SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-QSB
(Mark One)
-------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
--------------------------------------------------
OR
-------
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 000-51078
---------
LINCOLN PARK BANCORP
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FEDERAL 61-1479859
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
31 Boonton Turnpike, Lincoln Park, New Jersey 07035
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (973) 694-0330
-------------------------------------------------
Indicate by check X 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
----- -----
The number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 1,851,500 shares of common
stock, par value $.01 per share as of August 12, 2005.
LINCOLN PARK BANCORP AND SUBSIDIARY
INDEX
Page
PART I - FINANCIAL INFORMATION Number
---------
Item 1: Financial Statements
Consolidated Statements of Financial Condition
at June 30, 2005 and December 31, 2004 (Unaudited) 3
Consolidated Statements of Income for the Three Months and
Six Months Ended June 30, 2005 and 2004 (Unaudited) 4
Consolidated Statements of Comprehensive Income for the Three Months
And Six Months Ended June 30, 2005 and 2004 (Unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2005 and 2004 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7 - 8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 16
Item 3: Controls and Procedures 17
PART II - OTHER INFORMATION 18 - 19
SIGNATURES 20
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
June 30, December 31,
ASSETS 2005 2004
------ -------------- --------------
Cash and amounts due from depository institutions $ 1,309,310 $ 1,494,902
Interest-bearing deposits in other banks 1,097,223 4,403,386
-------------- --------------
Total cash and cash equivalents 2,406,533 5,898,288
Term deposits 578,148 80,778
Securities available for sale 3,243,021 4,316,440
Securities held to maturity, estimated fair value of $19,005,000
and $16, 910,000, respectively 19,111,791 17,043,185
Loans receivable, net of allowance for loan losses of $174,000
and $156,000, respectively 61,468,080 57,154,277
Premises and equipment 907,021 919,931
Federal Home Loan Bank of New York stock, at cost 1,000,700 807,200
Interest receivable 433,216 397,033
Other assets 87,229 81,689
-------------- --------------
Total assets $ 89,235,739 $ 86,698,821
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 55,490,759 $ 57,216,074
Advances from Federal Home Loan Bank of New York 20,013,822 16,143,198
Advance payments by borrowers for taxes and insurance 387,984 355,761
Other liabilities 229,219 156,417
-------------- --------------
Total liabilities 76,121,784 73,871,450
-------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock; no par value; 1,000,000 shares authorized;
none issued or outstanding - -
Common stock; $.01 par value; 5,000,000 shares authorized;
1,851,500 issued and outstanding 18,515 18,515
Additional paid in capital 7,774,177 7,783,602
Retained earnings - substantially restricted 5,693,185 5,409,484
Unearned ESOP shares (375,900) (385,580)
Accumulated other comprehensive income -
unrealized gain on securities available for sale 3,978 1,350
-------------- --------------
Total Stockholders' equity 13,113,955 12,827,371
-------------- --------------
Total liabilities and stockholders' equity $ 89,235,739 $ 86,698,821
============== ==============
See notes to consolidated financial statements.
-3-
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Interest income:
Loans $ 820,170 $ 672,790 $ 1,585,143 $ 1,336,705
Securities 262,359 214,149 519,670 434,215
Other interest-earning assets 13,860 7,330 25,241 15,381
------------ ------------ ------------ ------------
Total interest income 1,096,389 894,269 2,130,054 1,786,301
------------ ------------ ------------ ------------
Interest expense:
Deposits 245,194 222,820 478,041 446,301
Advances and other borrowed money 152,953 102,381 288,110 188,544
------------ ------------ ------------ ------------
Total interest expense 398,147 325,201 766,151 634,845
------------ ------------ ------------ ------------
Net interest income 698,242 569,068 1,363,903 1,151,456
Provision for loan losses (9,000) 2,990 18,000 (13,496)
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 707,242 566,078 1,345,903 1,164,952
------------ ------------ ------------ ------------
Non-interest income:
Fees and service charges 25,698 23,884 40,695 44,625
(Loss) gains on calls of securities held to maturity - - (7,239) 2,075
Miscellaneous 6,060 6,016 14,096 11,061
------------ ------------ ------------ ------------
Total non-interest income 31,758 29,900 47,552 57,761
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 200,371 202,771 394,743 401,933
Net occupancy expense of premises 27,049 26,612 62,584 55,220
Equipment 50,386 45,245 102,368 97,655
Advertising 16,435 9,095 28,692 17,135
Federal insurance premium 2,107 2,189 4,192 4,372
Miscellaneous 172,876 107,247 335,313 209,143
------------ ------------ ------------ ------------
Total non-interest expenses 469,224 393,159 927,892 785,458
------------ ------------ ------------ ------------
Income before income taxes 269,776 202,819 465,563 437,255
Income taxes 105,835 77,864 181,862 171,716
------------ ------------ ------------ ------------
Net income $ 163,941 $ 124,955 $ 283,701 $ 265,539
============ ============ ============ ============
Net income per common share:
Basic/diluted $ 0.09 N/A (a) $ 0.16 N/A (a)
============ ============ ============ ============
Weighted average number of common shares and
common stock equivalents outstanding:
Basic/diluted 1,818,212 N/A (a) 1,818,000 N/A (a)
============ ============ ============ ============
(a) Converted to stock form on December 16, 2004
See notes to consolidated financial statements.
-4-
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net income $ 163,941 $ 124,155 $ 283,701 $ 265,539
------------ ------------ ------------ ------------
Other comprehensive income (loss), net of income taxes:
Gross unrealized holding (loss) gain on
securities available for sale 32,621 (123,860) 4,347 (82,338)
Deferred income taxes (13,021) 49,550 (1,719) 32,950
------------ ------------ ------------ ------------
Other comprehensive income (loss) 19,600 (74,310) 2,628 (49,388)
------------ ------------ ------------ ------------
Comprehensive income $ 183,541 $ 49,845 $ 286,329 $ 216,151
============ ============ ============ ============
See notes to consolidated financial statements.
-5-
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Six Months Ended
June 30,
----------------------------
2005 2004
------------ ------------
Cash flows from operating activities:
Net income $ 283,701 $ 265,539
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment 32,152 32,071
Amortization and accretion, net 27,867 18,258
Loss (gain) on calls of term deposits and securities held to maturity 7,239 (2,075)
Provision (Recovery of) for loan losses 18,000 (13,496)
(Increase) in interest receivable (36,183) (7,164)
(Increase) in other assets (5,540) (236,837)
Increase in accrued interest payable 1,089 10,383
Increase in other liabilities 71,083 5,238
ESOP shares committed to be released 8,280 -
------------ ------------
Net cash provided by operating activities 407,688 71,917
------------ ------------
Cash flows from investing activities:
Purchases of term deposits (495,000) -
Proceeds from maturities and calls of term deposits - 690,000
Purchases of securities available for sale (49,180) -
Proceeds from maturities and calls of securities available for sale 1,100,000 650,000
Principal repayments on securities available for sale 23,311 48,573
Purchases of securities held to maturity (3,460,000) (3,337,775)
Proceeds from maturities and calls of securities held to maturity 1,185,000 1,615,000
Principal repayments on securities held to maturity 198,243 362,133
Net (increase) in loans receivable (4,357,493) (3,388,996)
Additions to premises and equipment (19,242) (38,559)
Purchase of Federal Home Loan Bank of New York stock (264,600) (204,200)
Redemption of Federal Home Loan Bank of New York stock 71,100 19,100
------------ ------------
Net cash (used in) investing activities (6,067,861) (3,584,724)
------------ ------------
Cash flows from financing activities:
Net (decrease) increase in deposits (1,726,404) 504,618
Proceeds from advances from Federal Home Loan Bank of New York 11,800,000 8,050,000
Repayments of advances from Federal Home Loan Bank of New York (7,929,376) (4,349,471)
Net increase in payments by borrowers for taxes and insurance 32,223 58,040
Net change in Paid in Capital (8,025) -
------------ ------------
Net cash provided by financing activities 2,168,418 4,263,187
------------ ------------
Net (decrease) increase in cash and cash equivalents (3,491,755) 750,380
Cash and cash equivalents - beginning 5,898,288 3,082,468
------------ ------------
Cash and cash equivalents - ending $ 2,406,533 $ 3,832,848
============ ============
Supplemental information:
Cash paid during the period for:
Interest on deposits and borrowings $ 762,739 $ 624,462
============ ============
Income taxes $ 131,741 $ 183,068
============ ============
See notes to consolidated financial statements.
-6-
LINCOLN PARK BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Lincoln Park
Bancorp (the "Company") and its wholly owned subsidiary, Lincoln Park Savings
Bank (the "Bank"). The Company's business is conducted principally through the
Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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
U.S. generally accepted accounting principles. However, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements have
been included. The results of operations for the three months and six months
ended June 30, 2005, are not necessarily indicative of the results which may be
expected for the entire fiscal year.
3. NET INCOME PER COMMON SHARE
Basic and diluted net income per share were computed by dividing net income by
the weighted average number of shares of common stock outstanding, adjusted for
unearned shares of the ESOP. Diluted net income per share did not differ from
basic net income per share as there were no contracts or securities exercisable
or which could be converted into common stock which would have a diluted effect.
4. CRITICAL ACCOUNTING POLICIES
We consider accounting policies involving significant judgments and assumptions
by management that have, or could have, a material impact on the carrying value
of certain assets or on income to be critical accounting policies. Material
estimates that are particularly susceptible to significant changes relate to the
determination of the allowance for loan losses. Determining the amount of the
allowance for loan losses necessarily involves a high degree of judgment.
Management reviews the level of the allowance on a quarterly basis, at a
minimum, and establishes the provision for loan losses based on the composition
of the loan portfolio, delinquency levels, loss experience, economic conditions,
and other factors related to the collectibility of the loan portfolio. Since
there has been no material shift in loan portfolio, the level of the allowance
for loan losses has changed primarily due to changes in the size of the loan
portfolio and the level of nonperforming loans. We have allocated the allowance
among categories of loan types as well as classification status at each
period-end date. Assumptions and allocation percentages based on loan types and
classification status have been consistently applied. Management regularly
evaluates various risk factors related to the loan portfolio, such as type of
loan, underlying collateral and payment status, and the corresponding allowance
allocation percentages.
-7-
LINCOLN PARK BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. CRITICAL ACCOUNTING POLICIES (CONT'D)
Although we believe that we use the best information available to
establish the allowance for loan losses, future additions to the allowance may
be necessary based on estimates that are susceptible to change as a result of
changes in economic conditions and other factors. In addition, the regulatory
authorities, as an integral part of their examinations process, periodically
reviews our allowance for loan losses. Such agencies may require us to recognize
adjustments to the allowance based on its judgments about information available
to it at the time of their examinations.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123R"). SFAS No. 123R revises FASB Statement No. 123,
"Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and its related implementation
guidance. SFAS No. 123R will require compensation costs related to share-based
payment transactions to be recognized in the financial statements (with limited
exceptions). The amount of compensation cost will be measured based on the
grant-date fair value of the equity or liability instruments issued.
Compensation costs will be recognized over the period that an employee provides
service in exchange for the award.
SFAS No. 123R was (originally) effective for public companies that do not file
as small business issuers as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. However, on April 14, 2005,
the Securities and Exchange Commission ("SEC") amended the compliance dates for
SFAS No. 123R. Under the new rule, the Company is required to adopt SFAS No.
123R at the beginning of its next fiscal year. The Company has not yet
determined the method of adoption or the effect of adopting SFAS No. 123R.
-8-
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
ITEM 2.
FORWARD-LOOKING STATEMENT
This Form 10-QSB may include certain forward-looking statements based on current
management expectations. The actual results of the Company 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 of the Bank, changes in accounting
principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2005 AND DECEMBER 31, 2004
Our total assets increased by $2.5 million, or 2.9%, to $89.2 million at
June 30, 2005, from $86.7 million at December 31, 2004. During the six months
ended June 30, 2005, the level of cash and cash equivalents decreased by $3.5
million, or 59.2%, to $2.4 million at June 30, 2005 from $5.9 million at
December 31, 2004. The decrease in cash and cash equivalents was due to the
deployment of funds received in our initial public stock offering in December
2004 into our loan, securities and term deposits portfolios, which increased
significantly as noted below. Term deposits increased $497,000 or 615.7% to
$578,000 at June 30, 2005 when compared with $81,000 at December 31, 2004. The
increase in term deposits during the 2005 period resulted from the deployment of
cash proceeds from the offering.
Securities available for sale decreased $1.1 million or 24.9% to $3.2
million at June 30, 2005 when compared with $4.3 million at December 31, 2004.
The decrease in securities available for sale during the 2005 period resulted
primarily from maturities and repayments of $1.1 million. Securities held to
maturity increased by $2.1 million or 12.1% to $19.1 million at June 30, 2005
when compared with $17.0 million at December 31, 2004. During the six months
ended June 30, 2005, purchases of securities held to maturity amounted to $3.5
million which was sufficient to offset maturities and repayments of $1.4
million. The increase in securities held to maturity was funded by the
deployment of cash proceeds from the offering.
Loans receivable amounts to $61.5 million and $57.2 million at June 30,
2005 and December 31, 2004, respectively, representing an increase of $4.3
million or 7.5%. Our increase in loans resulted primarily from increased one-to
four family mortgage loan and consumer loan originations as borrowers continued
to take advantage of low market interest rates. The loans receivable was funded
by borrowings.
Federal Home Loan Bank of New York ("FHLB") stock increased $194,000 or
24.0% to $1.0 million at June 30, 2005 when compared with $807,000 at June 30,
2004, primarily due to an increase in borrowings.
-9-
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2005 AND DECEMBER 31, 2004
(CONT'D.)
Total deposits decreased $1.7 million, or 3.0% to $55.5 million at June
30, 2005 from $57.2 million at December 31, 2004. The decrease in deposits was
due to competition from various financial institutions in our market area.
Advances from FHLB increased $3.9 million or 24.0% to $20.0 million at June 30,
2005 when compared with $16.1 million at December 31, 2004. The proceeds from
new advances were used to fund loan originations.
Stockholders' equity totaled $13.1 million and $12.8 million at June 30,
2005 and December 31, 2004, respectively, reflecting net income of $284,000 for
the six months ended June 30, 2005.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND
2004
GENERAL. Net income increased by $40,000, or 32.3%, to $164,000 for the
three months ended June 30, 2005, from $124,000 for the three months ended June
30, 2004. The increase in net income reflects increases in net interest income
and recovery in provision for loan losses, sufficient to offset increases in
non-interest expenses and increases in income taxes.
INTEREST INCOME. Interest income increased $202,000, or 22.6%, to $1.1
million for the three months ended June 30, 2005, from $894,000 for the three
months ended June 30, 2004. The increase in interest income is due to increases
of $147,000 in interest income from loans, $48,000 in interest on securities,
and $7,000 in interest income from other interest earning assets.
Interest income from loans increased by $147,000, or 21.8%, to $820,000
for the three months ended June 30, 2005, from $673,000 for the three months
ended June 30, 2004. The increase was due to a $9.8 million or 19.4% increase in
the average balance of loans to $60.2 million in 2005 from $50.4 million in 2004
and an increase in the average yield to 5.45% from 5.35%. Interest income from
securities, including available for sale and held to maturity, increased
$48,000, or 22.4%, to $262,000 for the three months ended June 30, 2005, from
$214,000 for the three months ended June 30, 2004. The increase in interest
income from securities was due to an increase of $3.2 million or 15.6% in the
average balance of securities to $23.7 million in 2005 from $20.5 million in
2004 and an increase in the average yield to 4.42% in 2005 from 4.18% in 2004.
Interest income from other interest-earning assets increased $7,000, or 100.0%
to $14,000 for the three months ended June 30, 2005, from $7,000 for the three
months ended June 30, 2004. The increase in interest income from other
interest-earning assets was due to an increase in the average yield to 3.11 % in
2005 from 1.07% in 2004, sufficient to offset a decrease in the average balance
to $1.8 million in 2005 from $2.8 million in 2004.
INTEREST EXPENSE. Total interest expense increased $73,000, or 22.5%, to
$398,000 for the three months ended June 30, 2005, from $325,000 for the three
months ended June 30, 2004. The interest expense on interest-bearing deposits
increased by $22,000 or 9.9% to $245,000 in 2005 when compared with $223,000 in
the comparable 2004 period. The increase in interest expense on deposits
resulted from an increase in the average cost of interest-bearing deposits to
1.78% from 1.59%, reflecting increasing market interest rates during the period
between the comparable quarters. Partially offsetting this increase was a
decrease in the average balance of interest-bearing deposits to $55.1 million in
2005 from $56.2 million in 2004.
-10-
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND
2004 (CONT'D.)
The interest expense on borrowed money increased $51,000 or 50.0% to
$153,000 in 2005 from $102,000 in comparable 2004 period. The increase resulted
from an increase of $5.3 million in the average balance of borrowed money to
$18.6 million in 2005 from $13.3 million in 2004 and an increase in cost of
borrowed money to 3.28% in 2005 from 3.06% in 2004.
NET INTEREST INCOME. Net interest income increased $129,000, or 22.7%,
to $698,000 for the three months ended June 30, 2005 from $569,000 for the three
months ended June 30, 2004. Our interest rate spread decreased to 2.96% in 2005
from 2.99% in 2004, reflecting a 29 basis point increase in the cost of our
interest bearing liabilities that exceeded a 26 basis point increase in yield on
interest-earning assets. Our net interest margin increased to 3.26% from 3.09%.
Despite the decline in the net interest spread, 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 recovered $9,000 in provision for loan
losses for the three months ended June 30, 2005, and recorded a provision of
$3,000 for the three months ended June 30, 2004. We had no charge-offs during
the three month periods ended June 30, 2005 and 2004. We used the same
methodology and generally similar assumptions in assessing the allowance for
both periods. The allowance for loan losses was $174,000, or 0.28% of gross
loans outstanding at June 30, 2005, as compared with $113,000, or 0.22% of gross
loans outstanding at June 30, 2004. The level of the allowance is based on
estimates, and the ultimate losses may vary from the estimates.
NON-INTEREST INCOME. Non-interest income increased $3,000, or 10.3%, to
$32,000 for the three months ended June 30, 2005, as compared to $29,000 for the
three months ended June 30, 2004. The primary reason for the increase in
non-interest income was an increase of $2,000 in fees and service charges.
NON-INTEREST EXPENSES. Non-interest expenses were $469,000 and $393,000
for the three months ended June 30, 2005 and 2004, respectively, representing an
increase of $76,000 or 19.3%. The increase in non-interest expenses is due to
increases of $66,000 in other expenses, $7,000 in advertising and $5,000 in
equipment.
Other expenses increased $66,000 or 60.6% to $173,000 in 2005 from
$107,000 in 2004, reflecting the additional expenses associated with being a
public company. Advertising expenses increased $7,000 or 77.8% to $16,000 in
2005 from $9,000 in 2004 due to an increase in marketing efforts. Equipment
expenses increased $5,000 or 11.1% to $50,000 in 2005 from $45,000 in 2004 due
to the upgrade of various equipment.
-11-
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND
2004 (CONT'D.)
INCOME TAX EXPENSE. The provision for income taxes increased to $106,000
for the three months ended June 30, 2005 from $78,000 for the three months ended
June 30, 2004. The increase in the provision for income taxes is primarily due
to an increase of $68,000 in income before income taxes to $270,000 for the
three months ended June 30, 2005, as compared to $202,000 for the three months
ended June 30, 2004.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
GENERAL. Net income increased $18,000, or 6.8%, to $284,000 for the six
months ended June 30, 2005, from $266,000 for the six months ended June 30,
2004. The increase in net income reflects an increase in net interest income,
sufficient to offset increases in provision for loan losses, non-interest
expenses and income taxes.
INTEREST INCOME. Interest income increased $344,000, or 19.3%, to $2.1
million for the six months ended June 30, 2005, from $1.8 million for the six
months ended June 30, 2004. The increase in interest income is due to increases
of $248,000 in interest income from loans, $85,000 in interest income on
securities and $10,000 in interest income from other interest earning assets.
Interest income from loans increased by $248,000, or 18.5%, to $1.6
million for the six months ended June 30, 2005, from $1.3 million for the six
months ended June 30, 2004. The increase was due to a $9.2 million or 18.4%
increase in the average balance of loans to $59.0 million in 2005 from $49.8
million in 2004. The average yield remained constant at 5.37% in 2005 and 2004.
Interest income from securities, including available for sale and held to
maturity, increased $86,000, or 19.8%, to $520,000 for the six months ended June
30, 2004, from $434,000 for the six months ended June 30, 2004. The increase in
interest income from securities was due to an increase of $3.1 million or 15.8%
in the average balance of securities to $23.6 million in 2005 from $20.3 million
in 2004 and an increase in the average yield to 4.40% in 2005 from 4.28% in
2004. Interest income from other interest-earning assets increased $10,000, or
66.7% to $25,000 for the six months ended June 30, 2005, from $15,000 for the
six months ended June 30, 2004. The increase in interest income from other
interest-earning assets was due to an increase in the average yield to 2.20 % in
2005 from 1.16% in 2004, sufficient to off-set a decrease in the average balance
to $2.3 million in 2005 from $2.6 million in 2004.
INTEREST EXPENSE. Total interest expense increased $131,000, or 20.6%,
to $766,000 for the six months ended June 30, 2005, from $635,000 for the six
months ended June 30, 2004. The interest expense on interest-bearing deposits
increased by $32,000 or 7.2% to $478,000 in 2005 when compared with $446,000 in
comparable 2004 period. The increase in interest expense resulted from an
increase in the average cost of interest-bearing deposits to 1.73% from 1.60%,
reflecting an increase in market interest rates during the period between the
comparable periods. Partially offsetting this increase was a decrease in the
average balance of interest-bearing deposits to $55.4 million in 2005 from $55.8
million in 2004. The interest expense on borrowed money increased $99,000 or
52.4% to $288,000 in 2005 from $189,000 in comparable 2004 period. The increase
resulted from an increase of $4.8 million in the average balance of borrowed
money to $17.7 million in 2005 from $12.9 million in 2004, as well as an
increase of 32 basis points in cost of borrowed money to 3.25% in 2005 from
2.93% in 2004.
-12-
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(CONT'D.)
NET INTEREST INCOME. Net interest income increased $213,000, or 18.5%,
to $1.4 million for the six months ended June 30, 2005 from $1.2 million for the
six months ended June 30, 2004. Our interest rate spread decreased to 2.92% in
2005 from 3.07% in 2004, reflecting an increase of 25 basis points in the cost
of our interest-bearing liabilities that exceeded an increase of 10 basis points
in the yield on interest-earning assets. Our net interest margin increased to
3.21% from 3.17%. Despite the decline in the net interest spread, net interest
income increased due to increases in both total and net interest-earning assets.
PROVISION FOR LOAN LOSSES. Based on our evaluation, we recorded a
provision for loan losses of $18,000 for the six months ended June 30, 2005, and
a recovery of $14,000 in provision for loan losses for the six months ended June
30, 2004. We had no charge-offs during the six month periods ended June 30, 2005
and 2004. We used the same methodology and generally similar assumptions in
assessing the allowance for both periods. The allowance for loan losses was
$174,000, or 0.28% of gross loans outstanding at June 30, 2005, as compared with
$113,000, or 0.22% of gross loans outstanding at June 30, 2004. 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 $10,000, or 17.2%, to
$48,000 for the six months ended June 30, 2005, as compared to $58,000 for the
six months ended June 30, 2004. The decrease in non-interest income was due to a
decrease of $5,000 in fees and service charges and a loss of $7,000 on the call
of securities held to maturity in 2005 compared to a gain of $2,000 on the call
of securities in 2004, offset by an increase of $4,000 in other non-interest
income.
NON-INTEREST EXPENSES. Non-interest expenses were $928,000 and $785,000
for the six months ended June 30, 2005 and 2004, respectively, representing an
increase of $143,000 or 18.2%. The increase in non-interest expenses is
primarily due to increases of $126,000 in other non-interest expense, $12,000 in
advertising expense and $8,000 in occupancy expense.
Other expenses increased $126,000 or 58.9% to $340,000 in 2005 from
$214,000 in 2004 reflecting the additional expenses associated with being a
public company. Advertising expenses increased $12,000 or 70.6% to $29,000 in
2005 from $17,000 in 2004 due to an increase in marketing efforts. Occupancy
expense increased $8,000 or 14.5% to $63,000 in 2005 from $55,000 in 2004 due to
an increase in repairs and maintenance expense of the banking facility.
INCOME TAX EXPENSE. The provision for income taxes increased to $182,000
for the six months ended June 30, 2005 from $172,000 for the six months ended
June 30, 2004. The increase in the provision for income taxes is primarily due
to an increase in income before income taxes of $29,000 to $466,000 for the six
months ended June 30, 2005, as compared to $437,000 for the six months ended
June 30, 2004.
-13-
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
MANAGEMENT OF MARKET RISK
GENERAL. The majority of our assets and liabilities are monetary in
nature. Consequently, our most significant form of market risk is interest rate
risk. Our assets, consisting primarily of mortgage loans, have longer maturities
than our liabilities, consisting primarily of deposits. As a result, a principal
part of our business strategy is to manage interest rate risk and reduce the
exposure of our net interest income to changes in market interest rates. Our
full board of directors is responsible for evaluating the interest rate risk
inherent in our assets and liabilities, for determining the level of risk that
is appropriate, given our business strategy, operating environment, capital,
liquidity and performance objectives, and for managing this risk consistent with
the guidelines approved by the board of directors. Senior management monitors
the level of interest rate risk and reports to the board of directors on a
regular basis with respect to our asset/liability policies and interest rate
risk position.
We have emphasized the origination of fixed-rate mortgage loans for
retention in our portfolio in order to maximize our net interest income. We
accept increased exposure to interest rate fluctuations as a result of our
investment in such loans. In a period of rising interest rates, our net interest
rate spread and net interest income may be negatively affected. However, this
negative impact is expected to be mitigated somewhat by the net proceeds from
the stock offering completed in December 2004 which will support the future
growth of our interest-earning assets. In addition, we have sought to manage and
mitigate our exposure to interest rate risks in the following ways:
o We maintain moderate levels of short-term liquid assets. At June
30, 2005, our short-term liquid assets totaled $2.9 million;
o We originate for portfolio adjustable-rate mortgage loans and
adjustable home equity lines of credit. At June 30, 2005, our
adjustable-rate mortgage loans totaled $13.2 million and our
adjustable home equity lines of credit totaled $6.7 million;
o We attempt to increase the maturity of our liabilities as market
conditions allow. In particular, since 2004, we have emphasized
intermediate- to long-term FHLB advances as a source of funds.
At June 30, 2005, we had $9.9 million of FHLB advances with
terms to maturity of between three and ten years; and
o We invest in securities with step-up rate features providing for
increased interest rates prior to maturity according to a
pre-determined schedule and formula. However, these step-up
rates may not keep pace with rising interest rates in the event
of a rapidly rising rate environment. In addition, these
investments may be called at the option of the issuer.
NET PORTFOLIO VALUE. The Company utilizes an outside vendor to prepare
the computation of accounts by which the net present value of the Bank's cash
flow from assets, liabilities and off balance sheet items (the Bank's net
portfolio value or "NPV") would change in the event of a range of assumed
changes in market interest rates. The vendor provides the Company with an
interest rate sensitivity report of net portfolio value by utilizing a
simulation model that uses a discounted cash flow analysis and an option-based
pricing approach to measuring the interest rate sensitivity of net portfolio
value. The model estimates the economic value of each type of assets, liability
and off-balance sheet contract under the assumption that the yield curve
increases or decreases instantaneously by 200 basis points. A basis point equals
one-hundredth of one percent, and 100 basis points equals one percent. An
increase in interest rates from 3% to 5% would mean, for example, a 200 basis
point increase in the change of interest rates.
-14-
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
MANAGEMENT OF MARKET RISK (CONT'D.)
The following table sets forth the Bank's NPV as of March 31, 2005, the
most recent date the Bank's NPV was calculated.
CHANGE IN NET PORTFOLIO VALUE NET PORTFOLIO VALUE AS A
--------------------- ------------------------------------------------- PERCENTAGE OF PRESENT VALUE OF
INTEREST RATES ASSETS
--------------------- ------------------------------------
(BASIS POINTS)
ESTIMATED AMOUNT OF PERCENT OF NPV CHANGE IN BASIS
NPV CHANGE CHANGE RATIO POINTS
--------------- --------------- --------------- --------------- -------------------
(DOLLARS IN THOUSANDS)
+200 $ 6,456 $ (2,714) (29.6)% 8.38% (265) basis points
0 9,170 -- -- 11.03 -- basis points
-200 9,635 465 5.1 11.21 18 basis points
The table above indicates that at March 31, 2005, in the event of a 200
basis point decrease in interest rates, we would experience a 5.1% increase in
net portfolio value. In the event of a 200 basis point increase in interest
rates, we would experience a 29.6% decrease in net portfolio value.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in net portfolio value require
making certain assumptions that may or may not reflect the manner in which
actual yields and costs respond to changes in market interest rates. In this
regard, the net portfolio value table presented assumes that the composition of
our interest-sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration or repricing of specific assets and
liabilities. Accordingly, although the net portfolio value table provides an
indication of our interest rate risk exposure at a particular point in time,
such measurements are not intended to and do not provide a precise forecast of
the effect of changes in market interest rates on its net interest income and
will differ from actual results.
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.
-15-
LINCOLN PARK BANCORP AND SUBSIDIARY
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 $61.5 million and $57.2
million at June 30, 2005 and December 31, 2004, respectively. Securities
available for sale totaled $3.2 million and $4.3 million at June 30, 2005 and
December 31, 2004, respectively. Securities held to maturity totaled $19.1
million and $17.0 million at June 30, 2005 and December 31, 2004, 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, mortgage-backed securities, and borrowings from
FHLB.
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 June 30, 2005, advances
from the FHLB amounted to $20.0 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At June 30, 2005, the Bank has outstanding commitments
to originate loans of $2.2 million. Certificates of deposit scheduled to mature
in one year or less at June 30, 2005, totaled $16.8 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 June 30, 2005, as
compared to the minimum regulatory capital requirements:
To Be Well
Capitalized
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
--------------------------- -------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ------------ ------------ ------------
Total Capital
(to risk-weighted assets) $ 9,412 20.14% $ 3,738 8.00% $ 4,672 10.00%
Tier 1 Capital
(to risk-weighted assets) 9,238 19.77% - - 2,803 6.00%
Core (Tier 1) Capital
(to average total assets) 9,238 10.84% 3,410 4.00% 4,263 5.00%
Tangible Capital
(to adjusted average assets) 9,238 10.89% 1,279 1.50% - -
-16-
LINCOLN PARK BANCORP AND SUBSIDIARY
CONTROLS AND PROCEDURES
-------------------------------------
ITEM 3.
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 Company's internal control over financial
reporting during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
-17-
LINCOLN PARK BANCORP
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank is 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 Company and the Bank.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the registrant was held on April
21, 2005. At the meeting the stockholders elected Stanford Stoller to a
three-year term as a director of the Company. Also at the meeting, Beard
Miller Company LLP, as successor to Radics & co., LLC, was ratified as
the Company's independent auditors. The results of the voting for each
matter considered was as follows:
a) The election as director to serve for a term of three years
until a successor has been elected and qualified.
For Withheld Broker Non-vote
--------- ---------- ---------------
Stanford Stoller 1,714,542 13,800 0
b) The appointment of Beard Miller Company LLP, as successor to
Radics & Co., LLC, as auditors of the Company for the fiscal
year ending December 31, 2005.
For Withheld Abstain Broker Non-vote
--------- ---------- --------- ----------------
1,709,342 18,500 500 0
In addition, the following directors, in addition to those elected,
continue to serve as directors after the annual meeting of stockholders:
William H. Weisbrod
David G. Baker
John F. Feeney
Edith M. Perrotti
-18-
LINCOLN PARK BANCORP
PART II
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.
11.0 Computation of earnings per share.
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
-19-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINCOLN PARK BANCORP
Date: August 12, 2005 /s/ Donald S. Hom
--------------------------- --------------------------------------
Donald S. Hom
President and Chief Executive Officer
(Principal Executive and Financial
Officer)
Date: August 12, 2005 /s/ Nandini Mallya
--------------------------- --------------------------------------
Nandini Mallya
Vice President and Treasurer
(Principal Accounting Officer)
-20-