOT Act requirements. The OTS carefully reviews an institution’s compliance with these requirements when examining an institution and considers the institution’s compliance when evaluating an application submitted by an institution. The OTS may require an institution to take various actions to ensure that it is meeting the requirements of these acts.

Consumer Protection Laws. The Bank is subject to numerous consumer protection laws and regulations, such as the following: the Truth-In-Lending Act; the Home Mortgage Disclosure Act of 1975; the Equal Credit Opportunity Act; the Fair Credit Reporting Act of 1978; and rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. Among other things, these statutes and regulations:

•

require lenders to disclose credit terms in meaningful and consistent ways;

•

prohibit discrimination against an applicant in any consumer or business credit transaction;

•

prohibit discrimination in housing-related lending activities;

•

require certain lenders to collect and report applicant and borrower data regarding loans for home purchases or improvement projects;

•

require lenders to provide borrowers with information regarding the nature and cost of real estate settlements;

•

prohibit certain lending practices and limit escrow account amounts with respect to real estate transactions;

•

require financial institutions to implement identity theft prevention programs and measures to protect the confidentiality of consumer financial information; and

•

prescribe possible penalties for violations of the requirements of consumer protection statutes and regulations.

As noted above, the new Bureau of Consumer Financial Protection will now have authority for amending existing consumer compliance regulations and implementing new such regulations. In addition, the Bureau will have the power to examine the compliance of financial institutions with in excess of $10 billion in assets with these consumer protection rules. The Bank’s compliance with consumer protection rules will be examined by the OTS/OCC since the Bank does not meet this $10 billion asset level threshold.

Savings and Loan Holding Company Regulation

General. The Company is a savings and loan holding company within the meaning of federal law. As such, the Company is registered with the OTS and is subject to OTS regulations, examinations, supervision and reporting requirements. In addition, the OTS has enforcement authority over the Company and its subsidiaries. Among other things, this authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the Bank. As noted above, the Federal Reserve will be responsible for regulating savings and loan holding companies in the future and will have responsibility for implementing the regulations applicable to the Company as described herein.

Restrictions Applicable to Savings and Loan Holding Companies. According to federal law and OTS regulations, savings and loan holding companies may engage only in certain activities. Activities permissible for savings and loan holding companies include: (1) acquiring control of a savings association; (2) furnishing or performing management services for a subsidiary savings association of such holding company; (3) holding, managing or liquidating assets owned or acquired from a savings association subsidiary of such holding company; (4) holding or managing properties used or occupied by a savings association subsidiary of such holding company; and (5) any activity approved by the Federal Reserve Board for a bank holding company or financial holding company or previously approved by the OTS for multiple savings and loan holding companies.

In 1999, the Gramm-Leach-Bliley Act (“GLB Act”) was enacted, which, among other things, established a comprehensive framework to permit affiliations among commercial banks, insurance companies and securities firms. The GLB Act also prohibited new unitary savings and loan holding companies from engaging in nonfinancial activities or affiliating with nonfinancial entities. Unitary savings and loan holding companies in existence or with applications filed with the OTS on or before May 4, 1999, such as the Company, however, retained their authority under the prior law. All other unitary savings and loan holding companies are limited to financially related activities permissible for bank holding companies. The GLB Act also prohibited non-financial companies from acquiring grandfathered unitary savings and loan association holding companies.

Federal law prohibits a savings and loan holding company from directly or indirectly, or through one or more subsidiaries, acquiring more than 5% of a savings association or a savings and loan holding company without prior written approval of the OTS. Federal law also prohibits a savings and loan holding company from acquiring more than 5% of a company engaged in activities other than those authorized for savings and loan holding companies by federal law or acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by savings and loan holding companies to acquire savings institutions, the OTS must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors.

The OTS is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, unless the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

The Company does not believe that the GLB Act has had thus far, or will have in the near future, a material adverse effect upon its operations in the near term. However, to the extent the GLB Act permits banks, securities firms, and insurance companies to affiliate, the financial services industry may experience further consolidation. This could result in a growing number of larger financial institutions that offer a wider variety of financial services than the Company currently offers and that can aggressively compete in the markets the Company currently serves.

Acquisition of Control. Under the federal Change in Bank Control Act, a notice must be submitted to the OTS if any person (including a company), or group acting in concert, seeks to acquire “control” of a savings and loan holding company or savings institution. An acquisition of “control” can occur upon the acquisition of 10% or more of the voting stock of a savings and loan holding company or savings institution or in a manner otherwise defined by the OTS. Under the Change in Bank Control Act, the OTS has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the antitrust effects of the acquisition. Any company that acquires control would then be subject to regulation as a savings and loan holding company.

2008 Emergency Economic Stabilization Act

On October 3, 2008, the U.S. Congress enacted the Emergency Economic Stabilization Act (“EESA”). EESA authorized the Secretary of the U.S. Department of the Treasury (“Treasury”) to purchase up to $700 billion in troubled assets from qualifying financial institutions pursuant to the Troubled Asset Relief Program (“TARP”). On October 14, 2008, the Treasury, pursuant to its authority under EESA, announced the CPP. Pursuant to the CPP, qualifying public financial institutions were allowed to issue senior preferred stock to the Treasury in an amount not less than 1% of the institution’s risk-weighted assets and not more than 3% of the institution’s risk-weighted assets or $25 billion, whichever is less. Financial institutions participating in the CPP were required to agree and comply with certain restrictions, including restrictions on dividends, stock redemptions and repurchases, and executive compensation. Finally, Treasury may unilaterally amend any provision of the CPP to comply with changes in applicable federal statutes. Neither the Company nor the Bank is participating in the CPP.

ITEM 1A.

RISK FACTORS

Our business, operating results and financial condition are subject to various risks and uncertainties, including, without limitation, those set forth below, any of which could cause our actual results to vary materially from recent results or from our anticipated future results. Set forth below are certain risk factors which we believe to be relevant to an understanding of our business. You should carefully consider the risks and uncertainties described below together with all of the information included in this report, including our consolidated financial statements and related notes for the year ended December 31, 2010. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known or that are currently deemed immaterial also may have a material adverse effect on our business, operating results and financial condition.

Continued adverse conditions in the U.S. economy, and in particular the greater Chicago area, could have a material adverse effect on our business and results of operations.

Over the past three years, the strength of the U.S. economy in general and the strength of the economy in the Chicago area in particular has declined. A sustained deterioration in national or local economic conditions could result in, among other things, a continuation in the deterioration of our credit quality or a reduced demand for credit, including a resultant effect on our loan portfolio and allowance for loan losses. These factors could result in even higher delinquencies and greater charge-offs in future periods, which would materially adversely affect our business, financial condition and results of operations. Continued, sustained weakness in business and economic conditions generally or in the Chicago-area markets has and may continue to cause a decrease in the demand for loans and other products and services that we offer and/or an increase in the number of borrowers or other counterparties who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us.

An increase in the number of delinquencies, bankruptcies or defaults would result in a higher level of non-performing assets, net charge-offs, provision for loan losses, and valuation adjustments on loans held for sale, which would materially adversely affect our business, financial condition and results of operations.

Current and further deterioration in the housing market could cause continued increases in delinquencies and non-performing assets, including loan charge-offs, and further depress our income and growth.

As we have experienced during 2010, the volume and credit quality of our one-to-four family and multi-family residential mortgages and loans may decrease during economic downturns as a result of, among other things, a decrease in real estate values, an increase in unemployment, decreased or nonexistent housing price appreciation or increases in interest rates. These factors could reduce our earnings and consequently our financial condition because borrowers may not be able to repay their loans, the value of the collateral securing our loans and the quality of our loan portfolio may decline and customers may not want or need our products and services.

Any of these scenarios could cause an increase in delinquencies and non-performing assets, require us to charge off a higher percentage of our loans, increase substantially our provision for losses on loans, or make fewer loans, which would reduce income.

Our allowance for loan losses may be insufficient to absorb losses in our loan portfolio.

Lending money is a substantial part of our business. Every loan we make carries a certain risk of non-payment. This risk is affected by, among other things:

•

The credit risks posed by the particular borrower;

•

Changes in economic and industry conditions;

•

The duration of the loan; and

•

In the case of a collateralized loan, the changes and uncertainties as to the future value of the collateral, including a decline in real estate value.

We maintain an allowance for loan losses which management believes is sufficient to absorb probable incurred credit losses inherent in our loan portfolio. See “Item 1.—Business—Lending Activities—Allowance for Loan Losses.” The allowance for loan losses represents our estimate of probable losses in the portfolio at each balance sheet date and is supported by all available and relevant information. As a percentage of gross loans, the allowance was 3.62% at December 31, 2010. Over the past year, we substantially increased our allowance as a percentage of gross loans based on management’s analysis of our credit quality, including a significant increase in non-performing loans, a decrease in real estate values in our lending markets and other factors. Our regulators review the adequacy of our allowance and, through the examination process, have authority to compel us to increase our allowance even if we believe it is adequate. We cannot predict whether our regulators would ever compel us to increase our allowance. Although we believe our loan loss allowance is adequate to absorb probable incurred losses in our loan portfolio, the allowance may not be adequate. If our actual loan losses exceed the amount that is anticipated, our earnings could suffer.

Our Company is highly regulated and may be adversely affected by changes in banking laws, regulations, and regulatory practices and enforcement actions.

We are subject to extensive supervision, regulation and examination. This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies to address not only compliance with applicable laws and regulations (including laws and regulations governing consumer credit, and anti-money laundering and anti-terrorism laws), but also capital adequacy, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. As part of this regulatory structure, we are subject to policies and other guidance developed by the regulatory agencies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Under this structure the regulatory agencies have broad discretion to impose restrictions and limitations on our operations if they determine, among other things, that our operations are unsafe

or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies. This supervisory framework could materially impact the conduct, growth and profitability of our operations. Any failure on our part to comply with current laws, regulations, other regulatory requirements or safe and sound banking practices or concerns about our financial condition, or any related regulatory sanctions or adverse actions against us, could increase our costs or restrict our ability to operate our business and result in damage to our reputation. Finally, any material failure to comply with the provisions of the Memorandum of Understanding or the Order to Cease and Desist, which we entered into with the Office of Thrift Supervision (“OTS”) in January 2011, could result in additional enforcement actions by the OTS. While the Company intends to take such actions as may be necessary to comply with the requirements of the MOU and the Order, there can be no assurance that the Company will be able to comply fully, or that efforts to comply with the MOU and the Order will not have adverse effects on the operations and financial condition of the Company and the Bank.

The impact of the recently enacted Dodd-Frank Act is still uncertain, is expected to increase our regulatory compliance burden and costs of doing business and could result in enhanced capital and leverage requirements and restrictions on certain products and services we offer.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), a sweeping financial reform bill, was signed into law. This new law will result in a number of new regulations that potentially could impact community banks. The act includes, among other things, provisions establishing a Bureau of Consumer Financial Protection, which will have broad authority to develop and implement rules regarding most consumer financial products; provisions affecting corporate governance and executive compensation at all publicly traded companies; provisions that broaden the base for FDIC insurance assessments and permanently increase FDIC deposit insurance to $250,000; and new restrictions on how mortgage brokers and loan originators may be compensated. These provisions, or any other aspects of current proposed regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities or change certain of our business practices, including our ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to our business in order to comply, and could therefore also materially adversely affect our business, financial condition and results of operations. See “Supervision and Regulation”.

High loan-to-value ratios on a portion of our residential mortgage loan portfolio expose us to greater risk of loss.

Many of our residential mortgage loans are secured by liens on mortgage properties in which the borrowers have little or no equity because of the recent decline in home values in our market area. Residential loans with high loan-to-value ratios will be more sensitive to declining property values than those with lower combined loan-to-value ratios and, therefore, may experience a higher incidence of default and severity of losses. In addition, if the borrowers sell their homes, such borrowers may be unable to repay their loans in full from the sale proceeds. As a result, these loans may experience higher rates of delinquencies, defaults and losses.

If our investments in real estate are not properly valued or sufficiently reserved to cover actual losses, or if we are required to increase our valuation reserves, our earnings could be reduced.

We obtain updated valuations in the form of appraisals and broker price opinions when a loan has been foreclosed and the property taken in as real estate owned, and at certain other times during the asset’s holding period. Our net book value (“NBV”) in the loan at the time of foreclosure and thereafter is compared to the updated market value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s NBV over its fair value. If our valuation process is incorrect, the fair value of our investments in real estate may not be sufficient to recover our NBV in such assets, resulting in the need for additional charge-offs. Additional material charge-offs to our investments in real estate could have a material adverse effect on our financial condition and results of operations.

In addition, bank regulators periodically review our real estate owned and may require us to recognize further charge-offs. Any increase in our charge-offs, as required by such regulators, may have a material adverse effect on our financial condition and results of operations.

We may be adversely affected by interest rate changes.

Our operating results are largely dependent on our net interest income. Fluctuations in interest rates may significantly affect our net interest income, which is the difference between the interest income earned on earning assets, usually loans and investment securities, and the interest expense paid on deposits and borrowings. The interest rate environment over the last three years has continued to compress our net interest margin. Also, if market rates increase, we expect our net interest margin to continue to decrease. We are unable to predict fluctuations in interest rates, which are affected by factors including: monetary policy of the Federal Reserve, inflation or deflation, recession, unemployment rates, money supply and instability in domestic and foreign financial markets.

We may not be able to access sufficient and cost-effective sources of liquidity necessary to fund our requirements.

We depend on access to a variety of funding sources to provide sufficient liquidity to meet our commitments and business needs and to accommodate the transaction and cash management needs of our customers, including funding current loan commitments. Currently, our primary sources of liquidity are our customers’ deposits, as well as Federal Home Loan Bank advances, amortization and prepayment of loans, maturities of investment securities and other short-term investments, and earnings and funds provided from operations.

Across the banking industry, access to liquidity has tightened in the form of reduced borrowing lines and/or increased collateral requirements. To the extent our balance sheet (customer deposits and principal reductions on loans and securities) is not sufficient to fund our liquidity needs, we rely on alternative funding sources, which may be more expensive than organic sources. In the past, the Federal Home Loan Banks have provided cost-effective and convenient liquidity to many community banks, such as the Bank. However, current economic conditions have created earnings and capital challenges for some of the Federal Home Loan Banks that could limit (or preclude) their ability to provide adequate liquidity.

Increases in deposit insurance premiums and special FDIC assessments will hurt our earnings.

The FDIC sets the rates for deposit insurance premiums to maintain the Deposit Insurance Fund and may impose additional emergency special assessments to maintain public confidence in federal deposit insurance or as a result of deterioration in the Deposit Insurance Fund reserve ratio due to institution failures. An increase in these rates will have a negative impact on the Company’s earnings.

We will incur additional expenses managing real estate acquired through foreclosure.

We have foreclosed and continue to foreclose on the property securing certain non-performing loans in our portfolio. These foreclosures may result in charge-offs and other expenses for items such as property management and legal fees, which will have a negative affect on future earnings. Future impairments may also occur if real estate values continue to decline.

We will incur additional expenses related to the issuance of the Cease and Desist Order.

We will incur additional expenses as a result of the Order to Cease and Desist that the Company entered into with the OTS on January 24, 2011. Certain operating costs tend to increase at financial institutions that are subject to Cease and Desist Orders issued by regulatory agencies. Such expenses include, but are not limited to, professional fees, such as legal, consulting and independent accountant’s fees; insurance, such as blanket bond and Directors and Officers liability insurance; regulatory costs, such as the FDIC insurance premiums and OTS assessments.

Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.

We face substantial competition in all phases of our operations from a variety of different competitors. Our future growth and success will depend on our ability to compete effectively in this highly competitive environment. We compete for loans and deposits in our geographic markets with other commercial banks, thrifts, credit unions and brokerage firms operating in the markets we serve. Many of our competitors offer products and services which we do not, and many have substantially greater resources, name recognition and market presence that benefit them in attracting business. In addition, larger competitors may be able to price loans and deposits more aggressively than we do. Also, technological advances and the continued growth of internet-based banking and financial services have made it possible for non-depositary institutions to offer a variety of products and services competitive with certain areas of our business. Some of the financial institutions and financial services organizations with which we compete are not subject to the same degree of regulation as is imposed on bank holding companies, savings and loan holding companies, federally insured, state-chartered banks, federal savings banks, thrifts and national banks. As a result, these nonbank competitors have certain advantages over us in accessing funding and in providing various products and services.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.

From time to time, the Financial Accounting Standards Board and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.

PROPERTIES

The Company is located and conducts its business at the Bank’s main office at 5400 South Pulaski Road, Chicago, Illinois 60632. In addition to the main office, the Bank has three branch locations at 2740 West 55^th Street, Chicago, Illinois, 1835 West 47^th Street, Chicago, Illinois and 21 East Ogden Avenue, Westmont, Illinois 60559. The Company owns all four of its offices. The Company believes that the current facilities are adequate to meet its present and immediately foreseeable needs.

ITEM 3.

LEGAL PROCEEDINGS

The Company and the Bank are not involved in any pending proceedings other than the legal proceedings occurring in the ordinary course of business. Such legal proceedings in the aggregate are believed by management to be immaterial to the Company’s business, financial condition, consolidated results of operations or cash flows.

ITEM 4.

(REMOVED AND RESERVED)

PART II

ITEM 5.

MARKET FOR COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is traded on the The NASDAQ Capital Market under the symbol “PFED.” The Company had 194 stockholders of record at March 28, 2011. The table below shows the reported high and low sales price of the common stock and dividends declared during the periods indicated in 2010 and 2009.


	2010						2009
	High		Low		Dividends Declared		High		Low		Dividends Declared
First quarter	$	7.30	$	3.41	$	—	$	5.98	$	2.85	$	—
Second quarter		5.65		4.15		—		10.95		4.00		—
Third quarter		4.66		4.25		—		9.79		5.21		—
Fourth quarter		5.07		3.25		—		7.29		3.14		—

Dividend Policy

The Company’s Board of Directors has the authority to declare dividends on the Company’s common stock, subject to statutory and regulatory requirements. During 2010 and 2009, the Company did not declare or pay any dividends on its common stock. The payment of dividends in the future, if any, would depend upon a number of factors, including capital requirements, the Company’s financial condition and results of operations, tax considerations, statutory and regulatory limitations and general economic conditions. Special cash dividends, stock dividends or returns of capital may, to the extent permitted by OTS policy and regulations, be paid in addition to, or in lieu of, regular cash dividends.

Any dividends that the Company pays in the future may depend, in part, upon receipt of dividends from the Bank, because the Company generally has no source of income other than dividends from the Bank, earnings from the investment of proceeds from the sale of shares of common stock, and interest payments with respect to the loan to the employee stock ownership plan. A regulation of the OTS imposes limitations on “capital distributions” by savings institutions. See “Supervision and Regulation—Regulation of Federal Savings Institutions—Limitation on Capital Distributions”. Pursuant to the Stipulation and Consent to Issuance of an Order to Cease and Desist, entered into by the Bank with the OTS in January 2011, the Bank must obtain the prior approval of the OTS for any capital distributions, including the payment of a dividend from the Bank to the Company. Moreover, pursuant to the Memorandum of Understanding entered into by the Company with the OTS, the Company must obtain prior approval of the OTS to pay any dividends on its common stock. See “Supervision and Regulation”.

Issuer Repurchases of Equity Securities

The Company’s Board of Directors approved the repurchase by the Company of up to 50,000 shares of its common stock pursuant to a repurchase program that was publicly announced on July 31, 2008. No shares were repurchased during 2010 and 43,682 shares remain available for repurchase under the program. Pursuant to the Memorandum of Understanding entered into by the Company with the OTS, the Company must obtain prior approval of the OTS to repurchase any of its common stock.

ITEM 6.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth selected historical financial and other data of the Company for the periods and at the dates indicated. The information should be read in conjunction with the Consolidated Financial Statements and Notes thereto of the Company contained elsewhere herein.

Selected Financial Data


	At or for the year ended December 31,
	2010			2009			2008			2007			2006
Total assets	$	211,789		$	218,613		$	219,600		$	220,052		$	227,189
Cash and cash equivalents		19,018			11,975			8,859			15,443			15,293
Securities available for sale		30,031			34,778			43,595			33,782			40,017
Loans receivable, net⁽¹⁾		135,559			142,924			138,580			146,037			148,176
Deposits		148,797			150,622			137,649			136,974			142,928
Securities sold under repurchase agreements		2,600			2,600			3,239			3,234			3,227
FHLB advances		39,800			39,985			48,860			46,139			47,208
Stockholders’ equity		18,023			22,948			26,866			30,277			29,120
Interest income		9,366			10,217			11,452			11,990			12,298
Interest expense		3,667			5,190			6,039			6,457			6,436
Net interest income		5,699			5,027			5,413			5,533			5,862
Provision for loan losses		4,130			2,222			184			75			249
Non-interest income		539			618			563			793			652
Non-interest expense		7,463			7,375			9,185			6,602			6,411
Income tax expense (benefit)		—			323			(1,026	)		(234	)		(146	)
Net income (loss)		(5,355	)		(4,275	)		(2,367	)		(117	)		—

Selected Financial Ratios and Other Data


	At or for the Year Ended December 31,
	2010			2009			2008			2007			2006
Performance ratios:
Return on average assets		(2.48	)%		(1.91	)%		(1.06	)%		(0.05	)%		—	%
Return on average equity		(24.52	)		(16.43	)		(8.15	)		(0.38	)		—
Average equity to average assets		10.13			11.62			12.99			13.92			12.70
Net interest rate spread⁽²⁾		2.94			2.41			2.49			2.55			2.53
Net interest margin⁽³⁾		3.00			2.55			2.72			2.78			2.74
Efficiency ratio⁽⁴⁾		119.64			130.65			153.70			104.36			98.42
Non-interest expense to average assets		3.46			3.29			4.11			3.00			2.75

Asset quality ratios:
Non-performing loans as a percent of gross loans receivable⁽⁶⁾		8.67	%		7.65	%		0.55	%		0.13	%		1.54	%
Non-performing assets as a percentage of total assets⁽⁵⁾		6.66			5.92			1.21			1.20			2.03
Allowance for loan losses as a percent of gross loans receivable		3.62			1.92			0.55			0.43			0.43
Allowance for loan losses as a percent of non-performing loans⁽⁶⁾		41.80			25.17			99.36			336.84			27.21

Other data:
Number of full service offices		4			4			4			3			3

⁽¹⁾	The allowance for loan losses at December 31, 2010, 2009, 2008, 2007, and 2006 was $5,144, $2,851, $775, $640 and $637, respectively.

⁽²⁾	The net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

⁽³⁾	The net interest margin represents net interest income as a percent of average interest-earning assets.

⁽⁴⁾	The efficiency ratio represents non-interest expense as a percent of net interest income before the provision for loan losses and non-interest income.

⁽⁵⁾	Non-performing assets consist of non-performing loans and REO.

⁽⁶⁾	Non-performing loans consist of all loans over 90 days or more past due and all other nonaccrual loans.

The Company paid dividends in 2006 through 2008; however, no dividend payout ratio is shown because the Company had no earnings in those years. No dividends were paid in 2009 or 2010.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview and Recent Developments

The Company’s results of operations depend primarily on its net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities, mortgage-backed securities and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting primarily of savings accounts, checking accounts, time deposits and FHLB advances. The Company’s results of operations also are affected by its provisions for loan losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charge income, earnings on bank-owned life insurance, gains and losses on the sale of securities and miscellaneous other income. Non-interest expense currently consists primarily of salaries and employee benefits, real estate or investment securities impairment charges, occupancy, data processing, professional fees, and other operating expenses. The Company’s results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Since 2008, there have been severe disruptions in the mortgage, credit and housing markets, both locally and nationally. These disruptions have had a significant negative impact on real estate and related industries, which has led to decreases in commercial and residential real estate sales, construction and property values. As a result of these factors, among others, we have experienced a reduction in demand for new loans and an increase in the amount of non-performing loans. At December 31, 2010, non-performing loans represented 8.67% of gross loans, compared to 7.65% at December 31, 2009. Should the housing market and economic conditions in the Chicago-area not improve, it will continue to have a material negative effect on the Company’s business, financial condition and results of operations.

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 Litigation Reform Act of 1995, as amended, and is including this statement for purposes of invoking 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 and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future unless required to do so under the federal securities laws. Factors that could have a material adverse effect on the operations and future prospects of the Company and its wholly owned subsidiaries include, but are not limited to, changes in: interest rates; the economic health of the local real estate market; general economic conditions; legislative/regulatory provisions; the Company’s ability to comply with the provisions of any regulating enforcement actions, including the Memorandum of Understanding and the Cease and Desist Order; regulatory changes, including the implementation of the Dodd-Frank Act; 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 and securities 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.

Average Statement of Financial Condition

The following table sets forth certain information relating to the Company’s Average Statement of Financial Condition and reflects the average yield on assets and average cost of liabilities for the years ended December 31, 2010, 2009, and 2008. The yields and costs are derived by dividing interest income or expense by the average balance of assets or liabilities, respectively, for the years shown. Average balances are derived from average month-end balances. Management does not believe that the use of average monthly balances instead of average daily balances has caused any material differences in the information presented. Average balances of loans receivable include loans on which the Bank has discontinued accruing interest. Loan yields include fees which are considered adjustments to yields.


	Year Ended December 31,
	2010								2009								2008
	Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost
Assets
Interest-earnings asset
Securities, net⁽¹⁾	$	29,406		$	865		2.94	%	$	36,611		$	1,515		4.14	%	$	36,059		$	1,636		4.54	%
Mortgage-backed securities, net⁽¹⁾		7,446			190		2.55			8,534			299		3.50			12,321			496		4.03
Loans receivable⁽²⁾		140,620			8,298		5.90			140,371			8,391		5.98			142,233			9,128		6.42
Interest-earning deposits and other investments		12,343			13		0.11			11,919			12		0.10			8,093			192		2.37

Total interest-earning assets		189,815			9,366		4.93			197,435			10,217		5.17			198,706			11,452		5.76

Non-interest-earning assets		25,763								26,573								24,818


Total assets	$	215,578							$	224,008							$	223,524


Liabilities and stockholders’ equity
Interest-bearing liabilities
Passbook accounts	$	30,250			74		0.24			29,118			139		0.48		$	28,909			183		0.63
Money market savings accounts		11,712			82		0.70			10,108			157		1.55			8,556			191		2.23
NOW accounts		9,449			14		0.15			9,162			38		0.41			8,894			50		0.56
Certificate accounts		89,510			1,905		2.13			93,074			3,057		3.28			86,816			3,598		4.14

Total deposits		140,921			2,075					141,462			3,391					133,175			4,022
FHLB advances and other borrowings		43,285			1,592		3.68			46,855			1,799		3.84			51,376			2,017		3.93

Total interest-bearing liabilities		184,206			3,667		1.99			188,317			5,190		2.76			184,551			6,039		3.27

Non-interest-bearing liabilities		9,532								9,666								9,937

Total liabilities		193,738								197,983								194,488
Stockholders’ equity		21,840								26,025								29,036


Total liabilities and stockholders’ equity	$	215,578							$	224,008							$	223,524

Net interest income				$	5,699							$	5,027							$	5,413

Net interest rate spread⁽³⁾							2.94	%							2.41	%							2.49	%
Net interest margin⁽⁴⁾							3.00	%							2.55	%							2.72	%
Ratio of average interest-earning assets to average interest-bearing liability		103.04	%							104.84	%							107.67	%

⁽¹⁾	Includes unamortized discounts and premiums.

⁽²⁾	Amount is net of deferred loan origination fees, undisbursed loan funds, unamortized discounts, and allowance for loan losses and includes non-performing loans.

⁽³⁾	Net interest rate spread represents the difference between the yield on average interest-earning assets and the average cost of interest-bearing liabilities.

⁽⁴⁾	Net interest margin represents net interest income divided by average interest-earning assets.

Rate/Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the years indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.


	2010 Compared to 2009									2009 Compared to 2008
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
Interest earned on
Securities, net	$	(298	)	$	(352	)	$	(650	)	$	25		$	(146	)	$	(121	)
Loans receivable, net		14			(107	)		(93	)		(120	)		(617	)		(737	)
Mortgage-backed securities, net		(38	)		(71	)		(109	)		(152	)		(45	)		(197	)
Interest-earning deposits and other investments		—			1			1			91			(271	)		(180	)

Total interest-earning assets		(322	)		(529	)		(851	)		(156	)		(1,079	)		(1,235	)


Interest expense on
Passbook savings accounts		5			(70	)		(65	)		1			(45	)		(44	)
Money market savings accounts		25			(100	)		(75	)		34			(68	)		(34	)
NOW accounts		1			(25	)		(24	)		1			(13	)		12
Certificate accounts		(117	)		(1,035	)		(1,152	)		259			(800	)		(541	)
FHLB advances and other borrowings		(138	)		(69	)		(207	)		(176	)		(42	)		(218	)

Total interest-bearing liabilities		(224	)		(1,299	)		(1,523	)		119			(968	)		(849	)


Change in net interest income	$	(98	)	$	770		$	672		$	(275	)	$	(111	)	$	(386	)

Comparison of Financial Condition at December 31, 2010 and December 31, 2009

Total assets at December 31, 2010 were $211.8 million compared to $218.6 million at December 31, 2009, a decrease of $6.8 million. Cash and cash equivalents increased $7.0 million to $19.0 million at December 31, 2010 from $12.0 million at December 31, 2009. The increase was due to increased liquidity from decreases in securities available for sale and the loan portfolio in 2010. Securities available for sale decreased $4.8 million to $30.0 million at December 31, 2010 from $34.8 million at December 31, 2009. The decrease in securities available for sale was due to calls made on the securities from the issuers. During 2010, loans receivable, net, decreased $7.3 million to $135.6 million from $142.9 million in 2009, primarily due to a $907,000 decrease in loan originations combined with transfers to REO of $1.6 million and a $2.3 million increase in the allowance for loan losses at December 31, 2010 compared to December 31, 2009. Other assets decreased $1.7 million at December 31, 2010 to $1.6 million from $3.3 million at December 31, 2009 primarily due to the amortization of $335,000 of prepaid FDIC insurance premium assessments and a decrease of $1.1 million related to the income tax receivable for Federal income tax refunds received from net operating losses carried back to prior years.

Total liabilities at December 31, 2010 decreased $1.9 million to $193.8 million from $195.7 million at December 31, 2009. This decrease was primarily the result of deposits decreasing $1.8 million to $148.8 million at December 31, 2010 from $150.6 million at December 31, 2009. During 2010, certificates of deposit and money market accounts decreased $1.7 million and $1.2 million, respectively, partially offset by a $1.0 million increase in passbook accounts. The decreases in the deposit accounts resulted from the Bank pricing its products to manage its interest rate risk.

Stockholders’ equity at December 31, 2010 decreased $4.9 million to $18.0 million from $22.9 million at December 31, 2009. Book value at December 31, 2010 was $15.11 per share compared to $19.25 at December 31, 2009. The decrease in stockholders’ equity from December 31, 2009 was primarily attributable to the net loss of $5.4 million for the year, offset slightly by an increase in accumulated other comprehensive income due to a favorable change in the fair value of securities available for sale, net of tax, of $315,000.

Comparison of Operating Results for the Years Ended December 31, 2010 and 2009

General

Net loss increased $1.1 million to $5.4 million, or ($4.50) per diluted share, for the year ended December 31, 2010, compared to a net loss of $4.3 million, or ($3.63) per diluted share, for 2009. The increase in net loss was primarily due to a $1.9 million increase in the provision for loan losses during 2010, partially offset by a $672,000 increase in net interest income and a $323,000 decrease in income tax expense.

Net Interest Income

Interest income in 2010 was $9.4 million, compared to $10.2 million in 2009. Average yield on interest-earning assets decreased to 4.93% in 2010, compared to 5.17% in 2009, while average interest-earning assets decreased $7.6 million during 2010 from 2009. The decreases were due to the continued low interest rate environment during 2010 and an increase in foregone interest income of $204,000 on non-performing loans in 2010 compared to $657,000 in 2009.

Interest expense in 2010 was $3.7 million compared to $5.2 million in 2009. The decrease in interest expense is due to a 77 basis point decrease in the average cost of interest–bearing liabilities and a $4.1 million decrease in average interest-bearing liabilities from 2009.

Net interest income in 2010 was $5.7 million compared to $5.0 million in 2009. The net interest rate spread and net interest margin was 2.94% and 3.00%, respectively, in 2010 compared to 2.41% and 2.55%, respectively, in 2009.

Provision for Loan Losses

Management establishes provisions for loan losses, which are charged to operations, at a level management believe 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 $4.1 million and $2.2 million in 2010 and 2009, respectively. The provision for loan losses increased in 2010 primarily due to an increase in specific allocations on impaired loans. Allocations on impaired loans resulted from loan modifications considered to be troubled debt restructurings in 2010, and an increase in impaired loans that are individually evaluated for probable incurred losses. Impaired loans were significantly impacted by declining real estate values collateralizing these loans.

The Company’s exposure to real estate values will impact future provisions for loan losses. At December 31, 2010, impaired loans individually evaluated for allowance allocations totaled $13.8 million compared to $9.9 million at December 31, 2009. Approximately 68.9% were in one-to-four-family loans at December 31, 2010 compared to 44.0% in 2009, 15.9% were in multi-family loans in 2010 compared to 12.0% in 2009, 5.5% were in commercial real estate loans in 2010 as compared to 35.0% at 2009, 5.3% were in construction and land loans in 2010 compared to 9.0% in 2009 and 4.4% were in consumer and participation loans in 2010 compared to none in 2009. Of the $13.8 million in impaired loans, $6.0 million or 43.4% were with four borrowers, an investment company that owns multiple single family properties, a commercial real estate investor, a one-to-four and multi-family real estate investor and a single family real estate developer. Impaired loans at December 31, 2010 in the process of foreclosure amounted to $6.5 million. Total impaired loans at December 31, 2010 of $10.9 million required specific allocations of $3.2 million due to loss exposure from collateral deficiencies as compared to $5.4 million with required specific allocations of $1.6 million in 2009. Should real estate values continue to decline in 2011, additional allocations and provisions for loan losses will be required.

In addition to the $13.8 million of impaired loans individually evaluated for allowance allocations, the Company also has other problem loans that are being monitored, including $1.6 million of loans classified as special mention due to potential credit weakness. Loans classified as special mention at December 31, 2009 were $5.4 million. Of the special mention loans in 2010, approximately 42.4% were in multi-family loans, 9.2% were in construction and land loans and 48.4% were consumer and other lines of credit loans secured by real estate. Management monitors these loans closely in an attempt to mitigate losses.

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of 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 December 31, 2010 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.

Non-interest Income

Non-interest income decreased $79,000 in 2010 to $539,000 from $618,000 in 2009. The change was primarily due to losses on the sales of REO during 2010 of $58,000 with no comparable losses incurred during 2009 and a decrease in rental income.

Non-interest Expense

Non-interest expense in 2010 was $7.5 million compared to $7.4 million in 2009, an increase of $100,000. During 2010 REO impairment and expenses increased $355,000 to $883,000 from $528,000 in 2009. The increase was due to increases in the expense of maintaining the properties in the REO inventory and the continued decline in market values of real estate in the Company’s market area. Also, the Company’s investment in a partnership involved with low income housing incurred a $68,000 loss in 2010 compared to a gain of $36,000 in 2009 which had the effect of an increase in non-interest expense of $104,000. These increases in expense were offset by decreases of $162,000 and $260,000, respectively, in deposit insurance premiums and losses on equity securities due to impairment during 2010 compared to 2009.

Income Taxes

Income tax expense decreased $323,000 in 2010 as there was no income tax expense required for 2010 and a $323,000 expense was recorded in 2009. A $2,006,000 deferred tax asset valuation allowance was recognized in 2010 which offset the tax benefit that would have been recognized. The income tax expense in 2009 was due to the pre-tax loss in 2009 being offset by a $1.9 million deferred tax asset valuation allowance. The Company recognized a deferred tax asset valuation allowance in 2010 and 2009 due to the uncertainty that deferred tax assets may not be fully realized in the future.

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 maintains a liquidity ratio substantially above the regulatory requirement. This requirement, which may be varied at the direction of the OTS depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. We are required to have enough cash flow in order to maintain sufficient liquidity to ensure a safe and sound operation. We maintain cash flows above the minimum level believed to be adequate to meet the requirements of normal operations, including potential deposit outflows.

The Company’s cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash from operating activities were $1.4 million, $(2.3) million, and $(1.2) million in 2010, 2009, and 2008, respectively. Net cash from investing activities consisted primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from maturing securities and paydowns on mortgage-backed securities. Net cash from investing activities was $7.6 million, $2.1 million, and $(8.1) million, in 2010, 2009 and 2008, 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 $(1.9) million, $3.3 million, and $2.7 million, in 2010, 2009, and 2008, respectively.

At December 31, 2010, the Bank exceeded all of the minimum regulatory capital adequacy requirements with a Tier 1 (core) capital level of $16.9 million, or 8.0% of adjusted total assets, and total risk-based capital of $18.5 million, or 15.1% of risk-weighted assets.

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 December 31, 2010, 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 December 31, 2010 the Bank had outstanding FHLB advances of $39.8 million and had the capacity available to borrow an additional $11.5 million, if needed.

Critical Accounting Policies

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs, net of recoveries. Management estimates the allowance balance required using past loss experience, economic conditions, and information about specific borrower situations including their financial position and collateral values, 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. Loan losses are charged off against the allowance when management believes that the uncollectibility of a loan balance is confirmed. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers loans that are not impaired, and is based on historical loss experience adjusted for current factors.

There are many factors affecting the allowance for loan losses; some quantitative, while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all potential factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for credit losses could be required that could adversely affect earnings or financial position in future periods. Management is monitoring credit risk trends and the impact on the allowance for loan losses analysis.

Securities Available For Sale: Securities available for sale are carried at the estimated fair value. Unrealized gains and losses on securities available for sale are included as a separate component of stockholders’ equity, net of deferred income taxes. The fair value of certain securities is less than amortized cost. When management believes the decline in fair values below the cost represents an other-than-temporary impairment, the loss is recognized on the income statement. .

Real Estate Owned: Real estate acquired through foreclosure and similar proceedings is carried at the lower of cost or fair value at the date of foreclosure less estimated costs to sell. If the fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Losses on disposition, including expenses incurred in connection with the disposition, are charged to operations. Operating costs after acquisition are expensed. Management is monitoring the values of its real estate owned properties.

Income Taxes: The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the assets will more likely than not be realized. In determining the possible realization of deferred tax assets, the Company considers future taxable income and tax planning strategies that, if necessary, would be implemented to accelerate taxable income into periods in which the ability to utilize the deferred tax assets would expire.

A valuation allowance is established to reduce the deferred tax asset to the level at which it is “more likely than not” that the tax asset or benefits will be realized. In the event that the Company determines that it would be able to realize deferred tax assets, the Company would make an adjustment to the valuation allowance by reducing the provision for income taxes.

Commitments

At December 31, 2010, the Bank had outstanding commitments to originate mortgage loans of $1.7 million, as compared to $1.8 million at December 31, 2009. 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 December 31, 2010 totaled $51.5 million. Management expects that a substantial portion of the maturing certificate accounts will be renewed at the Bank. However, if these deposits are not retained, the Bank may utilize FHLB advances or raise interest rates on deposits to attract new funds, which may result in higher levels of interest expense and affect the Company’s level of earnings.

The following tables disclose contractual obligations and commitments of the Company as of December 31, 2010:


	Total		Less Than 1 Year		1 – 3 Years		4 – 5 Years		After 5 Years
Time deposits	$	90,755	$	51,473	$	23,879	$	15,403	$	—
Securities sold under agreements to repurchase		2,600		—		—		2,600		—
FHLB advances		39,800		4,000		6,300		1,500		28,000

Total contractual cash obligations	$	133,155	$	55,473	$	30,179	$	19,503	$	28,000


	Total Amounts Committed		Less Than 1 Year		1 – 3 Years		4 – 5 Years		Over 5 Years
Loans in process	$	1,091	$	1,091	$	—	$	—	$	—
Unused lines of credit		2,046		2,046		—		—		—
Letters of credit		115		115		—		—		—
Loan commitments		1,660		1,660		—		—		—

Total commitments	$	4,912	$	4,912	$	—	$	—	$	—

Impact of Inflation and Changing Prices

The impact of inflation is reflected in the increased cost of operations. Unlike industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.

ITEM 7A.

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 December 31, 2010, the Bank’s sensitivity measure, as measured by the OTS, resulting from a 200 basis point increase in interest rates was (13)% and would result in a $3.5 million decrease 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 tables show the NPV and projected change in the NPV of the Bank at December 31, 2010 and 2009 assuming an instantaneous and sustained change in market interest rates of 300, 200 and 100, basis points.

Interest Rate Sensitivity of Net Portfolio Value (NPV)

December 31, 2010


	Net Portfolio Value								NPV as a % of PV of Assets
Change in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change
+300 bp	$	19,401	$	(6,844	)		(26	)%		9.13	%		(246) bp
+200 bp		22,727		(3,517	)		(13	)		10.43			(116) bp
+100 bp		25,186		(1,059	)		(4	)		11.31			(28) bp
0 bp		26,245		—			—			11.59			—
100 bp		25,881		(363	)		(1	)		11.31			(27) 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

December 31, 2009


	Net Portfolio Value								NPV as a % of PV of Assets
Change in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change
+300 bp	$	20,016	$	(10,344	)		(34	)%		9.32	%		(384) bp
+200 bp		24,259		(6,101	)		(20	)		10.99			(216) bp
+100 bp		27,890		(2,471	)		(8	)		12.33			(82) bp
0 bp		30,360		—			—			13.15			—
-100 bp		30,671		311			1			13.13			(2) 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

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.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Financial Information on page F-1.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as contemplated by Exchange Act Rule 13a-15. Based upon, and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective, in all material respects, in timely alerting them to material information relating to the Company (and its consolidated subsidiaries) required to be included in the periodic reports the Company is required to file and submit to the SEC under the Exchange Act.

The management of Park Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Park Bancorp, Inc.’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with United States generally accepted accounting principles.

Park Bancorp, Inc.’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework.” Based on that assessment, management determined that, as of December 31, 2010, the Company’s internal control over financial reporting is effective, based on those criteria.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

(a)

Directors. The information required in response to this item regarding directors of the Company will be contained in the Company’s definitive Proxy Statement (“the Proxy Statement”) for its Annual Meeting of Stockholders to be held on May 17, 2011 under the caption “Election of Directors–Information with Respect to the Nominees, Continuing Directors and Certain Executive Officers,” “Corporate Governance–Meetings of the Board of Directors and Committees of the Board of Directors,” and “Section 16(A) Beneficial Ownership Reporting Compliance” and are incorporated herein by reference.

(b)

Executive Officers of the Company. The information required in response to this item regarding executive officers of the Company will be contained in the Company’s Proxy Statement under the caption “Election of Directors–Information with Respect to the Nominees, Continuing Directors and Certain Executive Officers” and is incorporated herein by reference.

(c)

The Company has adopted a Code of Ethics as required by the NASDAQ listing standards and the rules of the SEC. The Code of Ethics applies to all of the Company’s directors, officers, including the Company’s Chief Executive Officer and Chief Financial Officer, and employees. The Code of Ethics is available at no charge upon written request to the Company’s Chief Financial Officer.

ITEM 11.

EXECUTIVE COMPENSATION

The information required in response to this item will be contained in the Proxy Statement under the captions “Compensation Discussion and Analysis”, “Directors’ Compensation”, “Summary Compensation Table”, “Executive Compensation”, and “Executive Compensation – Compensation Committee Report” and is incorporated herein by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

The information required in response to this item will be contained in the Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” and “Election of Directors – Information with Respect to the Nominees, Continuing Directors and Certain Executive Officers” and is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information, as of December 31, 2010, relating to equity compensation plans of the Company pursuant to which equity securities are authorized for issuance.


Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (c)
Equity compensation plans approved by security holders:

1997 Stock Option Plan⁽¹⁾		28,737	$	22.95		—

2003 Incentive Compensation Plan		44,500		4.65		79,320

Equity compensation plans not approved by security holders		N/A		N/A		N/A


Total		73,237	$	11.83		79,320

(1)	The right to grant awards under the plan terminated in February 2007.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required in response to this item will be contained in the Proxy Statement under the caption “Transactions with Related Persons,” Corporate Governance – Meetings of the Board of Directors and Committees of the Board of Directors” and “Corporate Governance – Director Independence” and is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required in response to this item will be contained in the Proxy Statement under the caption, “Principal Accountant Firm Fees” and is incorporated herein by reference.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	Documents filed as part of this report:

1,2

Financial Statements and Schedules

See Index to Financial Information on page F-1.

Exhibits

See Exhibit Index on page i, which is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on the 31^st day of March 2011.


PARK BANCORP, INC.

By:		/s/ David A. Remijas
		David A. Remijas Chairman of the Board, and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Name	Title	Date

/s/ David A. Remijas David A. Remijas	Chairman of the Board, and Chief Executive Officer (principal executive officer)	March 31, 2011

/s/ Victor E. Caputo Victor E. Caputo	Treasurer , Chief Financial Officer (principal financial and accounting officer) and Corporate Secretary	March 31, 2011

/s/ Richard J. Remijas, Jr. Richard J. Remijas, Jr.	President, Chief Operating Officer and Director	March 31, 2011

/s/ Robert W. Krug Robert W. Krug	Director	March 31, 2011

/s/ John J. Murphy John J. Murphy	Director	March 31, 2011

/s/ Victor H. Reyes Victor H. Reyes	Director	March 31, 2011

/s/ Paul Shukis Paul Shukis	Director	March 31, 2011

PARK BANCORP, INC.

Chicago, Illinois

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

INDEX TO FINANCIAL INFORMATION



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F-2

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION			F-3

CONSOLIDATED STATEMENTS OF OPERATIONS			F-4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY			F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS			F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			F-8

F-1

LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Park Bancorp, Inc.

Chicago, Illinois

We have audited the accompanying consolidated statements of financial condition of Park Bancorp, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Park Bancorp, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with U.S. generally accepted accounting principles.

Crowe Horwath LLP

Oak Brook, Illinois

March 31, 2011

F-2

PARK BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31, 2010 and 2009

(In thousands, except share and per share data)


	2010			2009
ASSETS
Cash and due from banks	$	2,683		$	2,867
Federal funds sold		9,708			4,164
Interest-bearing deposits with other financial institutions		6,627			4,944

Total cash and cash equivalents		19,018			11,975
Securities available for sale		30,031			34,778
Loans receivable, net of allowance of $5,144 and $2,851		135,559			142,924
Federal Home Loan Bank stock, at cost		5,423			5,423
Premises and equipment, net		9,018			9,445
Accrued interest receivable		761			924
Bank-owned life insurance		8,596			8,282
Real estate owned		1,794			1,611
Other assets		1,589			3,251

Total assets	$	211,789		$	218,613


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Non-interest-bearing	$	6,525		$	6,810
Interest-bearing		142,272			143,812

Total deposits		148,797			150,622
Securities sold under repurchase agreements		2,600			2,600
Advances from borrowers for taxes and insurance		1,932			1,859
Federal Home Loan Bank advances		39,800			39,985
Accrued interest payable		151			190
Other liabilities		486			409

Total liabilities		193,766			195,665
Commitments and contingent liabilities (Note 13)		—			—

Stockholders’ equity
Preferred stock, $.01 par value per share, authorized 1,000,000 shares; none issued and outstanding		—			—
Common stock, $.01 par value per share; authorized, 9,000,000 shares; issued 2,914,028; outstanding 1,193,174 and 1,192,174 shares at December 31, 2010 and 2009, respectively		29			29
Additional paid-in capital		32,095			32,097
Retained earnings		16,473			21,828
Treasury stock, 1,720,854 and 1,721,854 shares, at cost at December 31, 2010 and 2009, respectively		(31,025	)		(31,043	)
Unearned ESOP shares		—			(99	)
Accumulated other comprehensive income		451			136

Total stockholders’ equity		18,023			22,948


Total liabilities and stockholders’ equity	$	211,789		$	218,613

See accompanying notes.

F-3

PARK BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2010, 2009, and 2008

(In thousands, except share and per share data)


	2010			2009			2008
Interest income
Loans receivable	$	8,298		$	8,391		$	9,128
Securities		1,055			1,814			2,132
Interest-bearing deposits with other financial institutions		13			12			192

		9,366			10,217			11,452

Interest expense
Deposits		2,075			3,391			4,022
Federal Home Loan Bank advances and other borrowings		1,592			1,799			2,017

		3,667			5,190			6,039

Net interest income		5,699			5,027			5,413

Provision for loan losses		4,130			2,222			184


Net interest income after provision for loan losses		1,569			2,805			5,229

Non-interest income
Service charge income		235			242			240
Net loss on sales of securities		—			—			(9	)
Net gain on sales of loans		8			—			—
Net loss on sales of real estate owned		(58	)		—			(3	)
Earnings on bank-owned life insurance		314			307			296
Other operating income		40			69			39

		539			618			563

Non-interest expense
Compensation and benefits		3,258			3,360			3,295
Occupancy and equipment		1,009			945			941
Deposit insurance premiums and regulatory assessments		354			516			173
Data processing services		246			249			245
Advertising		184			150			190
Professional fees		393			368			439
Low income housing investment (gains) losses		68			(36	)		(6	)
Real estate owned impairment and expenses		883			528			1,233
Loss on equity securities impairment		8			268			1,712
Other operating expenses		1,060			1,027			963

		7,463			7,375			9,185


Loss before income taxes		(5,355	)		(3,952	)		(3,393	)

Income tax expense (benefit)		—			323			(1,026	)


Net loss	$	(5,355	)	$	(4,275	)	$	(2,367	)

Basic loss per share	$	(4.50	)	$	(3.63	)	$	(2.02	)
Diluted loss per share	$	(4.50	)	$	(3.63	)	$	(2.02	)

See accompanying notes.

F-4

PARK BANCORP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years ended December 31, 2010, 2009, and 2008

(In thousands, except share and per share data)


	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Unearned ESOP Shares			Accumulated Other Comprehensive Income			Total Stockholders’ Equity			Comprehensive Loss
Balance at January 1, 2008	$	29	$	32,045		$	28,938		$	(30,560	)	$	(317	)	$	142		$	30,277

Comprehensive income (loss)
Net loss		—		—			(2,367	)		—			—			—			(2,367	)	$	(2,367	)
Change in fair value of securities available for sale, net		—		—			—			—			—			(278	)		(278	)		(278	)

Total comprehensive loss																					$	(2,645	)


Cash dividends declared ($0.40 per share)		—		—			(468	)		—			—			—			(468	)

Purchase of 21,805 shares of treasury stock		—		—			—			(483	)		—			—			(483	)

ESOP shares earned		—		73			—			—			112			—			185


Balance at December 31, 2008		29		32,118			26,103			(31,043	)		(205	)		(136	)		26,866

Comprehensive income (loss)
Net loss		—		—			(4,275	)		—			—			—			(4,275	)	$	(4,275	)
Change in fair value of securities available for sale, net		—		—			—			—			—			272			272			272

Total comprehensive loss																					$	(4,003	)


Stock-based compensation		—		23			—			—			—			—			23

ESOP shares earned		—		(44	)		—			—			106			—			62


Balance at December 31, 2009	$	29	$	32,097		$	21,828		$	(31,043	)	$	(99	)	$	136		$	22,948

(Continued)

F-5

PARK BANCORP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years ended December 31, 2010, 2009, and 2008

(In thousands, except share and per share data)


	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Unearned ESOP Shares			Accumulated Other Comprehensive Income		Total Stockholders’ Equity			Comprehensive Loss
Balance at January 1, 2010	$	29	$	32,097		$	21,828		$	(31,043	)	$	(99	)	$	136	$	22,948

Comprehensive income (loss)
Net loss		—		—			(5,355	)		—			—			—		(5,355	)	$	(5,355	)
Change in fair value of securities available for sale, net		—		—			—			—			—			315		315			315

Total comprehensive loss																				$	(5,040	)


Stock-based compensation		—		69			—			—			—			—		69

Issue 1,000 treasury shares for vested RRP shares		—		(18	)		—			18			—			—		—

ESOP shares earned		—		(53	)		—			—			99			—		46


Balance at December 31, 2010	$	29	$	32,095		$	16,473		$	(31,025	)	$	—		$	451	$	18,023

See accompanying notes.

F-6

PARK BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2010, 2009, and 2008

(In thousands)


	2010			2009			2008
Cash flows from operating activities
Net loss	$	(5,355	)	$	(4,275	)	$	(2,367	)
Adjustments to reconcile net loss to net cash fromoperating activities
Net premium amortization on securities		(15	)		24			54
Dividend reinvestments		—			—			(139	)
Net (gain) loss on sales of securities		—			—			9
Loss on equity securities impairment		8			268			1,712
Net (gain) loss on loan sales		(8	)		—			—
Real estate owned impairment		417			291			1,014
Net (gain) loss on sales of real estate owned		58			—			3
Earnings on bank-owned life insurance		(314	)		(307	)		(296	)
Provision for loan losses		4,130			2,222			184
Depreciation		471			459			439
Deferred loan fees		37			(65	)		(55	)
ESOP expense		46			62			185
Stock-based compensation expense		69			23			—
Net change in accrued interest receivable		163			215			(254	)
Net change in other assets		1,662			(860	)		(1,016	)
Net change in accrued interest payable		(39	)		(175	)		(120	)
Net change in other liabilities		77			(161	)		(539	)

Net cash from operating activities		1,407			(2,279	)		(1,186	)

Cash flows from investing activities
Net change in loans		1,089			(6,661	)		6,599
Proceeds from sales of loans		512			—			—
Maturities, paydowns and calls of securities available for sale		20,031			28,383			18,083
Purchases of securities available for sale		(14,962	)		(19,447	)		(30,317	)
Proceeds from sales of securities available for sale		—			—			364
Expenditures for premises and equipment		(44	)		(279	)		(3,081	)
Proceeds from sales of real estate owned		947			132			287

Net cash from investing activities		7,573			2,128			(8,065	)

Cash flows from financing activities
Net change in deposits		(1,825	)		12,973			675
Net change in securities sold under repurchase agreements		—			(639	)		5
Net change in advances from borrowers for taxes and insurance		73			(192	)		217
Dividends paid to stockholders		—			—			(468	)
Purchases of treasury stock		—			—			(483	)
FHLB advances		3,000			4,800			12,000
Repayment of FHLB advances		(3,185	)		(13,675	)		(9,279	)

Net cash from financing activities		(1,937	)		3,267			2,667


Net change in cash and cash equivalents		7,043			3,116			(6,584	)

Cash and cash equivalents at beginning of year		11,975			8,859			15,443


Cash and cash equivalents at end of year	$	19,018		$	11,975		$	8,859


Supplemental disclosures of cash flow information
Cash paid (received) during the year for
Interest	$	3,706		$	5,365		$	6,159
Income taxes	$	(1,128	)	$	—		$	—
Non-cash activity
Loans transferred to real estate owned		1,605			160			729

See accompanying notes.

F-7

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying 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 Corporation (“PBI”), an inactive entity, which conducts real estate development activities. The Bank has two inactive wholly owned subsidiaries: GPS Corporation, which conducts limited insurance activities, and GPS Development Corp. (“GPS”), which conducts real estate development activities. All significant intercompany transactions and balances are eliminated in consolidation.

Business: The primary business of the Company is the ownership of the Bank. Through the Bank, the Company is engaged in the business of retail banking, with operations conducted through its main office and three branches, located in Chicago and Westmont, Illinois. The Company’s exposure to credit risk is significantly affected by changes in the economy and real estate prices in these market areas. The Company’s revenues primarily arise from interest income from retail lending activities and investments.

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 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 collectability of loans, fair value of real estate owned, fair value of assets and liabilities, and realization of deferred tax assets are particularly subject to change.

Securities: Securities are classified as available for sale when management may decide to sell those securities in response to changes in market interest rates, liquidity needs, changes in yields on alternative investments, and for other reasons. Securities available for sale are carried at fair value. Unrealized gains and losses on securities available for sale are included as a separate component of stockholders’ equity, net of deferred income taxes. Realized gains and losses on disposition are based on the net proceeds and the adjusted amortized cost of the securities sold, using the specific identification method. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) other-than-temporary impairment (OTTI) related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Loans Receivable: Loans receivable is stated at unpaid principal balances, less the allowance for loan losses and deferred loan origination fees and costs.

(Continued)

F-8

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loan Interest Income: Interest on loans is accrued over the term of the loans based upon the principal outstanding. Management reviews loans delinquent 90 days or more to determine if loans should be placed on nonaccrual. Interest accrued but not received for loans delinquent 90 days or more is reversed against interest income. The carrying values of impaired loans are periodically adjusted to reflect cash payments, revised estimates of future cash flows, and increases in the present value of expected cash flows due to the passage of time. Cash payments representing interest income are reported as such. Other cash payments are reported as reductions in carrying value, while increases or decreases due to changes in estimates of future payments and due to the passage of time are reported as adjustments to the provision for loan losses.

Loan Origination Fees: Loan origination fees, net of certain direct loan origination costs, are deferred and recognized over the contractual life of the loan using the level-yield method without anticipating prepayments.

The allowance consists of specific and general components. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent two years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. During 2010, the Company added another factor which is the historical specific valuation allowance experience factor; it is based on the two year history of specific valuation allowances for each portfolio segment. This factor is increased or decreased based on management’s review and judgment of the current portfolio segment’s performance. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The primary risk factors for the one-to-four family, multi-family, commercial, construction and land and participation loans are real estate values in our lending area and the state of the economy in our marketplace.

The specific component relates to loans that are individually classified as impaired.

Impaired Loans: A loan is considered impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

(Continued)

F-9

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrowers, including the length of the delay, the reasons for the delay, the borrower’s prior payment history and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured by the fair value method on a loan-by-loan basis except for smaller balance homogeneous loans which are collectively evaluated for impairment.

When a loan is identified as impaired, we measure the impairment based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the source of repayment for the loan is the operation or liquidation of the collateral. In these cases we use an observable market price or current fair value of the collateral, less estimated selling costs. If we determine that the value of the impaired loan is less than the recorded investment in the loan, we recognize impairment through an allowance allocation or a charge-off to the allowance.

Federal Home Loan Bank (“FHLB”) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings and related components have useful lives ranging from 5 to 40 years and furniture, fixtures, and equipment have useful lives ranging from 3 to 7 years.

Real Estate Owned: Real estate acquired through foreclosure and similar proceedings are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. If the fair value declines subsequent to foreclosure, a valuation allowance or direct write-down is recorded through expense. Losses on disposition, including expenses incurred in connection with the disposition, are charged to operations. Operating costs after acquisition are expensed.

FDIC Insurance: In 2009, the Company prepaid the estimated FDIC insurance premiums that will be assessed in 2010, 2011, and 2012. The prepaid FDIC insurance premiums are included in “other assets” on the consolidated statement of financial condition. The prepaid FDIC insurance premium balance was $859,000 and $1.2 million as of December 31, 2010 and 2009.

Bank-Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Repurchase Agreements: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover those liabilities, which are not covered by federal deposit insurance.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

(Continued)

F-10

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. Penalties and interest related to tax matters were insignificant in 2010 and 2009.

Employee Stock Ownership Plan: The cost of shares issued to the employee stock ownership plan (“ESOP”) but not yet allocated to participants is presented in the consolidated statement of financial condition as a reduction of stockholders’ equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are reflected as a reduction of debt and accrued interest.

Shares are considered outstanding for earnings per share calculations as they are committed to be released; unallocated shares are not considered outstanding.

Stock Compensation: Compensation cost is recognized for stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Cash Flows: For the purpose of this statement, cash and cash equivalents are defined to include the Company’s cash on hand, demand balances, interest-bearing deposits with other financial institutions, and investments in certificates of deposit with maturities of less than three months. Net cash flows are reported for customer loan and deposit transactions, repurchase agreements, advances from borrowers for taxes and insurance and short-term line of credit borrowings.

Comprehensive Income (Loss): Comprehensive income (loss) consists of net income (loss) and the unrealized gains and losses on securities available for sale, net of taxes, which is also recognized as a separate component of stockholders’ equity.

Earnings Per Share: Basic earnings per share is based on net income (loss) divided by the weighted average number of shares outstanding during the period, including allocated and committed-to-be-released ESOP shares, and unvested restricted stock awards that are considered participating securities. Diluted earnings per share shows the dilutive effect, if any, of additional common shares issuable under stock options.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance-sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

(Continued)

F-11

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Values of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate footnote. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current year presentation.

Adoption of New Accounting Standards:

In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures About Fair Value Measurements.” ASU 2010-06 requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for the transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy will be required beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective January 1, 2010 and did not have a significant impact on our consolidated financial statements.

In February 2010, FASB issued ASU No. 2010-09, Subsequent Events (Topic855) – Amendments to Certain Recognition and Disclosure Requirements. ASU No. 2010-09 establishes separate subsequent event recognition criteria and disclosure requirements for SEC filers. SEC filers are defined in this update as entities that are required to file or to furnish their financial statements with either the SEC or another appropriate agency, (such as the FDIC or Office of Thrift Supervision) under Section 12(i) of the Securities and Exchange Act of 1934, as amended. Beginning in February 2010, the financial statements of SEC filers will no longer disclose the date the financial statements were issued. The requirement to evaluate subsequent events through the date of issuance is still in place; only the disclosure is affected, This ASU also removes the requirement to make those disclosures in financial statements revised for either a correction of an error or a retrospective application of an accounting change. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

(Continued)

F-12

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In June 2009, the FASB amended previous guidance relating to transfers of financial assets, and for consolidation of variable interest entity by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. Additional disclosures about an enterprise’s involvement in variable interest entities are also required. This guidance was effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or after the effective date. The disclosure provisions were also amended and apply to transfers that occurred both before and after the effective date of this guidance. Early adoption was prohibited. Adoption of this new guidance by the Company on January 1, 2010 did not have a material impact on our results of operations or financial condition.

Also in June 2009, the FASB amended previous guidance relating to transfers of financial assets and eliminates the concept of a qualifying special purpose entity. This guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. The disclosure provisions were also amended and apply to transfers that occurred both before and after the effective date of this guidance. The effect of adopting this new guidance was not material to the Company.

In July 2010, the FASB issued an Accounting Standards Update, “Receivables: Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The objective of this update is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. An entity should provide disclosures on a disaggregated basis on two defined levels: (1) portfolio segment; and (2) class of financing receivable. The update makes changes to existing disclosure requirements and includes additional disclosure requirements about financing receivables, including credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables and the aging of past due financing receivables at the end of the reporting period by class of financing receivables. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010 and have been added to Note 3. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The effect of adopting this new guidance on December 31, 2010 was disclosure-related only and had no impact on its results of operations.

(Continued)

F-13

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 2 - SECURITIES AVAILABLE FOR SALE

Securities are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2010
Government sponsored enterprises	$	12,004	$	19	$	(87	)	$	11,936
Corporate		5,004		77		(8	)		5,073
Municipal		502		31		—			533
Equity		4,486		261		—			4,747
Mortgage-backed residential		7,513		235		(6	)		7,742


	$	29,509	$	623	$	(101	)	$	30,031


December 31, 2009
Government sponsored enterprises	$	16,981	$	33	$	(252	)	$	16,762
Corporate		5,010		97		(12	)		5,095
Municipal		502		10		—			512
Equity		4,493		179		—			4,672
Mortgage-backed residential		7,585		152		—			7,737


	$	34,571	$	471	$	(264	)	$	34,778

Securities with unrealized losses at year-end 2010 and 2009 by length of time that individual securities have been in a continuous loss position are as follows:


	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2010
Government sponsored enterprises	$	8,917	$	(87	)	$	—	$	—		$	8,917	$	(87	)
Corporate		—		—			993		(8	)		993		(8	)
Mortgage-backed residential		982		(6	)		—		—			982		(6	)


Total temporarily impaired	$	9,899	$	(93	)	$	993	$	(8	)	$	10,892	$	(101	)


December 31, 2009
Government sponsored enterprises	$	13,748	$	(252	)	$	—	$	—		$	13,748	$	(252	)
Corporate		—		—			991		(12	)		991		(12	)

Total temporarily impaired	$	13,748	$	(252	)	$	991	$	(12	)	$	14,739	$	(264	)

The Company recognized impairment losses of $0 and $178,000 for the years ended December 31, 2010 and 2009, respectively related to its equity investment in a mutual fund. Also, the Company recognized impairment losses of $8,000 and $90,000 for the years ended December 31, 2010 and 2009, respectively on financial institution equity securities. Management believed it could no longer forecast a recovery within a reasonable holding period for these investments, the unrealized losses were deemed to be other-than-temporary, and the losses were recognized through earnings. The fair value of the mutual fund investment and financial institution equity security with prior impairment losses is $4,730,000 and $17,000, respectively, as of December 31, 2010. The mutual fund investment had a $261,000 unrealized gain and the financial institution equity security had no unrealized gain or loss, as of December 31, 2010.

(Continued)

F-14

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 2 - SECURITIES AVAILABLE FOR SALE (Continued)

There was no other-than-temporary impairment recognized in accumulated other comprehensive income at December 31, 2010.

Unrealized losses on the $993,000 of corporate notes which have been in a loss position for 12 months or more have not been recognized into income because the issuers of these securities are of high credit quality, management does not have the intent to sell these securities and it is likely that the Company will not be required to sell these securities prior to their anticipated recovery, and the decline in fair value is largely due to current market conditions.

During January 2011, the Company sold its interest in the mutual fund. Gross proceeds from the sale were $4.7 million and generated a gain on the sale of $270,000.

At year-end 2010 and 2009, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

Contractual maturities of securities at December 31, 2010 are listed below. Securities not due at a single maturity date, primarily mortgage-backed and equity securities are shown separately.


	Amortized Cost		Fair Value
Due within one year	$	1,993	$	2,004
Due one to five years		3,518		3,599
Due five years to ten years		8,999		8,963
Due after ten years		3,000		2,976

		17,510		17,542
Equity		4,486		4,747
Mortgage-backed residential		7,513		7,742


	$	29,509	$	30,031

Securities with a carrying value of $8.0 million and $9.0 million at December 31, 2010 and 2009, respectively, were pledged to secure securities sold under repurchase agreements and public deposits as required or permitted by law.

Sales of securities are summarized as follows:


	For the Year Ended December 31,
	2010		2009		2008
Proceeds from sales	$	—	$	—	$	364
Gross realized gains	$	—	$	—		5
Gross realized losses	$	—	$	—		(14	)

(Continued)

F-15

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 3 - LOANS RECEIVABLE

The Company grants mortgages and installment loans and obtains deposits from customers located primarily in Cook, DuPage, and Will Counties, Illinois. Substantially all loans are secured by specific items of collateral, primarily residential real estate and consumer assets.

Loans receivable are summarized as follows at year end:


	2010			2009
Mortgage loans
Principal balances
One-to-four-family residential	$	98,179		$	96,677
Multi-family residential		15,135			17,832
Commercial, construction, and land		16,828			19,631
Consumer loans		5,738			6,204
Participations and loans purchased
One-to-four family residential		3,036			3,841
Commercial real estate		3,070			3,936

Total loans, gross		141,986			148,121
Undisbursed portion of loans (LIP)		(1,091	)		(2,191	)
Net deferred loan origination fees		(192	)		(155	)

Loans receivable, net before allowance		140,703			145,775
Allowance for loan losses		(5,144	)		(2,851	)


Loans receivable, net	$	135,559		$	142,924

Loan Origination/Risk Management. Single Family real estate loans are originated using secondary market underwriting guidelines. We originate both fixed rate and adjustable rate loans in our residential lending program. We typically base our decision on whether to sell or retain secondary market quality loans on the rate and fees for each loan, market conditions and liquidity needs.

Multi-family and commercial real estate loans have higher loan balances, are more difficult to evaluate and monitor, and involve a greater degree of risk than one- to four-family residential loans. Often payments on loans secured by multi-family or commercial properties are dependent on the successful operation and management of the property; therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. We generally require and obtain loan guarantees from financially capable parties based upon the review of personal financial statements. If the borrower is a corporation, we generally require and obtain personal guarantees from the corporate principals based upon a review of their personal financial statements, tax returns and individual credit reports.

Multi-family and commercial real estate loans are originated with rates that generally adjust after an initial period ranging from three to seven years. Adjustable rate multi-family residential and commercial real estate loans are generally fixed rate with terms of three to five years after which they adjust annually to an index tied to the one year treasury rates plus an acceptable margin. These loans are typically amortized for up to 30 years with a prepayment penalty. The maximum loan to value ratio for multi-family and commercial real estate loans is generally 75% on purchases and refinances. We require appraisals of all properties securing commercial and multi-family real estate loans, performed by independent appraisers designated by us. We require our multi-family and commercial real estate loan borrowers to submit annual financial statements and rent rolls for the subject property. We generally require a minimum pro forma debt coverage ratio of 1.20 times for loans secured by multi-family and commercial properties.

(Continued)

F-16

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 3 - LOANS RECEIVABLE (Continued)

We originate construction and site development loans to contractors and builders primarily to finance the construction of single-family homes and subdivisions. Loans to finance the construction of single-family homes and subdivisions are generally offered to experienced builders in our primary market areas. All builders are qualified using the same standards as other commercial loan credits, requiring minimum debt service coverage ratios and established cash reserves to carry projects through construction completion and sale of the project. The maximum loan-to-value limit on both pre-sold and speculative projects is generally up to 75% of the appraised market value or sales price upon completion of the project. We may not require any cash equity from the borrower if there is sufficient equity in the land being used as collateral. Development plans are required from builders prior to making the loan. We require that builders maintain adequate insurance coverage.

We also originate land loans to individuals. Land loans are secured by a first lien on the property; generally have a maximum loan to value ratio of 70% at a fixed rate of interest on one to five year balloon notes with a maximum amortization of thirty years.

Our consumer loans are risk priced based on credit score and overall credit quality of the applicant. Home equity loans are made for, among other purposes, the improvement of residential properties, debt consolidation and education expenses. The majority of these loans are secured by a second mortgage on residential property. Fixed rate terms are available up to 120 months, and our equity line of credit is generally a prime rate based loan. Maximum loan to values are dependent on credit worthiness and may be originated at up to 80% of collateral value.

Concentrations of Credit. The Bank’s lending activity primarily occurs within the geographic areas which we serve through our branch network, generally described as south and southwest Chicago, Illinois and the western suburbs of Chicago. Our loan portfolio mix includes 69.1% in one-to-four family mortgages, 10.7% in multifamily residential mortgages, 11.9% in commercial real estate mortgages, construction loans and land loans, 4.0% in direct consumer loans, and 4.3% in participations and loans purchased which are split close to equally between one-to-four family and commercial real estate as of December 31, 2010.

Outstanding commitments to borrowers for loans as of December 31, 2010 and 2009 totaled $1.7 million and $1.8 million, respectively. Unfunded commitments under lines of credit as of December 31, 2010 and 2009 totaled $2.0 million and $4.1 million, respectively.

Credit Quality Indicators. Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful or loss. An asset is considered substandard if it is inadequately protected by the current net worth and pay capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When we classify problem assets as either substandard or doubtful, we may consider the loans to be impaired and establish a specific allowance in an amount we deem prudent and approved by Senior Management or the Audit Committee or we may allow the loss to be addressed in the general allowance. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem assets. When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose us to sufficient risk to warrant classification as substandard or doubtful but possess identified weaknesses are required to be classified as either watch or special mention assets. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the OTS, which can order the establishment of additional loss allowances.

(Continued)

F-17

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 3 - LOANS RECEIVABLE (Continued)

Early indicator loan grades are used by the Bank to identify and track potential problem loans which do not rise to the levels described for substandard, doubtful or loss. The grades for watch and special mention are assigned to loans which have been criticized based upon known characteristics such as periodic payment delinquency or stale financial information from the borrower and/or guarantors. Loans identified as criticized (watch and special mention) or classified (substandard, doubtful, or loss) are subject to problem loan reporting not less than every three months. At December 31, 2010 the Bank had no loans classified as doubtful or loss.

The following table is a summary of loans, net of LIP and deferred fees, by type and risk category at December 31, 2010.


	One-to-Four Family		Multi- Family		Commercial, Construction and Land		Consumer		Participations and Loans Purchased		Total
	(In thousands)
Grade:
Pass	$	90,084	$	12,234	$	14,018	$	4,968	$	5,501	$	126,805
Special mention		—		675		147		770		—		1,592
Substandard		7,950		2,195		1,556		—		605		12,306


Total	$	98,034	$	15,104	$	15,721	$	5,738	$	6,106	$	140,703

The following table is a summary of the loan portfolio, net of LIP and deferred fees, by type and payment activity at December 31, 2010.


	One-to-Four Family		Multi- Family		Commercial, Construction and Land		Consumer		Participations and Loans Purchased		Total
	(In thousands)
Performing	$	89,452	$	12,909	$	14,165	$	5,738	$	5,435	$	127,699
Nonperforming⁽¹⁾		8,582		2,195		1,556		—		671		13,004


Total	$	98,034	$	15,104	$	15,721	$	5,738	$	6,106	$	140,703

⁽¹⁾	Nonperforming loans are loans that are classified as nonaccrual and 90 days delinquent and still accruing interest.

Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual when they become greater than 90 days past due, as well as when required by regulatory provisions.

The following table is a summary of nonaccrual loan balances, net of LIP and deferred fees, by type of loan at December 31, 2010.


	December 31, 2010
	(In thousands)
One-to-four family	$	7,950
Multi-family		2,195
Commercial, Construction and Land		1,556
Participations and Loans Purchased		605


Total nonaccrual loans	$	12,306

(Continued)

F-18

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 3 - LOANS RECEIVABLE (Continued)

The following table is a summary of the aging of loans, net of LIP and deferred fees, by type at December 31, 2010.


Loans Past Due
	30-59 Days		60-89 Days		90 Days and Greater⁽¹⁾⁽²⁾		Total		Current		Total Loans
	(In thousands)
Real estate:
One-to-four family	$	2,062	$	732	$	8,582	$	11,376	$	86,658	$	98,034
Multi-family		359		204		2,195		2,758		12,346		15,104
Commercial, Construction and Land		363		—		1,556		1,919		13,802		15,721

Total real estate		2,784		936		12,333		16,053		112,819		128,872
Consumer		109		20		—		129		5,609		5,738
Participations and Loans Purchased		14		84		671		769		5,337		6,106


Total	$	2,907	$	1,040	$	13,004	$	16,951	$	123,752	$	140,703

⁽¹⁾	Includes $12.3 million of nonaccrual loans and approximately $698,000 of loans that are 90 days past due and still accruing interest. There were no other loans 90 days past due and still accruing interest.

⁽²⁾	At December 31, 2009 nonaccrual loans were $11.3 million.

A loan is considered impaired when we have determined that we may be unable to collect payments of principal or interest when due under the terms of the loan. In the process of identifying loans as impaired, management takes into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case by case basis, after taking into consideration the totality of circumstances surrounding the loans and the borrowers, including payment history and amounts of any payment shortfall, length and reason for delay, and likelihood of return to stable performance. Impairment is measured on a loan by loan basis for all loans in the portfolio except for the smaller groups of homogeneous consumer loans in the portfolio.

(Continued)

F-19

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 3 - LOANS RECEIVABLE (Continued)

The following table presents loans individually evaluated for impairment by type of loan, net of LIP and deferred fees, as of December 31, 2010.


	Recorded Investment (1)(2)		Unpaid Principal Balance (1)(3)		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family	$	1,250	$	1,250	$	—
Multi-family		913		913		—
Commercial, Construction and Land		760		760		—


Total	$	2,923	$	2,923	$	—

Loans with an allowance:
One-to-four family	$	8,279	$	8,279	$	2,518
Multi-family		1,285		1,285		263
Commercial, Construction and Land		733		733		392
Participations and purchased loans		605		605		13


Total	$	10,902	$	10,902	$	3,186

Total impaired loans:
One-to-four family	$	9,529	$	9,529	$	2,518
Multi-family		2,198		2,198		263
Commercial, Construction and Land		1,493		1,493		392
Participations and purchased loans		605		605		13


Total	$	13,825	$	13,825	$	3,186

⁽¹⁾	Based on the methods utilized by the Company related to impaired loans, the Recorded Investment and the Unpaid Principal Balance in the above table are the same.

⁽²⁾	Represents the loan balance less charge offs.

⁽³⁾	Contractual loan principal balance.

(Continued)

F-20

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 3 - LOANS RECEIVABLE (Continued)

The following is a summary of information pertaining to impaired and nonaccrual loans:


	December 31,
	2010		2009
Impaired loans without a valuation allowance	$	2,923	$	4,474
Impaired loans with a valuation allowance		10,902		5,419

Total impaired loans	$	13,825	$	9,893

Valuation allowance related to impaired loans	$	3,186	$	1,896

Average investment of impaired loans	$	10,879	$	4,107

Nonperforming loans:
Nonaccrual loans	$	12,113	$	11,192
Nonaccrual troubled debt restructured loans		193		—

Total nonperforming loans	$	12,306	$	11,192

Performing troubled debt restructured loans	$	1,413		725
Nonperforming troubled debt restructured loans		193		—

Total troubled debt restructured loans	$	1,606	$	725

Interest income recognized on a cash basis on impaired loans was $160,000 for the year ended December 31, 2010; the comparable amount for 2009 was insignificant.

The Company has not committed additional funds to customers whose loans are classified as troubled debt restructurings.

Allowance for Possible Loan Losses. Management recognizes that loan losses may occur over the life of a loan and that the allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. The assessment includes analysis of several different factors, including delinquency, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions such as unemployment rates, bankruptcies and vacancy rates of business and residential properties.

(Continued)

F-21

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 3 - LOANS RECEIVABLE (Continued)

The specific allowance component is created when management believes that the collectability of a specific large loan, such as a real estate, multi-family or commercial real estate loan, has been impaired and a loss is probable. The allowance is increased by the provision for loan losses, which is charged against current period earnings and decreased by the amount of actual loan charge-offs, net of recoveries.

A summary of activity in the allowance for loan losses follows:


	2010			2009			2008
Beginning balance	$	2,851		$	775		$	640
Provision for loan losses		4,130			2,222			184
Recoveries		4			—			1
Loans charged off		(1,841	)		(146	)		(50	)


Ending balance	$	5,144		$	2,851		$	775

The following table is a summary of our allowance for loan losses and loan portfolio, net of LIP and deferred fees, by loan type and impairment method at December 31, 2010.


	One-to-four family		Multi-family		Commercial, Construction and Land		Consumer		Participation and Loans Purchased		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,518	$	263	$	392	$	—	$	13	$	3,186
Collectively evaluated for impairment		1,308		146		328		52		124		1,958

Total ending allowance balance	$	3,839	$	410	$	720	$	52	$	123	$	5,144

Loans:
Individually evaluated for impairment	$	9,529	$	2,198	$	1,493	$	—	$	605	$	13,825
Collectively evaluated for impairment		88,513		12,907		14,232		5,725		5,501		126,878

Total ending allowance balance	$	98,042	$	15,105	$	15,725	$	5,725	$	6,106	$	140,703

(Continued)

F-22

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 3 - LOANS RECEIVABLE (Continued)

Loans to executive officers, directors, and their related companies and individuals totaled approximately $1,128,000 and $716,000 at December 31, 2010 and December 31, 2009, respectively.

NOTE 4 - PREMISES AND EQUIPMENT

Premises and equipment consist of the following:


	December 31,
	2010			2009
Cost
Land	$	1,891		$	1,891
Buildings and improvements		8,638			8,643
Furniture and fixtures		2,050			2,001

Total cost		12,579			12,535
Less accumulated depreciation		(3,561	)		(3,090	)


	$	9,018		$	9,445

NOTE 5 - REAL ESTATE OWNED

Real estate owned activity was as follows:


	December 31,
	2010			2009
Beginning of year	$	1,611		$	1,874
Transferred from loans		1,605			160
Sales		(1,005	)		(132	)
Write-downs		(417	)		(291	)


End of year	$	1,794		$	1,611

Operating expenses related to real estate owned was $466,000 and $237,000 during 2010 and 2009.

NOTE 6 - DEPOSITS

Certificate of deposit accounts with balances of $100,000 or more totaled $35,860,000 at December 31, 2010 and $33,704,000 at December 31, 2009.

At December 31, 2010, scheduled maturities of certificates of deposit are as follows:


2011	$	51,473
2012		18,461
2013		5,418
2014		6,778
2015		8,625


	$	90,755

(Continued)

F-23

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES

At year end, advances from the FHLB were as follows:


	2010			2009
Maturities July 2011 through October 2018, at fixed rates from 1.89% to 4.68%	$	39,800		$	39,985


Average interest rate		3.55	%		3.76	%

The Company may incur a penalty if the advances are repaid prior to their maturity dates. Advances totaling $28.0 million are callable quarterly in whole or in part by the FHLB.

The Company maintains a collateral pledge agreement covering advances whereby the Company has agreed to at all times keep on hand, free of all other pledges, liens, and encumbrances, fully disbursed, whole first mortgages on improved residential property not more than 90 days delinquent, aggregating no less than 133% of the outstanding advances from the FHLB.

Maturities are as follows:


2011	$	4,000
2012		—
2013		6,300
2014		—
2015		1,500
Thereafter		28,000


	$	39,800

NOTE 8 - EMPLOYEE BENEFIT PLANS

401(k) Savings Plan

The Bank maintains a 401(k) plan covering substantially all employees. The plan allows participant salary deferrals into the plan along with a matching contribution provided by the Bank. Contributions to the 401(k) plan are made at the discretion of the Board of Directors and charged to expense annually. Total contributions to the plan were $31,000, $81,000 and $71,000, for 2010, 2009, and 2008, respectively.

Supplemental Executive Retirement Plan

The Bank maintained a non-qualified supplemental executive retirement plan (“SERP”) covering certain officers and highly compensated employees. There was no SERP expense in 2010, 2009, or 2008 because the plan was frozen as of January 1, 2006. In 2008, the Board of Directors approved the SERP to be terminated. As a result of the plan termination, $451,000 of the accrued benefit was paid in 2008. The remaining $78,000 accrued benefit was paid in 2009.

Employee Stock Ownership Plan

The Bank established an ESOP for the benefit of substantially all employees. The ESOP borrowed $2,160,990 from the Company in 1996 and used those funds to acquire 216,099 shares of the Company’s stock at $10 per share.

(Continued)

F-24

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 8 - EMPLOYEE BENEFIT PLANS (Continued)

Shares purchased by the ESOP were allocated to ESOP participants based on principal repayments made by the ESOP on the loan from the Company. The loan was secured by shares purchased with the loan proceeds and was repaid by the ESOP with funds from the Bank’s discretionary contributions to the ESOP and earnings on ESOP assets. Principal payments are scheduled to occur over a 15-year period. However, in the event the Bank’s contributions exceed the minimum debt service requirements, additional principal payments will be made. The Company may be required by ESOP participants to repurchase shares distributed by the ESOP for up to 60 days of distribution. Under the regulatory agreement discussed in Note 11, the Company is presently required to obtain regulatory approval before repurchasing any of its shares.

During 2010, 2009, and 2008, 9,892, 10,561, and 11,230, shares of stock, with an average fair value of $4.65, $5.82, and $16.53, per share were committed to be released, resulting in ESOP compensation expense of $46,000, $62,000, and $185,000, respectively. There was no increase in ESOP shares as of December 31, 2010 or 2009. ESOP shares were reduced by 2,204 and 27,016 as of December 31, 2010 and 2009, respectively, because of terminations. The ESOP terminated at December 31, 2010. Shares held by the ESOP at December 31, 2010 and 2009 are as follows:


	2010		2009
Allocated shares		167,264		159,576
Unallocated shares		—		9,892


Total ESOP shares		167,264		169,468


Fair value of unallocated shares	$	—	$	32

Stock Option Plans

The Company adopted a stock option plan in 1997 under the terms of which 270,144 shares of the Company’s common stock were reserved for issuance. All options granted become exercisable over a five-year period from the date of grant. All options granted expire ten years from the date of grant. At December 31, 2010, there were no stock options available to be issued under the 1997 Plan.

The Company adopted an Incentive Compensation Plan during 2003 under the terms of which 100,000 shares of the Company’s common stock were reserved for issuance. Of the shares authorized for issuance under the plan, up to 40,000 may be issued with respect to awards of restricted stock and restricted units and up to 40,000 may be issued pursuant to stock options under which the exercise price was less than the fair market value (but not less than 50% of the fair market value) of a share of common stock on the date the award was granted. In addition, as required by Code Section 162(m), the plan includes a limit of 50,000 shares of common stock as the maximum number of shares that may be subject to awards made to any one individual. As of December 31, 2010, there were 79,320 shares available for future grants, of which up to 35,000 shares may be available for future restricted stock awards under the 2003 Plan.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company used historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

(Continued)

F-25

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 8 - EMPLOYEE BENEFIT PLANS (Continued)

The fair value of options granted was determined using the following weighted-average assumptions as of the grant date:


	2010			2009			2008
Risk-free interest rate		—	%		2.85	%		3.37	%
Expected term		—	%		7 years			7 years
Expected stock price volatility		—	%		87	%		16	%
Dividend yield		—	%		—	%		3.27	%

A summary of the activity in the stock option plan for 2010 follows:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at beginning of year		73,237	$	11.83

Granted		—
Exercised		—
Expired		—


Outstanding and expected to vest at year end		73,237	$	11.83		6.2	$	—


Options exercisable at year end		33,337	$	18.60		3.6	$	—

Information related to the stock option plan during each year follows:


	2010		2009		2008
Intrinsic value of options exercised	$	—	$	—	$	—
Cash received from option exercises		—		—		—
Tax benefit realized from option exercises		—		—		—
Weighted average fair value of options granted		—		3.24		2.99

As of December 31, 2010, there was $70,000 of total unrecognized compensation costs related to nonvested stock options granted under the 2003 Plan. The cost is expected to be recognized over the remaining weighted-average vesting period of 1.0 year.

Restricted Stock Awards

The Company granted 5,000 shares of its common stock on April 21, 2009. The grant price was $5.68. Under the terms of the agreement, 20% of the restricted shares will vest each year. The fair value of the stock award at the grant date was $28,000, which is being amortized over the five year vesting period. Amortization expense was $9,000 in each of the years ended December 31, 2010 and 2009, respectively. During 2010, 1,000 shares vested, and 4,000 shares are nonvested at December 31, 2010.

(Continued)

F-26

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 9 - EARNINGS (LOSS) PER SHARE

The following table presents a reconciliation of the components used to compute basic and diluted earnings (loss) per share for 2010, 2009, and 2008. Diluted earnings per share reflect potential dilution from outstanding stock options, using the treasury stock method. Due to the Company’s net loss in 2010, 2009, and 2008, all stock options were excluded from the computation of diluted loss per share.


	2010			2009			2008
Basic earnings (loss) per share
Net income (loss) available to common stockholders	$	(5,355	)	$	(4,275	)	$	(2,367	)
Weighted average common shares outstanding		1,191,234			1,179,229			1,172,311


Basic earnings (loss) per share	$	(4.50	)	$	(3.63	)	$	(2.02	)


Diluted earnings (loss) per share
Net income (loss) available to common stockholders	$	(5,355	)	$	(4,275	)	$	(2,367	)
Weighted average common shares outstanding		1,191,234			1,179,229			1,172,311
Dilutive effect of stock options		—			—			—

Average common shares and dilutive potential common shares		1,191,234			1,179,229			1,172,311


Diluted earnings (loss) per share	$	(4.50	)	$	(3.63	)	$	(2.02	)

NOTE 10 - REGULATORY CAPITAL

The Bank is subject to regulatory capital requirements administered by federal regulatory agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet various capital requirements can initiate regulatory action. Management believes as of December 31, 2010, the Bank met all minimum capital adequacy requirements to which it is subject.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. At December 31, 2010 and 2009, the Bank was considered well capitalized under the regulatory framework for prompt corrective action. There were no conditions or events since that management believes have changed the Bank’s classification.

(Continued)

F-27

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 10 - REGULATORY CAPITAL (Continued)

At year end, the Bank’s actual capital levels and minimum required levels were as follows:


	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2010
Total capital (to risk-weighted assets)	$	18,451		15.1	%	$	9,775		8.0	%	$	12,219		10.0	%
Tier 1 (core) capital (to risk weighted assets)		16,918		13.8			4,904		4.0			7,356		6.0
Tier 1 (core) capital (to adjusted total assets)		16,918		8.0			8,459		4.0			10,574		5.0

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2009
Total capital (to risk-weighted assets)	$	22,799		17.9	%	$	10,196		8.0	%	$	12,744		10.0	%
Tier 1 (core) capital (to risk weighted assets)		21,844		17.1			5,098		4.0			7,647		6.0
Tier 1 (core) capital (to adjusted total assets)		21,844		10.1			8,674		4.0			10,843		5.0

Federal regulations require the Qualified Thrift Lender (“QTL”) test, which mandates that approximately 65% of assets be maintained in housing-related finance and other specified areas. If the QTL test is not met, limits are placed on growth, branching, new investments, and FHLB advances or the Bank must convert to a commercial bank charter. Management believes that this test is met.

Under the regulatory agreements discussed in Note 11, the Bank and Company cannot pay dividends without regulatory approval.

NOTE 11 - REGULATORY AGREEMENTS

On January 24, 2011, the Company entered into a Memorandum of Understanding (“MOU”) with the Office of Thrift Supervision (“OTS”). Under the terms of the MOU, the Company agreed with the OTS to, among other things:

•

Provide the OTS with periodic cash flow plans,

•

Not incur or redeem any debt or declare or pay dividends without prior OTS approval,

•

Submit any proposed Board or management changes to the OTS for prior approval,

•

Not enter into, revise or renew any existing compensation or employment agreements without OTS approval.

Prior to the issuance of the MOU, the Company had already undertaken a number of the steps specified in the MOU including, but not limited to, the Company’s prior suspension of dividends and redemption of stock. The Company believes that it is currently in compliance with the MOU.

(Continued)

F-28

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 11 - REGULATORY AGREEMENT (Continued)

•

Submit a revised Capital and Business Plan;

•

Revise its policy with respect to the allowance for loan losses;

•

Revise its internal asset review and classification program;

•

Develop a plan for the resolution of all REO properties and any adversely classified loans in excess of $500,000;

•

Not extend additional credit to borrowers whose loan had been charged off or classified as “loss” and is uncollected;

•

Revise its Credit Concentration Program;

•

Limit its quarterly growth of average assets to net interest credited on deposits;

•

Revise its lending and collection policies and practices;

•

Enhance its written funds management and liquidity policy;

•

Obtain an independent study of management and the personnel structure of the Bank; and

•

Prepare and submit progress reports to the OTS.

NOTE 12 - INCOME TAXES

Income tax (benefit) expense consists of the following:


	2010			2009			2008
Current expense (benefit)	$	188		$	(1,015	)	$	—
Deferred expense (benefit)		(2,194	)		(563	)		(1,365	)
Valuation allowance		2,006			1,901			339


Income tax expense (benefit)	$	—		$	323		$	(1,026	)

Due to interest income earned on certain U.S. government agency securities, there was no state income tax expense in 2010, 2009, or 2008. The state of Illinois does not tax interest earned on such securities.

(Continued)

F-29

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 12 - INCOME TAXES (Continued)

The federal income tax expense differs from the amounts determined by applying the statutory federal income tax rate of 34% to income before income taxes as a result of the following items:


	2010						2009						2008
	Amount			Percentage			Amount			Percentage			Amount			Percentage
Income tax computed at the statutory rate	$	(1,821	)		(34.0	)%	$	(1,344	)		(34.0	)%	$	(1,153	)		(34.0	)%
ESOP expense		9			0.2			21			0.5			20			0.6
Bank-owned life insurance		(107	)		(2.0	)		(104	)		(2.6	)		(101	)		(3.0	)
Low income housing credits		(117	)		(2.2	)		(117	)		(3.0	)		(117	)		(3.5	)
Valuation allowance		2,006			37.5			1,901			48.1			339			10.0
Other items, net		30			0.5			(34	)		(0.9	)		(14	)		(0.4	)


	$	—			—	%	$	323			8.1	%	$	(1,026	)		(30.2	)%

Prior to 1997, the Bank had qualified under provisions of the Internal Revenue Code that allowed it to deduct from taxable income a provision based on a percentage of taxable income, which differed from the provision charged to income. The amount of deferred tax liabilities not recorded approximates $1,121,000, and would be recorded if this deduction is reversed. The federal net operating loss carry forward of $3,095,000 begins to expire in 2030. The Company has $0 unrecognized tax benefits at December 31, 2010 and 2009. The Company does not expect this amount to change significantly in the next twelve months.

Deferred tax assets (liabilities) are comprised of the following at year end:


	2010			2009
Deferred loan fees	$	61		$	53
ESOP and Supplemental Retirement Plan expense		—			14
Bad debt deduction		1,749			970
Loss on security impairment		733			730
Write-down of real estate owned property		526			525
Low income housing and other tax credits		740			468
Net operating loss carryforward		1,052			—
Nonaccrual loan interest		117			—
Other		25			55

Total deferred tax assets		5,003			2,815

Unrealized gain on securities available for sale		(258	)		(70	)
FHLB stock dividends		(333	)		(333	)
Depreciation		(118	)		(172	)
Other		(48	)		—

Total deferred tax liabilities		(757	)		(575	)
Valuation allowance		(4,246	)		(2,240	)


Net deferred tax asset	$	—		$	—

(Continued)

F-30

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 12 - INCOME TAXES (Continued)

Realization of deferred tax assets is dependent upon generating sufficient taxable income to obtain benefit from the reversal of net deductible temporary differences and utilization of tax credit carryforwards. In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income, including tax planning strategies, during the periods in which those temporary differences become deductible. Based on forecasted earnings and available tax strategies, a valuation allowance to reflect management’s estimate of the temporary deductible differences that may expire prior to their utilization has been recorded at year end 2010 and 2009.

Current taxes receivable, included in other assets on the consolidated balance sheet, totaled $0 and $1,128,000 at December 31, 2010 and 2009. The current receivable represents recoverable federal income taxes from net operating loss carrybacks.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the state of Illinois. The Company is no longer subject to examination by taxing authorities for years before 2007.

NOTE 13 - COMMITMENTS

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist of standby letters of credit and commitments to make loans and fund loans in process.

The Company’s exposure to credit loss in the event of nonperformance by the other party to these financial instruments is represented by the contractual amount of these instruments. The Company follows the same credit policy to make such commitments as is followed for those loans recorded on the statement of financial condition.

The contractual amount of financial instruments with off-balance-sheet risk at year end is summarized as follows:


	2010		2009
Commitments to make loans:
Fixed	$	1,589	$	1,540
Adjustable		71		221
Unused lines of credit		2,046		4,114
Letters of credit		115		20
Loans in process		1,091		2,191

The fixed rate loan commitments at December 31, 2010 have terms of up to 60 days and rates in the range of 4.5% to 6.5%.

Since certain commitments to make loans and fund loans in process may expire without being used, the amounts above do not necessarily represent future cash commitments. No losses are anticipated as a result of these transactions.

(Continued)

F-31

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 14 - FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing and asset or liability.

Assets and Liabilities Measured on a Recurring Basis

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Assets measured at fair value on a recurring basis are summarized below:


			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Securities available for sale at December 31, 2010
Government sponsored enterprises	$	11,936	$	—	$	11,936	$	—
Corporate		5,073		—		5,073		—
Municipal		533		—		533		—
Equity		4,747		4,730		17		—
Mortgage-backed residential		7,742		—		7,742		—


	$	30,031	$	4,730	$	25,301	$	—

Securities available for sale at December 31, 2009
Government sponsored enterprises	$	16,762	$	—	$	16,762	$	—
Corporate		5,095		—		5,095		—
Municipal		512		—		512		—
Equity		4,672		4,647		25		—
Mortgage-backed residential		7,737		—		7,737		—


	$	34,778	$	4,647	$	30,131	$	—

(Continued)

F-32

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 14 - FAIR VALUE (Continued)

Assets Measured on a Non-Recurring Basis

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

The fair value of real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:


			Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2010
Impaired loans, net:
One-to-four residential	$	5,761	$	—	$	—	$	5,761
Multi-family		1,022		—		—		1,022
Commercial, Construction and Land		341		—		—		341
Participation and purchased loans		592		—		—		592

	$	7,716	$	—	$	—	$	7,716

Real estate owned
One-to-four residential	$	1,120	$	—	$	—	$	1,120
Multi-family		652		—		—		652
Commercial, Construction and Land		22		—		—		22

	$	1,794	$	—	$	—	$	1,794

December 31, 2009
Impaired loans, net	$	3,526	$	—	$	—	$	3,526
Real estate owned		1,611		—		—		1,611

Impaired loans were $13,825,000 and $ 9,913,000 at December 31, 2010 and 2009, respectively. These loans had a specific allowance allocation of $3,186,000 and $1,896,000 for the respective periods. Impaired loans totaling $10,902,000 and $5,422,000 at December 31, 2010 and 2009, respectively, were carried at fair value which is measured primarily for impairment using the fair value of collateral. The remaining $2,923,000 and $4,491,000 of impaired loans for the comparable periods were carried at cost as the fair value of the collateral exceeded the cost basis of each respective loan. Changes in specific allowance allocations during 2010 on impaired loans carried at fair value at December 31, 2010 resulted in an additional provision for loan losses of $1,290,000 compared to $1,896,000 for 2009.

(Continued)

F-33

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 14 - FAIR VALUE (Continued)

Other real estate owned carried at fair value was $1,794,000 and $1,611,000 at December 31, 2010 and 2009, respectively. Declines in the value of other real estate owned that is carried at fair value at December 31, 2010 resulted in a write-down of $417,000 during 2010 compared to $256,000 in 2009.

The carrying amount and estimated fair value of financial instruments at year end are as follows:


	2010						2009
	Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
Financial assets
Cash and cash equivalents	$	19,018		$	19,018		$	11,975		$	11,975
Securities available for sale		30,031			30,031			34,778			34,778
Loans receivable, net		135,559			137,379			142,924			144,831
FHLB stock		5,423			NA			5,423			NA
Accrued interest receivable		761			761			924			924

Financial liabilities
Deposits with no fixed maturity dates	$	(58,042	)	$	(58,042	)	$	(58,122	)	$	(58,122	)
Deposits with fixed maturity dates		(90,755	)		(92,323	)		(92,500	)		(93,487	)
Securities sold under repurchase agreements		(2,600	)		(2,600	)		(2,600	)		(2,600	)
Advances from borrowers for taxes and insurance		(1,932	)		(1,932	)		(1,859	)		(1,859	)
FHLB advances		(39,800	)		(43,277	)		(39,985	)		(42,855	)
Accrued interest payable		(151	)		(151	)		(190	)		(190	)

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits, short-term debt, short-term securities sold under agreements to repurchase, advance payments from borrowers, and variable rate loans or deposits that reprice frequently and fully. The fair value of securities available for sale is based on the methods described previously in this note. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. The fair value of FHLB advances is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance-sheet items, based on the current fees or cost that would be charged to enter into or terminate such arrangements is immaterial.

(Continued)

F-34

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 15 - OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows:


	2010			2009			2008
Unrealized holding gains (losses) on securities available for sale	$	469		$	144		$	(2,142	)
Less reclassification adjustments for gains, (losses), (impairments) recorded in income		(8	)		(268	)		(1,721	)

Net unrealized gains (losses)		477			412			(421	)
Tax effect		(162	)		(140	)		143


Other comprehensive income (loss)	$	315		$	272		$	(278	)

The following is a summary of the accumulated other comprehensive income balances, net of tax:


	Balance at 12/31/10		Current Period Change		Balance at 12/31/09
Unrealized gains on securities available for sale	$	451	$	315	$	136


Total	$	451	$	315	$	136

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS

Presented below are the condensed statements of financial condition, statements of operations, and statements of cash flows for Park Bancorp, Inc.

CONDENSED STATEMENTS OF FINANCIAL CONDITION

December 31, 2010 and 2009


	2010		2009
ASSETS
Cash and cash equivalents	$	646	$	431
Securities available for sale		17		25
ESOP loan		—		142
Investment in bank subsidiary		17,369		21,980
Investment in real estate development subsidiary		1		1
Accrued interest receivable and other assets		—		382


Total assets	$	18,033	$	22,961


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accrued expenses and other liabilities	$	10	$	13
Stockholders’ equity		18,023		22,948


Total liabilities and stockholders’ equity	$	18,033	$	22,961

(Continued)

F-35

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

CONDENSED STATEMENTS OF OPERATIONS

For the years ended December 31, 2010, 2009, and 2008


	2010			2009			2008
Operating income
Dividends from subsidiaries	$	—		$	—		$	1,000
Gains on sales of securities		—			—			5
Interest income
Securities (including dividends)		—			6			16
ESOP loan		10			20			31

Total operating income		10			26			1,052

Operating expenses
Interest on borrowings		—			—			10
Loss on security impairment		8			90			211
Other expenses		317			353			369

Total operating expenses		325			443			590


Income (loss) before income taxes and equity in undistributed earnings of subsidiaries		(315	)		(417	)		462

Income tax expense (benefit)		—			68			(183	)


Income (loss) before equity in undistributed earnings of subsidiaries		(315	)		(485	)		645

Dividends in excess of subsidiary earnings		(5,040	)		(3,790	)		(3,012	)


Net loss	$	(5,355	)	$	(4,275	)	$	(2,367	)

(Continued)

F-36

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

CONDENSED STATEMENT OF CASH FLOWS

For the years ended December 31, 2010, 2009, and 2008


	2010			2009			2008
Cash flows from operating activities
Net loss	$	(5,355	)	$	(4,275	)	$	(2,367	)
Adjustments to reconcile net loss to net cash from operating activities
Gain on sale of securities		—			—			(5	)
Loss on security impairment		8			90			211
Dividends in excess of subsidiary earnings		5,040			3,790			3,012
Change in
Other assets		383			68			7
Other liabilities		(3	)		(16	)		13

Net cash from operating activities		73			(343	)		871

Cash flows from investing activities
Sale of securities		—			—			114
Payment received on ESOP loan		142			141			141

Net cash from investing activities		142			141			255

Cash flows from financing activities
Other borrowings		—			—			500
Repayment of other borrowings		—			—			(500	)
Stock options exercised		—			—			—
Purchase of treasury stock		—			—			(483	)
Dividends paid to stockholders		—			—			(468	)

Net cash from financing activities		—			—			(951	)


Net change in cash and cash equivalents		215			(202	)		175

Cash and cash equivalents at beginning of year		431			633			458


Cash and cash equivalents at end of year	$	646		$	431		$	633

(Continued)

F-37

PARK BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010, 2009, and 2008

(Table amounts in thousands, except share and per share data)

NOTE 17 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)


	Interest Income		Net Interest Income		Net Income (Loss)			Earnings Per Share Basic			Earnings Per Share Fully Diluted
2010
First quarter	$	2,459	$	1,467	$	(655	)	$	(.55	)	$	(.55	)
Second quarter		2,355		1,419		(1,075	)		(.90	)		(.90	)
Third quarter		2,331		1,436		(725	)		(.61	)		(.61	)
Fourth quarter ⁽¹⁾		2,221		1,377		(2,900	)		(2.44	)		(2.44	)

2009
First quarter	$	2,697	$	1,318	$	(563	)	$	(.48	)	$	(.48	)
Second quarter		2,640		1,281		(585	)		(.50	)		(.50	)
Third quarter		2,417		1,143		(540	)		(.46	)		(.46	)
Fourth quarter ⁽²⁾		2,464		1,286		(2,587	)		(2.19	)		(2.19	)

(1)

The net loss increased in the fourth quarter due to an increase of $2.2 million in the provision for loan losses. The increase in the provision for loan losses is primarily due to the replenishment of the allowance for loan losses for charge offs taken in the fourth quarter and the establishment of specific valuation allowances on impaired loans during the same period. The increase in the loss provision was partially offset by a decrease of $236,000 in noninterest expense related to a decrease in REO expenses during the quarter of $325,000 which was primarily due to timing differences between the third and fourth quarters.

(2)	The net loss increased in the fourth quarter due to a $1.9 million provision for loan losses. The provision for loan losses is due to an increase in impaired loans in the process of foreclosure, of which the loan balance exceeds the estimated fair value of the collateral, less costs to sell.

F-38

PARK BANCORP, INC. AND SUBSIDIARIES

EXHIBIT INDEX

Park Bancorp, Inc.

Form 10-K for Fiscal Year Ended

December 31, 2009


3.1		Certificate of Incorporation of Park Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to Park Bancorp’s Registration Statement No. 333-4380)

3.2		Bylaws of Park Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to Park Bancorp’s Registration Statement No. 333-4380)

3.3		Federal Stock Charter and Bylaws of Park Federal Savings Bank (incorporated by reference to Exhibit 2.1 to Park Bancorp’s Registration Statement No. 333-4380)

4.1		Specimen Stock Certificate of Park Bancorp, Inc. (incorporated by reference to Exhibit 4.1 to Park Bancorp’s Registration Statement No. 333-4380)

10.1*		Form of Park Federal Savings Bank Employee Stock Ownership Plan (incorporated by reference to Exhibit 10.1 to Park Bancorp’s Registration Statement No. 333-4380)

10.2*		ESOP Loan Commitment Letter and ESOP Loan Documents (incorporated by reference to Exhibit 10.2 to Park Bancorp’s Registration Statement No. 333-4380)

10.3*		Form of Employment Agreements between Park Federal Savings Bank and Park Bancorp, Inc. and certain executive officers (incorporated by reference to Exhibit 10.3 to Park Bancorp’s Registration Statement No. 333-4380)

10.4*		Form of Proposed Park Federal Savings Bank Employee Severance Compensation Plan (incorporated by reference to Exhibit 10.4 to Park Bancorp’s Registration Statement No. 333-4380)

10.5*		Park Federal Savings Bank Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.5 to Park Bancorp’s Registration Statement No. 333-4380)

10.6*		Park Bancorp, Inc. 1997 Stock-Based Incentive Plan (incorporated by reference to Exhibit 99.1 to Park Bancorp’s Registration Statement No. 333-33103)

10.7*		Park Bancorp, Inc. 2003 Incentive Plan (incorporated by reference to Appendix A of Park Bancorp, Inc. Proxy Statement for the Annual Meeting of Stockholders in 2003)

21.1		List of Subsidiaries

23.0		Consent of Independent Registered Public Accounting Firm

31.1		Rule 13(a)-14(a) Certification (Chief Executive Officer)

31.2		Rule 13(a)-14(a) Certification (Chief Financial Officer)

32.1		Section 1350 Certification (Chief Executive Officer)

32.2		Section 1350 Certification (Chief Financial Officer)

*	Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (do not check if a smaller reporting company)

Smaller Reporting Company