UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-QSB
(Mark One)
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the transition period from To
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Commission File Number 333-116639
LINCOLN PARK BANCORP
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(Exact name of registrant as specified in its charter)
Federal 61-1479859
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
31 Boonton Turnpike, Lincoln Park, New Jersey 07035
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 973-694-0330
---------------------------
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_____ No__X*__
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act) Yes_____ No__X*__
The number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common stock, $0.01 par value,
no shares outstanding as of DECEMBER 10, 2004*.
Transitional Small Business Disclosure Format: Yes_____ No__X*__
* The registrant's Registration Statement on Form SB-2 was declared
effective on October 28, 2004.
LINCOLN PARK BANCORP
INDEX
Page
PART I - FINANCIAL INFORMATION Number
------------
Item 1: Financial Statements (Unaudited)
Lincoln Park Bancorp (the "Company") was formed to serve as the
stock Holding company for Lincoln Park Savings Bank (the "Bank')
as part of the reorganization into a mutual holding company
structure. As of the date hereof, the Bank has not completed its
reorganization, and accordingly, the Company has not issued any
stock, has no assets or liabilities, and has not conducted any
business other than that of an organizational nature. For a
further discussion of the Company's formation and operations,
see the Company's Registration Statement on Form SB-2, as
amended, initially filed on June 18, 2004 and declared effective
on October 28, 2004 (File Number 333-116639). Based upon the
foregoing, the unaudited Interim Financial Statements filed as
a part of this quarterly report are those of the Bank as follows:
Statements of Financial Condition
at September 30, 2004 and December 31, 2003 1
Statements of Income for the Three Months and
Nine Months Ended September 30, 2004 and 2003 2
Statements of Comprehensive Income for the Three
Months and Nine Months Ended September 30, 2004 and 2003 3
Statements of Cash Flows for the Nine Months
Ended September 30, 2004 and 2003 4
Notes to Financial Statements 5
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 11
Item 3: Controls and Procedures 12
PART II - OTHER INFORMATION 13
Item 1: Legal Proceedings
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Item 3: Default upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other information
Item 6: Exhibits
SIGNATURES 14
LINCOLN PARK SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
(Unaudited)
September 30, December 31,
ASSETS 2004 2003
------ -------------- --------------
Cash and amounts due from depository institutions $ 1,140,914 $ 1,423,614
Interest-bearing deposits in other banks 1,691,431 1,658,854
-------------- --------------
Total cash and cash equivalents 2,832,345 3,082,468
Term deposits 79,599 1,060,190
Securities available for sale 4,356,344 5,811,339
Securities held to maturity, estimated fair value of $14,679,000
and $13,496,000, respectively 14,709,853 13,507,348
Loans receivable, net of allowance for loan losses of $138,886
and $126,206, respectively 56,642,516 48,913,463
Premises and equipment 931,855 940,598
Federal Home Loan Bank stock, at cost 863,300 569,500
Interest receivable 417,880 355,881
Other assets 447,186 40,343
-------------- --------------
Total assets $ 81,280,878 $ 74,281,130
============== ==============
LIABILITIES AND RETAINED EARNINGS
Liabilities:
Deposits $ 58,052,799 $ 57,290,264
Advances from Federal Home Loan Bank of New York 17,265,329 11,389,477
Advance payments by borrowers for taxes and insurance 355,383 291,545
Other liabilities 194,467 179,516
-------------- --------------
Total liabilities 75,867,978 69,150,802
-------------- --------------
Retained earnings
Retained earnings - substantially restricted 5,398,749 5,104,900
Accumulated other comprehensive income -
unrealized gain on securities available for sale 14,151 25,428
-------------- --------------
Total retained earnings 5,412,900 5,130,328
-------------- --------------
Total liabilities and retained earnings $ 81,280,878 $ 74,281,130
============== ==============
See notes to financial statements.
- 1 -
LINCOLN PARK SAVINGS BANK
STATEMENTS OF INCOME
--------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Interest income:
Loans $ 711,645 $ 616,890 $ 2,048,350 $ 1,717,666
Securities 212,306 193,086 646,521 631,950
Other interest-earning assets 5,377 15,259 20,758 68,024
------------ ------------ ------------ ------------
Total interest income 929,328 825,235 2,715,629 2,417,640
------------ ------------ ------------ ------------
Interest expense:
Deposits 233,322 239,988 679,623 756,117
Advances and other borrowed money 116,462 52,929 305,006 157,131
------------ ------------ ------------ ------------
Total interest expense 349,784 292,917 984,629 913,248
------------ ------------ ------------ ------------
Net interest income 579,544 532,318 1,731,000 1,504,392
Provision for loan losses 24,176 10,215 10,680 20,564
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 555,368 522,103 1,720,320 1,483,828
------------ ------------ ------------ ------------
Non-interest income:
Fees and service charges 21,647 22,345 66,272 64,140
Gains on sale of securities - - 2,075 2,885
Miscellaneous 5,358 6,661 16,419 17,978
------------ ------------ ------------ ------------
Total non-interest income 27,005 29,006 84,766 85,003
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 214,994 188,152 616,927 553,631
Net occupancy expense of premises 27,049 30,201 82,269 90,516
Equipment 49,146 52,156 146,801 157,018
Advertising 6,387 10,095 23,522 28,398
Miscellaneous 242,359 108,713 455,874 315,797
------------ ------------ ------------ ------------
Total non-interest expenses 539,935 389,317 1,325,393 1,145,360
------------ ------------ ------------ ------------
Income before income taxes 42,438 161,792 479,693 423,471
Income taxes 14,128 65,697 185,844 169,186
------------ ------------ ------------ ------------
Net income $ 28,310 $ 96,095 $ 293,849 $ 254,285
============ ============ ============ ============
Net income per common share:
Basic/diluted N/A N/A N/A N/A
============ ============ ============ ============
Weighted average number of common shares and
common stock equivalents outstanding:
Basic/diluted N/A N/A N/A N/A
============ ============ ============ ============
See notes to financial statements.
- 2 -
LINCOLN PARK SAVINGS BANK
STATEMENTS OF COMPREHENSIVE INCOME
----------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income $ 28,310 $ 96,095 $ 293,849 $ 254,285
------------ ------------ ------------ ------------
Other comprehensive income (loss), net of income taxes:
Gross unrealized holding gain (loss) on
securities available for sale 63,461 (10,919) (18,877) 24,319
Deferred income taxes (25,350) 4,332 7,600 (8,697)
------------ ------------ ------------ ------------
38,111 (6,587) (11,277) 15,622
------------ ------------ ------------ ------------
Reclassification adjustment for realized gain on securities
available for sale - - - (3,806)
Deferred income taxes - - - 1,520
------------ ------------ ------------ ------------
- - - (2,286)
------------ ------------ ------------ ------------
Other comprehensive income (loss) 38,111 (6,587) (11,277) 13,336
------------ ------------ ------------ ------------
Comprehensive income $ 66,421 $ 89,508 $ 282,572 $ 267,621
============ ============ ============ ============
See notes to financial statements.
- 3 -
LINCOLN PARK SAVINGS BANK
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
Nine Months Ended
September 30,
-------------------------------------
2004 2003
----------------- -----------------
Cash flows from operating activities:
Net income $ 293,849 $ 254,285
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment 49,210 63,209
Amortization and accretion, net 47,417 33,883
Gain on sale of securities available for sale - (3,806)
Gain on sale of security held to maturity - (1,349)
(Gain) loss on calls of term deposits and securities held to maturity (2,075) 2,270
Provision for loan losses 10,680 20,564
(Increase) decrease in interest receivable (61,999) 20,926
(Increase) decrease in other assets (406,843) 9,743
Increase in accrued interest payable 14,079 8,198
Increase in other liabilities 8,966 10,319
----------------- -----------------
Net cash (used in) provided by operating activities (46,716) 418,242
----------------- -----------------
Cash flows from investing activities:
Purchases of term deposits - (792,000)
Proceeds from maturities and calls of term deposits 984,000 2,375,318
Purchases of securities available for sale - (1,100,000)
Proceeds from maturities and calls of securities available for sale 1,350,000 700,000
Principal repayments on securities available for sale 71,826 395,078
Proceeds from sales of securities available for sale - 103,362
Purchases of securities held to maturity (3,337,775) (5,709,507)
Proceeds from maturities and calls of securities held to maturity 1,615,000 7,300,000
Principal repayments on securities held to maturity 513,465 1,671,325
Proceeds from sale of security held to maturity - 100,000
Net change in loans receivable (7,767,387) (14,109,593)
Additions to premises and equipment (40,467) (4,241)
Purchase of Federal Home Loan Bank of New York stock (312,900) (54,300)
Redemption of Federal Home Loan Bank of New York stock 19,100 13,500
----------------- -----------------
Net cash (used in) investing activities (6,905,138) (9,111,058)
----------------- -----------------
Cash flows from financing activities:
Net increase in deposits 762,041 3,745,874
Proceeds from advances from Federal Home Loan Bank of New York 12,550,000 5,750,000
Repayments of advances from Federal Home Loan Bank of New York (6,674,148) (2,030,208)
Net increase in payments by borrowers for taxes and insurance 63,838 70,165
----------------- -----------------
Net cash provided by financing activities 6,701,731 7,535,831
----------------- -----------------
Net (decrease) in cash and cash equivalents (250,123) (1,156,985)
Cash and cash equivalents - beginning 3,082,468 3,560,930
----------------- -----------------
Cash and cash equivalents - ending $ 2,832,345 $ 2,403,945
================= =================
Supplemental information:
Cash paid during the period for:
Interest on deposits and borrowings $ 970,550 $ 905,050
================= =================
Income taxes $ 249,068 $ 218,404
================= =================
See notes to financial statements.
- 4 -
LINCOLN PARK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements were prepared in accordance with
instructions for Form 10-QSB and Regulation S-X and do not include information
or footnotes necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. However, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial statements have been included. The results of operations for
the three and nine month periods ended September 30, 2004, are not necessarily
indicative of the results which may be expected for the entire fiscal year.
2. NET INCOME PER COMMON SHARE
Basic and diluted net income per common share is not calculated since the Bank
is in process of reorganizing in stock form at September 30, 2004.
3. CONVERSION TO STOCK FORM OF OWNERSHIP
On May 13, 2004, the Board of Directors unanimously adopted the Plan of
Reorganization from Mutual Savings Association to Mutual Holding Company and
Stock Issuance (the "Plan"). Pursuant to the Plan, the Bank will: (i) convert to
a stock savings Bank as the successor to the Bank in its current mutual form;
(ii) organize the Stock Holding Company as a federally-chartered corporation
that will own 100% of the common stock of the Stock Bank; and (iii) organize the
Mutual Holding Company as a federally-chartered mutual holding company that will
own at least 51% of the Common Stock of the Stock Holding Company so long as the
Mutual Holding Company remains in existence. The Stock Bank will succeed to the
business and operations of the Bank in its mutual form and the Stock Holding
Company will sell a minority interest in its Common Stock in a public stock
offering. The Plan must be approved by both the OTS and by the Bank's depositors
as of the voting record date (the "Members").
Following the completion of the reorganization, all depositors who had
liquidation and other rights with respect to the Bank as of the effective date
of the reorganization will continue to have such rights solely with respect to
the Mutual Holding Company so long as they continue to hold deposit accounts
with the Bank. In addition, all persons who become depositors of the Bank
subsequent to the reorganization will have such liquidation and other rights
with respect to the Mutual Holding Company.
The Stock Holding Company plans to offer to the public shares of common stock
representing a minority ownership of the estimated pro forma market value of the
Bank as determined by an independent appraisal. The Mutual Holding Company will
maintain the majority ownership of the Stock Holding Company. Cost incurred in
connection with the offers will be recorded as a reduction of the proceeds from
the offering. If the transaction is not consummated, all costs incurred in
connection with the transactions will be expensed. As of September 30, 2004,
costs in the amount of approximately $350,000 were incurred in connection with
the offering.
- 5 -
ITEM 2
LINCOLN PARK SAVINGS BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORWARD-LOOKING STATEMENT
This Form 10-QSB may include certain forward-looking statements based on current
management expectations. The Bank's actual results could differ materially from
those management expectations. Factors that could cause future results to vary
from current management expectations include, but are not limited to, general
economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the federal government, changes in tax policies, rates and
regulations of federal, state and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of loan
and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Bank's operations, markets, products, services and prices.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
Our total assets increased by $7.0 million, or 9.4%, to $81.3 million at
September 30, 2004, from $74.3 million at December 31, 2003. During the nine
months ended September 30, 2004, the level of cash and cash equivalents
decreased by $250,000, or 8.1%, to $2.8 million at September 30, 2004 from $3.1
million at December 31, 2003. Term deposits decreased $980,000 or 92.5% to
$80,000 at September 30, 2004 when compared with $1.1 million at December 31,
2003. The decrease in term deposits during 2004 period resulted from maturities
and calls of term deposits. Securities available for sale decreased $1.4 million
or 24.1% to $4.4 million at September 30, 2004 when compared with $5.8 million
at December 31, 2003. The decrease in securities available for sale during 2004
period resulted primarily from maturities and repayments of $1.4 million.
Securities held to maturity increased $1.2 million or 8.9% to $14.7 million at
September 30, 2004 when compared with $13.5 million at December 31, 2003. During
the nine months ended September 30, 2004, purchases of securities held to
maturity amounted to $3.3 million which was sufficient to offset maturities and
repayments of $2.1 million. Loans receivable amounts to $56.6 million and $48.9
million at September 30, 2004 and December 31, 2003, respectively, representing
an increase of $7.7 million or 15.7%. Our increase in loans resulted primarily
from increased one-to four family mortgage loan originations as borrowers
continued to take advantage of low market interest rates.
Total deposits increased $763,000, or 1.3% to $58.1 million at September
30, 2004 from $57.3 million at December 31, 2003. Advances from Federal Home
Loan Bank of New York ("FHLB") increased $5.9 million or 51.8% to $17.3 million
at September 30, 2004 when compared with $11.4 million at December 31, 2003. The
proceeds from new advances were used to fund loan originations.
Retained earnings totaled $5.4 million and $5.1 million at September 30,
2004 and December 31, 2003, respectively, reflecting net income of $294,000 for
the nine months ended September 30, 2004. Lincoln Park exceeded all regulatory
capital requirements.
- 6 -
LINCOLN PARK SAVINGS BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004
AND 2003
GENERAL. Net income decreased $68,000, or 70.8%, to $28,000 for the
three months ended September 30, 2004, from $96,000 for the three months ended
September 30, 2003. The decrease in net income reflects increases in provision
for loan losses and non-interest expenses along with a decrease in non-interest
income, sufficient to offset an increase in net interest income and a decrease
in income taxes.
INTEREST INCOME. Interest income increased $105,000, or 12.7%, to
$930,000 for the three months ended September 30, 2004, from $825,000 for the
three months ended September 30, 2003. The increase in interest income is due to
a increases of $95,000 in interest income from loans and $19,000 in interest on
securities, sufficient to offset a decrease of $9,000 in interest income from
other interest earning assets.
Interest income from loans increased by $95,000, or 15.4%, to $712,000
for the three months ended September 30, 2004, from $617,000 for the three
months ended September 30, 2003. The increase was due to a $9.0 million or 19.8%
increase in the average balance of loans to $54.4 million in 2004 from $45.4
million in 2003, sufficient to offset a decrease in the average yield to 5.24%
from 5.43%. Interest income from securities, including available for sale and
held to maturity, increased $19,000, or 9.8%, to $212,000 for the three months
ended September 30, 2004, from $193,000 for the three months ended September 30,
2003. The increase in interest income from securities was due to an increase of
$3.5 million or 20.6% in the average balance of securities to $20.5 million in
2004 from $17.0 million in 2003, sufficient to offset a decrease in the average
yield to 4.13% in 2004 from 4.55% in 2003. Interest income from other
interest-earning assets decreased $9,000, or 60.0% to $6,000 for the three
months ended September 30, 2004, from $15,000 for the three months ended
September 30, 2003. The decrease in interest income from other interest-earning
assets was due to a decline in the average yield to 1.28 % in 2004 from 1.46% in
2003, as well as a decrease in the average balance to $1.9 million in 2004 from
$4.1 million in 2003.
INTEREST EXPENSE. Total interest expense increased $57,000, or 19.5%, to
$350,000 for the three months ended September 30, 2004, from $293,000 for the
three months ended September 30, 2003. The interest expense on interest-bearing
deposits decreased by $6,000 or 2.5% to $234,000 in 2004 when compared with
$240,000 in the comparable 2003 period. The decrease in interest expense on
deposits resulted from a decrease in the average cost of interest-bearing
deposits to 1.63% from 1.72%, reflecting the declining market interest rates
during the period between the comparable quarters. Partially offsetting this
decrease was an increase in the average balance of interest-bearing deposits to
$57.3 million in 2004 from $55.9 million in 2003. The interest expense on
borrowed money increased $63,000 or 118.9% to $116,000 in 2004 from $53,000 in
comparable 2003 period. The increase resulted from an increase of $8.5 million
in the average balance of borrowed money to $15.5 million in 2004 from $7.0
million in 2003, partially offset by a two basis point decrease in cost of
borrowed money to 2.99% in 2004 from 3.01% in 2003.
- 7 -
LINCOLN PARK SAVINGS BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004
AND 2003 (CONT'D.)
NET INTEREST INCOME. Net interest income increased $48,000, or 9.0%, to
$580,000 for the three months ended September 30, 2004 from $532,000 for the
three months ended September 30, 2003. Our interest rate spread decreased to
2.92% in 2004 from 3.10% in 2003, reflecting a six basis point increase in the
cost of our interest bearing liabilities, along with a decline of twelve basis
point in yield on interest-earning assets. Our net interest margin decreased to
3.02% from 3.20%. Despite the decline in both net interest spread and margin,
net interest income increased due to increases in both total and net
interest-earning assets.
PROVISION FOR LOAN LOSSES. We establish provisions for loan losses,
which are charged to operations, at a level necessary to absorb known and
inherent losses that are both probable and reasonably estimable at the date of
the financial statements. 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, the estimated value of any underlying
collateral, 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. Based on our
evaluation of these factors, management recorded a provision for loan losses of
$24,000 for the three months ended September 30, 2004, and a provision of
$10,000 for the three months ended September 30, 2003. We had no charge-offs or
recoveries during the three month periods ended September 30, 2004 and 2003. We
used the same methodology and generally similar assumptions in assessing the
allowance for both periods. The allowance for loan losses was $137,000, or 0.24%
of gross loans outstanding at September 30, 2004, as compared with $112,000, or
0.23% of gross loans outstanding at September 30, 2003. The level of the
allowance is based on estimates, and the ultimate losses may vary from the
estimates.
NON-INTEREST INCOME. Non-interest income decreased $2,000, or 6.9%, to
$27,000 for the three months ended September 30, 2004, as compared to $29,000
for the three months ended September 30, 2003. The primary reason for the
decrease in non-interest income was a decrease in other non-interest income of
$2,000.
NON-INTEREST EXPENSES. Non-interest expenses were $540,000 and $389,000
for the three months ended September 30, 2004 and 2003, respectively,
representing an increase of $151,000 or 38.8%. The increase in non-interest
expenses is primarily due to increases in salaries and employee benefits of
$27,000 and other expenses of $134,000. Salaries and employee benefits increased
$27,000 or 14.4% to $215,000 in 2004 from $188,000 in 2003 due to increased
staffing and normal salary increases. The increase in other expenses reflects an
increase in legal expenses of $101,000, associated with the consummation of the
charter conversion of the Bank from a New Jersey chartered savings and loan
association to a New Jersey chartered mutual savings bank, the resolution of the
regulatory concerns raised by the Office of Thrift Supervision regarding our
Bank Secrecy Act compliance and a lawsuit filed against the Bank by a depositor
challenging the charter conversion. In September 2004, the lawsuit was settled
and dismissed with prejudice.
INCOME TAX EXPENSE. The provision for income taxes decreased to $15,000
for the three months ended September 30, 2004 from $65,000 for the three months
ended September 30, 2003. The decrease in the provision for income taxes is
primarily due to a decrease in income before income taxes of $118,000 to $43,000
for the three months ended September 30, 2004, as compared to $161,000 for the
three months ended September 30, 2003.
- 8 -
LINCOLN PARK SAVINGS BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND
2003
GENERAL. Net income increased $40,000, or 15.7%, to $294,000 for the
nine months ended September 30, 2004, from $254,000 for the nine months ended
September 30, 2003. The increase in net income reflects an increase in net
interest income along with a decrease in provision for loan losses, sufficient
to offset increases in non-interest expenses and income taxes.
INTEREST INCOME. Interest income increased $299,000, or 12.4%, to $2.7
million for the nine months ended September 30, 2004, from $2.4 million for the
nine months ended September 30, 2003. The increase in interest income is due to
increases of $331,000 in interest income from loans and $15,000 in interest on
securities, sufficient to offset a decrease of $47,000 in interest income from
other interest earning assets.
Interest income from loans increased by $331,000, or 19.3%, to $2.0
million for the nine months ended September 30, 2004, from $1.7 million for the
nine months ended September 30, 2003. The increase was due to a $10.6 million or
26.0% increase in the average balance of loans to $51.3 million in 2004 from
$40.7 million in 2003, sufficient to offset a decrease in the average yield to
5.32% in 2004 from 5.62% in 2003. Interest income from securities, including
available for sale and held to maturity, increased $15,000, or 2.4%, to $647,000
for the nine months ended September 30, 2004, from $632,000 for the nine months
ended September 30, 2003. The increase in interest income from securities was
due to an increase of $2.8 million or 15.9% in the average balance of securities
to $20.4 million in 2004 and $17.6 million in 2003, sufficient to offset a
decrease in the average yield to 4.23% in 2004 from 4.79% in 2003. Interest
income from other interest-earning assets decreased $47,000, or 69.1% to $21,000
for the nine months ended September 30, 2004, from $68,000 for the nine months
ended September 30, 2003. The decrease in interest income from other
interest-earning assets was due to a decline in the average yield to 1.19 % in
2004 from 1.79% in 2003, as well as a decrease in the average balance to $2.3
million in 2004 from $5.1 million in 2003.
INTEREST EXPENSE. Total interest expense increased $72,000, or 7.9%, to
$985,000 for the nine months ended September 30, 2004, from $913,000 for the
nine months ended September 30, 2003. The interest expense on interest-bearing
deposits decreased by $76,000 or 10.1% to $680,000 in 2004 when compared with
$756,000 in comparable 2003 period. The decrease in interest expense resulted
from a decrease in the average cost of interest-bearing deposits to 1.61% from
1.85%, reflecting the declining market interest rates during the period between
the comparable periods. Partially offsetting this decrease was an increase in
the average balance of interest-bearing deposits to $56.3 million in 2004 from
$54.5 million in 2003. The interest expense on borrowed money increased $148,000
or 94.3% to $305,000 in 2004 from $157,000 in comparable 2003 period. The
increase resulted from an increase of $8.4 million in the average balance of
borrowed money to $13.8 million in 2004 from $5.4 million in 2003, partially
offset by a ninety-four basis point decrease in cost of borrowed money to 2.95%
in 2004 from 3.89% in 2003.
NET INTEREST INCOME. Net interest income increased $227,000, or 15.1%,
to $1.7 million for the nine months ended September 30, 2004 from $1.5 million
for the nine months ended September 30, 2003. Our interest rate spread decreased
to 3.02% in 2004 from 3.05% in 2003, reflecting a decline of nineteen basis
points in the yield on interest-earning assets, partially offset by a decrease
of sixteen basis points in the cost of our interest-bearing liabilities. Our net
interest margin decreased to 3.12% from 3.16%.
- 9 -
LINCOLN PARK SAVINGS BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND
2003 (CONT'D.)
PROVISION FOR LOAN LOSSES. Based on our evaluation, we recorded a
provision for loan losses of $11,000 for the nine months ended September 30,
2004, and a provision of $21,000 for the nine months ended September 30, 2003.
We had no charge-offs or recoveries during the nine month periods ended
September 30, 2004 and 2003. We used the same methodology and generally similar
assumptions in assessing the allowance for both periods. The allowance for loan
losses was $137,000, or 0.24% of gross loans outstanding at September 30, 2004,
as compared with $112,000, or 0.23% of gross loans outstanding at September 30,
2003. The level of the allowance is based on estimates, and the ultimate losses
may vary from the estimates.
NON-INTEREST INCOME. Non-interest income remained unchanged at $85,000
for the nine months ended September 30, 2004 and 2003.
NON-INTEREST EXPENSES. Non-interest expenses were $1.3 million and $1.1
million for the nine months ended September 30, 2004 and 2003, respectively,
representing an increase of $180,000 or 15.7%. The increase in non-interest
expenses primarily due to increases in salaries and employee benefits by $63,000
and other expenses by $140,000. The increase in the salaries and employee
benefits of $63,000 or 11.4%, to $617,000 in 2004 from $554,000 in 2003, was the
result of increased staffing and normal salary increases. The increase in other
expenses reflects an increase in legal expenses of $100,000 associated with the
charter conversion, the resolution of the regulatory concerns raised by the
Office of Thrift Supervision regarding the Bank Secrecy Act and the lawsuit
discussed above.
INCOME TAX EXPENSE. The provision for income taxes increased to $186,000
for the nine months ended September 30, 2004 from $169,000 for the nine months
ended September 30, 2003. The increase in the provision for income taxes is
primarily due to an increase in income before income taxes of $57,000 to
$480,000 for the nine months ended September 30, 2004, as compared to $423,000
for the nine months ended September 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain levels of liquid assets sufficient to ensure
the Bank's safe and sound operation. Liquidity is the ability to meet current
and future financial obligations of a short-term nature. The Bank adjusts its
liquidity levels in order to meet funding needs for deposit outflows, payment of
real estate taxes from escrow accounts on mortgage loans, repayment of
borrowings, when applicable, and loan funding commitments. The Bank also adjusts
its liquidity level as appropriate to meet its asset/liability objectives.
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities principal, FHLB advances, maturities of
investment securities and funds provided from operations. While scheduled loan
and mortgage-backed securities amortization and maturing investment securities
are a relatively predictable source of funds, deposit flow and loan and
mortgage-backed securities prepayments are greatly influenced by market interest
rates, economic conditions and competition.
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operating, investing and financing activities.
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LINCOLN PARK SAVINGS BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONT'D.)
The primary sources of investing activity are lending and the purchase of
mortgage-backed securities. Net loans amounted to $56.6 million and $48.9
million at September 30, 2004 and December 31, 2003, respectively. Securities
available for sale totaled $4.4 million and $5.8 million at September 30, 2004
and December 31, 2003, respectively. Securities held to maturity totaled $14.7
million and $13.5 million at September 30, 2004 and December 31, 2003,
respectively. In addition to funding new loan production and securities
purchases through operating and financing activities, such activities were
funded by principal repayments on existing loans and mortgage-backed securities.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds and interest-bearing deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB which provide an additional source of funds. At September 30, 2004,
advances from the FHLB amounted to $17.3 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At September 30, 2004, the Bank has outstanding
commitments to originate loans of $1.9 million. Certificates of deposit
scheduled to mature in one year or less at September 30, 2004, totaled $17.5
million. Management believes that, based upon its experience and the Bank's
deposit flow history, a significant portion of such deposits will remain with
the Bank.
The following table sets forth the Bank's capital position at September 30,
2004, as compared to the minimum regulatory capital requirements (dollars in
thousands):
To Be Well
Capitalized
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
--------------------------- --------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Total Capital
(to risk-weighted assets) $ 5,536 12.40% $ 3,572 8.00% $ 4,466 10.00%
Tier 1 Capital
(to risk-weighted assets) 5,399 12.09% - - 2,679 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 5,399 6.64% 3,251 4.00% 4,064 5.00%
Tangible Capital
(to adjusted total assets) 5,399 6.64% 1,219 1.50% - -
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ITEM 3
LINCOLN PARK SAVINGS BANK
CONTROLS AND PROCEDURES
-----------------------
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
upon that evaluation, the Chief Executive Officer and the Chief Financial
Officer has concluded that, as of the end of the period covered by this report,
our disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Securities Exchange Act of 1934, is recorded, processed, summarized and
reported within the applicable time periods specified by the SEC's rules and
forms. There has been no change in the Bank's internal control over financial
reporting during the Bank's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Bank's internal
control over financial reporting.
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LINCOLN PARK SAVINGS BANK
PART II
ITEM 1. LEGAL PROCEEDINGS
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business,
which involve amounts in the aggregate believed by management to be
immaterial to the financial condition of the Bank.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Exhibits are filed as part of this report.
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to n 906 of the
Sarbanes-Oxley Act of 2002.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Small
Business Issuer has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINCOLN PARK BANCORP
Date: December 10, 2004 /s/ Donald S. Hom
--------------------------- -------------------------------------------
Donald S. Hom
President and Chief Executive Officer
(Principal Executive and Financial Officer)
Date: December 10, 2004 /s/ Nandini Mallya
--------------------------- -------------------------------------------
Nandini Mallya
Vice President and Treasurer
(Principal Accounting Officer)
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