SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2005
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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 000-51078
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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
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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 November 14, 2005.
LINCOLN PARK BANCORP AND SUBSIDIARY
INDEX
Page
PART I - FINANCIAL INFORMATION Number
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Item 1: Financial Statements
Consolidated Statements of Financial Condition
at September 30, 2005 and December 31, 2004 (Unaudited) 1
Consolidated Statements of Income for the Three Months and
Nine Months Ended September 30, 2005 and 2004 (Unaudited) 2
Consolidated Statements of Comprehensive Income for the
Three Months And Nine Months Ended September 30, 2005
and 2004 (Unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2005 and 2004 (Unaudited) 4
Notes to Consolidated Financial Statements (Unaudited) 5 - 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 15
Item 3: Controls and Procedures 16
PART II - OTHER INFORMATION 17
SIGNATURES 18
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
September 30, December 31,
ASSETS 2005 2004
------ --------------- --------------
Cash and amounts due from depository institutions $ 1,244,201 $ 1,494,902
Interest-bearing deposits in other banks 1,126,045 4,403,386
--------------- --------------
Total cash and cash equivalents 2,370,246 5,898,288
Term deposits 579,379 80,778
Securities available for sale 3,120,641 4,316,440
Securities held to maturity, estimated fair value of $18,659,000
and $16, 910,000, respectively 18,989,327 17,043,185
Loans receivable, net of allowance for loan losses of $151,500
and $156,000, respectively 63,345,651 57,154,277
Premises and equipment 890,932 919,931
Federal Home Loan Bank of New York stock, at cost 1,076,300 807,200
Interest receivable 477,832 397,033
Other assets 68,654 81,689
------ --------------- --------------
Total assets $ 90,918,962 $86,698,821
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 55,456,816 $ 57,216,074
Advances from Federal Home Loan Bank of New York 21,525,848 16,143,198
Advance payments by borrowers for taxes and insurance 372,879 355,761
Other liabilities 290,362 156,417
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Total liabilities 77,645,905 73,871,450
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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 7,775,577 7,783,602
Retained earnings - substantially restricted 5,856,082 5,409,484
Unearned ESOP shares (371,060) (385,580)
Accumulated other comprehensive income -
unrealized (loss) gain on securities available for sale (6,057) 1,350
--------------- --------------
Total Stockholders' equity 13,273,057 12,827,371
--------------- --------------
Total liabilities and stockholders' equity $ 90,918,962 $ 86,698,821
=============== ==============
See notes to consolidated financial statements.
- 1 -
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Interest income:
Loans $ 853,258 $ 711,645 $ 2,438,401 $ 2,048,350
Securities 257,243 212,306 776,913 646,521
Other interest-earning assets 11,667 5,377 36,908 20,758
------------ ------------ ------------ ------------
Total interest income 1,122,168 929,328 3,252,222 2,715,629
------------ ------------ ------------ ------------
Interest expense:
Deposits 269,129 233,322 747,170 679,623
Advances and other borrowed money 179,554 116,462 467,664 305,006
------------ ------------ ------------ ------------
Total interest expense 448,683 349,784 1,214,834 984,629
------------ ------------ ------------ ------------
Net interest income 673,485 579,544 2,037,388 1,731,000
(Recovery of) provision for loan losses (22,444) 24,176 (4,444) 10,680
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 695,929 555,368 2,041,832 1,720,320
------------ ------------ ------------ ------------
Non-interest income:
Fees and service charges 19,960 21,647 60,655 66,272
(Loss) gains on calls of securities held to maturity - - (7,239) 2,075
Miscellaneous 6,311 5,358 20,407 16,419
------------ ------------ ------------ ------------
Total non-interest income 26,271 27,005 73,823 84,766
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 198,524 214,994 593,267 616,927
Net occupancy expense of premises 30,598 27,049 93,182 82,269
Equipment 55,374 49,146 157,742 146,801
Advertising 11,305 6,387 39,997 23,522
Federal insurance premium 1,894 2,100 6,086 6,472
Miscellaneous 154,520 240,259 489,833 449,402
------------ ------------ ------------ ------------
Total non-interest expenses 452,215 539,935 1,380,107 1,325,393
------------ ------------ ------------ ------------
Income before income taxes 269,985 42,438 735,548 479,693
Income taxes 104,893 14,128 286,755 185,844
------------ ------------ ------------ ------------
Net income $ 165,092 $ 28,310 $ 448,793 $ 293,849
============ ============ ============ ============
Net income per common share:
Basic/diluted $ 0.09 N/A $ 0.25 N/A
============ ============ ============ ============
Weighted average number of common shares and
common stock equivalents outstanding:
Basic/diluted 1,818,638 N/A 1,818,213 N/A
============ ============ ============ ============
(a) Converted to stock form on December 16, 2004
See notes to consolidated financial statements.
- 2 -
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net income $ 165,092 $ 28,310 $ 448,793 $ 293,849
------------ ------------ ------------ ------------
Other comprehensive income (loss), net of income taxes:
Gross unrealized holding (loss) gain on
securities available for sale (16,684) 63,461 (12,337) (18,877)
Deferred income taxes 6,649 (25,350) 4,930 7,600
------------ ------------ ------------ ------------
Other comprehensive income (loss) (10,035) 38,111 (7,407) (11,277)
------------ ------------ ------------ ------------
Comprehensive income $ 155,057 $ 66,421 $ 441,386 $ 282,572
============ ============ ============ ============
See notes to consolidated financial statements.
- 3 -
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Nine Months Ended
September 30,
----------------------------
2005 2004
------------ ------------
Cash flows from operating activities:
Net income $ 448,793 $ 293,849
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment 48,241 49,210
Amortization and accretion, net 36,148 47,417
Loss (gain) on calls of term deposits and securities held to maturity 7,239 (2,075)
(Recovery of) provisions for loan losses (4,444) 10,680
(Increase) in interest receivable (80,799) (61,999)
Decrease (increase) in other assets 13,035 (406,843)
Increase (decrease) in accrued interest payable 15,326 14,079
Increase (decease) in other liabilities 124,676 8,966
ESOP shares committed to be released 12,325 -
------------ ------------
Net cash provided by operating activities 620,540 (46,716)
------------ ------------
Cash flows from investing activities:
Purchases of term deposits (495,000) -
Proceeds from maturities and calls of term deposits - 984,000
Purchases of securities available for sale (55,723) -
Proceeds from maturities and calls of securities available for sale 1,200,000 1,350,000
Principal repayments on securities available for sale 35,114 71,826
Purchases of securities held to maturity (3,960,000) (3,337,775)
Proceeds from maturities and calls of securities held to maturity 1,685,000 1,615,000
Principal repayments on securities held to maturity 320,255 513,465
Net (increase in loans receivable (6,221,244) (7,767,387)
Additions to premises and equipment (19,242) (40,467)
Purchase of Federal Home Loan Bank of New York stock (414,600) (312,900)
Redemption of Federal Home Loan Bank of New York stock 145,500 19,100
------------ ------------
Net cash (used in) investing activities (7,779,940) (6,905,138)
------------ ------------
Cash flows from financing activities:
Net (decrease) increase in deposits (1,760,385) 762,041
Proceeds from advances from Federal Home Loan Bank of New York 18,200,000 12,550,000
Repayments of advances from Federal Home Loan Bank of New York (12,817,350) (6,674,148)
Net increase in payments by borrowers for taxes and insurance 17,118 63,838
Net change in Paid in Capital (8,025) -
------------ ------------
Net cash provided by financing activities 3,631,358 6,701,731
------------ ------------
Net (decrease) increase in cash and cash equivalents (3,528,042) (250,123)
Cash and cash equivalents - beginning 5,898,288 3,082,468
------------ ------------
Cash and cash equivalents - ending $ 2,370,246 $ 2,832,345
============ ============
Supplemental information:
Cash paid during the period for:
Interest on deposits and borrowings $ 1,201,375 $ 970,550
============ ============
Income taxes $ 197,741 $ 249,068
============ ============
See notes to consolidated financial statements.
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LINCOLN PARK BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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 nine months
ended September 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.
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LINCOLN PARK BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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 review 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.
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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 SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
Our total assets increased by $4.2 million, or 4.8%, to $90.9 million at
September 30, 2005, from $86.7 million at December 31, 2004. During the nine
months ended September 30, 2005, the level of cash and cash equivalents
decreased by $3.5 million, or 59.3%, to $2.4 million at September 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 held to maturity and term deposits
portfolios, which increased significantly as noted below. Term deposits
increased $498,000 or 614.8% to $579,000 at September 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 $1.2 million or 27.9% to $3.1
million at September 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 $1.2 million. Securities
held to maturity increased by $2.0 million or 11.8% to $19.0 million at
September 30, 2005 when compared with $17.0 million at December 31, 2004. During
the nine months ended September 30, 2005, purchases of securities held to
maturity amounted to $4.0 million which was sufficient to offset maturities and
repayments of $2.0 million. The increase in securities held to maturity was
funded by the deployment of cash proceeds from the offering.
Loans receivable amounts to $63.3 million and $57.2 million at September
30, 2005 and December 31, 2004, respectively, representing an increase of $6.1
million or 10.7%. Our increase in loans resulted primarily from increased one-to
four family mortgage loan and consumer loan originations. The loans receivable
was primarily funded by borrowings.
Federal Home Loan Bank of New York ("FHLB") stock increased $269,000 or
33.3% to $1.1 million at September 30, 2005 when compared with $807,000 at
December 31, 2004, primarily due to an increase in borrowings.
- 7 -
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
(CONT'D.)
Total deposits decreased by $1.8 million, or 3.1% to $55.5 million at
September 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 $5.4 million or 33.5% to $21.5 million
at September 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 $13.3 million and $12.8 million at
September 30, 2005 and December 31, 2004, respectively, reflecting net income of
$449,000 for the nine months ended September 30, 2005.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005
AND 2004
GENERAL. Net income increased by $137,000, or 489.3%, to $165,000 for
the three months ended September 30, 2005, from $28,000 for the three months
ended September 30, 2004. The increase in net income reflects increases in net
interest income, recovery in provision for loan losses and decreases in
non-interest expenses partially offset by increases in income taxes.
INTEREST INCOME. Interest income increased $193,000, or 20.8%, to $1.1
million for the three months ended September 30, 2005, from $930,000 for the
three months ended September 30, 2004. The increase in interest income is due to
increases of $141,000 in interest income from loans, $45,000 in interest on
securities, and $6,000 in interest income from other interest earning assets.
Interest income from loans increased by $141,000, or 19.8%, to $853,000
for the three months ended September 30, 2005, from $712,000 for the three
months ended September 30, 2004. The increase was due to a $7.8 million or 14.3%
increase in the average balance of loans to $62.2 million in 2005 from $54.4
million in 2004 and an increase in the average yield to 5.49% from 5.24%.
Interest income from securities, including available for sale and held to
maturity, increased $45,000, or 21.2%, to $257,000 for the three months ended
September 30, 2005, from $212,000 for the three months ended September 30, 2004.
The increase in interest income from securities was due to an increase of $2.7
million or 13.2% in the average balance of securities to $23.2 million in 2005
from $20.5 million in 2004 and an increase in the average yield to 4.44% in 2005
from 4.13% in 2004.
Interest income from other interest-earning assets increased $6,000, or
100.0% to $12,000 for the three months ended September 30, 2005, from $6,000 for
the three months ended September 30, 2004. The increase in interest income from
other interest-earning assets was due to an increase in the average yield to
2.50% in 2005 from 1.28% in 2004, while the average balance of other
interest-earning assets remained constant at $1.9 million in 2005 and 2004.
INTEREST EXPENSE. Total interest expense increased $99,000, or 28.3%, to
$449,000 for the three months ended September 30, 2005, from $350,000 for the
three months ended September 30, 2004. The interest expense on interest-bearing
deposits increased by $35,000 or 15.0% to $269,000 in 2005 when compared with
$234,000 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 1.97% from 1.63%, 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 $54.5
million in 2005 from $57.3 million in 2004.
- 8 -
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 SEPTEMBER 30, 2005
AND 2004 (CONT'D.)
The interest expense on borrowed money increased $64,000 or 55.2% to
$180,000 in 2005 from $116,000 in the comparable 2004 period. The increase
resulted from an increase of $4.8 million in the average balance of borrowed
money to $20.3 million in 2005 from $15.5 million in 2004 and an increase in the
cost of borrowed money to 3.55% in 2005 from 2.99% in 2004.
NET INTEREST INCOME. Net interest income increased $93,000, or 16.0%, to
$673,000 for the three months ended September 30, 2005 from $580,000 for the
three months ended September 30, 2004. Our interest rate spread decreased to
2.74% in 2005 from 2.92% in 2004, reflecting a 48 basis point increase in the
cost of our interest bearing liabilities that exceeded a 29 basis point increase
in yield on interest-earning assets. Our net interest margin increased to 3.08%
from 3.02%. 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 $22,000
in provision for loan losses for the three months ended September 30, 2005,
compared to recording a provision of $24,000 for the three months ended
September 30, 2004. We had no charge-offs during the three month periods ended
September 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 $152,000, or 0.24% of gross loans outstanding at September 30, 2005,
as compared with $137,000, or 0.24% of gross loans outstanding at September 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 $1,000, or 3.7%, to
$26,000 for the three months ended September 30, 2005, as compared to $27,000
for the three months ended September 30, 2004. The primary reason for the
decrease in non-interest income was a decrease of $2,000 in fees and service
charges.
NON-INTEREST EXPENSES. Non-interest expenses were $452,000 and $540,000
for the three months ended September 30, 2005 and 2004, respectively,
representing a decrease of $88,000 or 16.3%. The decrease in non-interest
expenses is due to decreases of $85,000 in miscellaneous expenses, and $16,000
in salaries and employee benefits, sufficient to offset increases of $6,000 in
equipment, $5,000 in advertising and $4,000 in occupancy expense.
- 9 -
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 SEPTEMBER 30, 2005
AND 2004 (CONT'D.)
Miscellaneous expenses decreased $85,000 or 35.4% to $155,000 in 2005
from $240,000 in 2004, mainly due to legal expenses of $101,000 that occurred in
the September 30, 2004 quarter 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 the Bank's 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. Such legal fees did not recur during the September
2005 quarter.
Salaries and employee benefits expenses decreased $16,000 or 7.4% to
$199,000 in 2005 from $215,000 in 2004, reflecting a reduction in the number of
full time employees from 2004 to 2005 that was offset by an increase in the
number of part time employees from 2004 to 2005. Equipment expenses increased
$6,000 or 12.2% to $55,000 in 2005 from $49,000 in 2004 due to the upgrade of
various equipment. Advertising expenses increased $5,000 or 83.3% to $11,000 in
2005 from $6,000 in 2004 due to an increase in marketing efforts. Occupancy
expenses increased $4,000 or 14.8% to $31,000 in 2005 from $27,000 in 2004 due
to increases in repairs and maintenance expense of the banking facility.
INCOME TAX EXPENSE. The provision for income taxes increased to $105,000
for the three months ended September 30, 2005 from $15,000 for the three months
ended September 30, 2004. The increase in the provision for income taxes is
primarily due to an increase of $227,000 in income before income taxes to
$270,000 for the three months ended September 30, 2005, as compared to $43,000
for the three months ended September 30, 2004.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND
2004
GENERAL. Net income increased $155,000, or 52.7%, to $449,000 for the
nine months ended September 30, 2005, from $294,000 for the nine months ended
September 30, 2004. The increase in net income reflects increases in net
interest income and recovery in provision for loan losses, partially offset by
decreases in non-interest income and increases in non-interest expenses and
income taxes.
INTEREST INCOME. Interest income increased $537,000, or 19.9%, to $3.3
million for the nine months ended September 30, 2005, from $2.7 million for the
nine months ended September 30, 2004. The increase in interest income is due to
increases of $390,000 in interest income from loans, $130,000 in interest income
on securities and $16,000 in interest income from other interest earning assets.
Interest income from loans increased by $390,000, or 19.5%, to $2.4
million for the nine months ended September 30, 2005, from $2.0 million for the
nine months ended September 30, 2004. The increase was due to an $8.8 million or
17.1% increase in the average balance of loans to $60.1 million in 2005 from
$51.3 million in 2004 and an increase in the average yield to 5.41% in 2005 from
5.32% in 2004. Interest income from securities, including available for sale and
held to maturity, increased $130,000, or 20.1%, to $777,000 for the nine months
ended September 30, 2005, from $647,000 for the nine months ended September 30,
2004. The increase in interest income from securities was due to an increase of
$3.1 million or 15.2% in the average balance of securities to $23.5 million in
2005 from $20.4 million in 2004 and an increase in the average yield to 4.41% in
2005 from 4.23% in 2004.
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LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND
2004 (CONT'D.)
Interest income from other interest-earning assets increased $16,000, or
76.2% to $37,000 for the nine months ended September 30, 2005, from $21,000 for
the nine months ended September 30, 2004. The increase in interest income from
other interest-earning assets was due to an increase in the average yield to
2.29 % in 2005 from 1.19% in 2004, sufficient to off-set a decrease in the
average balance to $2.2 million in 2005 from $2.3 million in 2004.
INTEREST EXPENSE. Total interest expense increased $230,000, or 23.4%,
to $1.2 million for the nine months ended September 30, 2005, from $985,000 for
the nine months ended September 30, 2004. The interest expense on
interest-bearing deposits increased by $67,000 or 9.9% to $747,000 in 2005 when
compared with $680,000 in the comparable 2004 period. The increase in interest
expense resulted from an increase in the average cost of interest-bearing
deposits to 1.81% from 1.61%, reflecting an increase in market interest rates
between the comparable periods. Partially offsetting this increase was a
decrease of $1.2 million in the average balance of interest-bearing deposits to
$55.1 million in 2005 from $56.3 million in 2004. The interest expense on
borrowed money increased $163,000 or 53.4% to $468,000 in 2005 from $305,000 in
the comparable 2004 period. The increase resulted from an increase of $4.8
million in the average balance of borrowed money to $18.6 million in 2005 from
$13.8 million in 2004, as well as an increase of 41 basis points in cost of
borrowed money to 3.36% in 2005 from 2.95% in 2004.
NET INTEREST INCOME. Net interest income increased $306,000, or 17.7%,
to $2.0 million for the nine months ended September 30, 2005 from $1.7 million
for the nine months ended September 30, 2004. Our interest rate spread decreased
to 2.86% in 2005 from 3.02% in 2004, reflecting an increase of 33 basis points
in the cost of our interest-bearing liabilities that exceeded an increase of 17
basis points in the yield on interest-earning assets. Despite the decline in the
net interest spread, our net interest margin increased to 3.17% from 3.12% and
our net interest income increased due to increases in both total and net
interest-earning assets.
PROVISION FOR LOAN LOSSES. Based on our evaluation, we recovered $4,000
in provision for loan losses for the nine months ended September 30, 2005 and
recorded $11,000 in provision for loan losses for the nine months ended
September 30, 2004. We had no charge-offs during the nine month periods ended
September 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 $151,000, or 0.24% of gross loans outstanding at September 30, 2005,
as compared with $137,000, or 0.24% of gross loans outstanding at September 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 $11,000, or 12.9%, to
$74,000 for the nine months ended September 30, 2005, as compared to $85,000 for
the nine months ended September 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
miscellaneous income.
NON-INTEREST EXPENSES. Non-interest expenses were $1.4 million and $1.3
million for the nine months ended September 30, 2005 and 2004, respectively,
representing an increase of $55,000 or 4.2%. The increase in non-interest
expenses is primarily due to increases of $40,000 in miscellaneous expenses,
$16,000 in advertising expenses, $11,000 in equipment expenses, and $11,000 in
occupancy expenses, offset by a decrease of $24,000 in salaries and employee
benefits.
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LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND
2004 (CONT'D.)
Miscellaneous expenses increased $40,000 or 9.1% to $490,000 in 2005
from $449,000 in 2004 reflecting the additional expenses associated with being a
public company. Advertising expenses increased $16,000 or 66.7% to $40,000 in
2005 from $24,000 in 2004 due to an increase in marketing efforts. Equipment
expenses increased $11,000 or 7.5% to $158,000 in 2005 from $147,000 in 2004 due
to the upgrade of various equipment. Occupancy expense increased $11,000 or
13.4% to $93,000 in 2005 from $82,000 in 2004 due to an increase in repairs and
maintenance expense of the banking facility.
Salaries and employee benefits expenses decreased $24,000 or 3.9% to
$593,000 in 2005 from $617,000 in 2004, reflecting a reduction in the number of
full time employees from 2004 to 2005 that was offset by an increase in the
number of part time employees from 2004 to 2005.
INCOME TAX EXPENSE. The provision for income taxes increased to $287,000
for the nine months ended September 30, 2005 from $186,000 for the nine months
ended September 30, 2004. The increase in the provision for income taxes is
primarily due to an increase of $256,000 in income before income taxes to
$736,000 for the nine months ended September 30, 2005, as compared to $480,000
for the nine months ended September 30, 2004.
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
September 30, 2005, our short-term liquid assets totaled $2.8
million;
o We originate for portfolio adjustable-rate mortgage loans and
adjustable home equity lines of credit. At September 30, 2005,
our adjustable-rate mortgage loans totaled $14.7 million and our
adjustable home equity lines of credit totaled $6.0 million;
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LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
MANAGEMENT OF MARKET RISK (CONT'D.)
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 September 30, 2005, we had $8.4 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.
The following table sets forth the Bank's NPV as of June 30, 2005, the
most recent date the Bank's NPV was calculated.
CHANGE IN NET PORTFOLIO VALUE
--------------------- ------------------------------------------ NET PORTFOLIO VALUE AS A PERCENTAGE
INTEREST RATES OF PRESENT VALUE OF ASSETS
--------------------- -------------------------------------
(BASIS POINTS)
ESTIMATED AMOUNT OF PERCENT OF NPV CHANGE IN BASIS
NPV CHANGE CHANGE RATIO POINTS
----------- ----------- ----------- ------------ -------------------
(DOLLARS IN THOUSANDS)
+200 $ 7,652 $ (2,301) (23.1)% 9.51% (205) basis points
0 9,953 -- -- 11.55 -- basis points
-200 9,974 21 0.2 11.28 (27) basis points
The table above indicates that at June 30, 2005, in the event of a 200
basis point decrease in interest rates, we would experience a 0.2% increase in
net portfolio value. In the event of a 200 basis point increase in interest
rates, we would experience a 23.1% 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
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LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
MANAGEMENT OF MARKET RISK (CONT'D.)
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.
The primary sources of investing activity are lending and the purchase of
mortgage-backed securities. Net loans amounted to $63.3 million and $57.2
million at September 30, 2005 and December 31, 2004, respectively. Securities
available for sale totaled $3.1 million and $4.3 million at September 30, 2005
and December 31, 2004, respectively. Securities held to maturity totaled $19.0
million and $17.0 million at September 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 September 30, 2005,
advances from the FHLB amounted to $21.5 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At September 30, 2005, the Bank has outstanding
commitments to originate loans of $2.6 million. Certificates of deposit
scheduled to mature in one year or less at September 30, 2005, totaled $17.8
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.
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LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following table sets forth the Bank's capital position at September 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
------------ ----------- ------------ ----------- ------------ -----------
(dollars in thousands)
Total Capital
(to risk-weighted assets) $ 9,557 20.10% $ 3,804 8.00% $ 4,755 10.00%
Tier 1 Capital
(to risk-weighted assets) 9,405 19.78% 1,902 4.00% 2,853 6.00%
Core (Tier 1) Capital
(to average total assets) 9,405 10.87% 3,461 4.00% 4,327 5.00%
Tangible Capital
(to adjusted average assets) 9,405 10.87% 1,298 1.50% - -
- 15 -
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.
- 16 -
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
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.
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
- 17 -
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: November 14, 2005 /s/ Donald S. Hom
-------------------------- -------------------------------------------
Donald S. Hom
President and Chief Executive Officer
(Principal Executive and Financial Officer)
Date: November 14, 2005 /s/ Nandini Mallya
-------------------------- -------------------------------------------
Nandini Mallya
Vice President and Treasurer
(Principal Accounting Officer)
- 18 -