Lincoln Park Bancorp - Quarterly Report (10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(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, 2008                                                              

OR

o            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

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(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

[phone]

None

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(Former name, former address and former fiscal year, if changed since last report)

      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 

 

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

 

Larger Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer     o (Do not check if a smaller reporting company)	Smaller Reporting Company   x

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

      The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  1,825,845 shares of common stock, par value $.01 per share, as of August 14, 2008.

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LINCOLN PARK BANCORP AND SUBSIDIARY

INDEX

		Page
PART I - FINANCIAL INFORMATION		Number
Item 1:	Financial Statements
	Consolidated Statements of Financial Condition at June 30, 2008 and December 31, 2007 (Unaudited)	3
	Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2008 and 2007 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2008 and 2007 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7 – 12
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13 –20
Item 3:	Quantitative and Qualitative Disclosure About Market Risk	21
Item 4:	Controls and Procedures	21
PART II - OTHER INFORMATION		22 – 24
Item 1:	Legal Proceedings	22
Item 1A	Risk Factors	22
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3:	Defaults Upon Senior Securities	23
Item 4:	Submission of Matters to a Vote of Security Holders	23
Item 5:	Other Information	23
Item 6:	Exhibits	24
SIGNATURES		25

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PART I - FINANCIAL INFORMATION

ITEM 1.  Financial Statements

LINCOLN PARK BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

		June 30,				December 31,
ASSETS		2008				2007
		(In thousands, except for share and
		per share amounts)
Cash and amounts due from depository institutions		$	1,204			$	1,380
Interest-bearing deposits in other banks			1,284				1,121
Total cash and cash equivalents			2,488				2,501
Term deposits			199				295
Securities available for sale			10,685				1,521
Securities held to maturity, fair value $30,575 and $21,113, respectively			30,742				21,243
Loans receivable, net of allowance for loan losses of $201,
and $187, respectively			75,294				73,085
Premises and equipment			1,569				1,584
Federal Home Loan Bank of New York stock, at cost			1,937				1,195
Interest receivable			598				523
Other assets			419				718
Total assets		$	123,931			$	102,665
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing deposits		$	2,862			$	2,054
Interest bearing deposits			67,150				62,913
Total deposits			70,012				64,967
Advances from Federal Home Loan Bank of New York			39,652				23,552
Advance payments by borrowers for taxes and insurance			451				399
Other liabilities			604				601
Total liabilities			110,719				89,519
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; 1,825,845 outstanding			19				19
Additional paid-in capital			7,594				7,558
Retained earnings			6,384				6,307
Unearned ESOP shares			(318	)			(328	)
Treasury stock; 25,655 shares, at cost			(200	)			(200	)
Accumulated other comprehensive loss			(267	)			(210	)
Total stockholders' equity			13,212				13,146
Total liabilities and stockholders' equity		$	123,931			$	102,665

 

See notes to consolidated financial statements.

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LINCOLN PARK BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(In thousands, except for per share amounts)
Interest income:
Loans		$	1,036			$	1,032			$	2,082			$	2,006
Securities			459				271				744				538
Other interest-earning assets			18				13				35				28
Total interest income			1,513				1,316				2,861				2,572
Interest expense:
Deposits			472				534				1,028				1,030
Advances and other borrowed money			308				229				525				461
Total interest expense			780				763				1,553				1,491
Net interest income			733				553				1,308				1,081
Provision for loan losses			15				44				35				51
Net interest income after provision for loan losses			718				509				1,273				1,030
Non-interest income:
Fees and service charges			30				26				53				50
Gains (losses) on calls of securities held to maturity			-				-				(1	)			-
Gains on sale of securities available for sale			-				7				-				10
Miscellaneous			5				7				11				12
Total non-interest income			35				40				63				72
Non-interest expenses:
Salaries and employee benefits			268				233				536				458
Net occupancy expense of premises			36				28				73				56
Equipment			78				61				154				127
Advertising			26				17				36				25
Federal insurance premium			2				2				4				4
Miscellaneous			205				185				399				360
Total non-interest expenses			615				526				1,202				1,030
Income before income taxes			138				23				134				72
Income taxes			55				7				53				21
Net income		$	83			$	16			$	81			$	51
Net income per common share:
Basic		$	0.05			$	0.01			$	0.05			$	0.03
Weighted average number of common shares and
common stock equivalents outstanding:
Basic			1,769				1,789				1,768				1,788
Net income per common share:
Diluted		$	0.05			$	0.01			$	0.05			$	0.03
Weighted average number of common shares and
common stock equivalents outstanding:
Diluted			1,769				1,789				1,768				1,795

See notes to consolidated financial statements.

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LINCOLN PARK BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

																						Accumulated
														Unearned								Other
		Common				Paid-in				Retained				ESOP				Treasury				Comprehensive
		Stock				Capital				Earnings				Shares				Stock				Loss				Total
		(In thousands)
BALANCE -DECEMBER 31, 2006		$	19			$	7,485			$	6,252			$	(347	)		$	-			$	(165	)		$	13,244
Comprehensive income:
Net Income for the six months
ended June 30, 2007											51																51
Other comprehensive income:
Unrealized holding gain on securities
available for sale, net of deferred
income taxes of $1																							1				1
Directors' reitirement plan, net of deferred
taxes of $6																							9				9
Total Comprehensive Income																											61
ESOP Shares Released											(2	)			10												8
Restricted stock earned							16																				16
Stock options							18																				18
BALANCE -JUNE 30, 2007		$	19			$	7,519			$	6,301			$	(337	)		$	-			$	(155	)		$	13,347
BALANCE -DECEMBER 31, 2007		$	19			$	7,558			$	6,307			$	(328	)		$	(200	)		$	(210	)		$	13,146
Comprehensive income:
Net Income for the six months
ended June 30, 2008											81																81
Other comprehensive income:
Unrealized holding loss on securities
available for sale net of deferred taxes $3																							(65	)			(65	)
Directors' reitirement plan, net of deferred
taxes $5																							8				8
Total Comprehensive Income																											24
ESOP Shares Released											(4	)			10												6
Restricted stock earned							18																				18
Stock options							18																				18
BALANCE -JUNE 30, 2008		$	19			$	7,594			$	6,384			$	(318	)		$	(200	)		$	(267	)		$	13,212

See notes to consolidated financial statements.

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LINCOLN PARK BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		Six Months Ended
		June 30,
		2008				2007
		(In Thousands)
Cash flows from operating activities:
Net income		$	81			$	51
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment			41				34
Amortization and accretion, net			26				10
Gain on calls and sales of securities available for sale			-				(10	)
Loss on calls of securities held to maturity			1				-
Provision for loan losses			35				51
Increase in interest receivable			(75	)			(50	)
Decrease (increase) in other assets			350				(58	)
Deferred taxes			(53	)			(24	)
Increase (decrease) in accrued interest payable			28				(2	)
(Decrease) increase in other liabilities			(16	)			61
ESOP shares committed to be released			6				8
Restricted stock earned			18				16
Stock options earned			18				18
Net cash provided by operating activities			460				105
Cash flows from investing activities:
Purchases of term deposits			-				(297	)
Proceeds from maturities of term deposits			99				99
Purchase of securities available for sale			(10,628	)			(323	)
Principal repayments on securities available for sale			1,386				10
Proceeds from sale of securities available for sale			-				300
Purchases of securities held to maturity			(17,935	)			-
Principal repayments on securities held to maturity			8,435				206
Net increase in loans receivable			(2,263	)			(5,306	)
Additions to premises and equipment			(26	)			(3	)
Purchase of Federal Home Loan Bank of New York stock			(1,140	)			(134	)
Redemption of Federal Home Loan Bank of New York stock			398				109
Net cash used in investing activities			(21,674	)			(5,339	)
Cash flows from financing activities:
Net increase in deposits			5,049				4,474
Proceeds from advances from Federal Home Loan Bank of New York			33,350				29,800
Repayments of advances from Federal Home Loan Bank of New York			(17,250	)			(29,299	)
Net increase in payments by borrowers for taxes and insurance			52				63
Net cash provided by financing activities			21,201				5,038
Net (decrease) in cash and cash equivalents			(13	)			(196	)
Cash and cash equivalents - beginning			2,501				2,601
Cash and cash equivalents - ending		$	2,488			$	2,405
Supplemental information:
Cash paid during the period for:
Interest on deposits and borrowings		$	1,525			$	1,492
Income taxes		$	11			$	1

 

 

See notes to consolidated financial statements.

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LINCOLN PARK BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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”), and the Bank’s wholly owned subsidiary LPS Investment Company.  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 U.S. generally accepted accounting principles (“GAAP”) for interim financial information as well as instructions for Form 10-Q and Rule 10-01 of regulation S-X.  Accordingly, they do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, changes in stockholders’ equity and cash flows in conformity with GAAP.  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 and six months ended June 30, 2008, are not necessarily indicative of the results which may be expected for the entire fiscal year.

3.   NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding, adjusted for unearned shares of the ESOP and unvested restricted stock awards. Diluted net income per common share is calculated by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding decreased by the number of common shares that are assumed to be repurchased with the proceeds from the exercise or conversion of the common stock equivalents, if dilutive, (treasury stock method) along with the assumed tax benefit from the exercise of non-qualified options.  Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding.  During the three and six months ended June 30, 2008, all 67,020 outstanding stock options and 15,786 non-vested shares of restricted stock were anti-dilutive.

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 collectability of the loan portfolio.  Since there has been no material shift in the 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)

4.   CRITICAL ACCOUNTING POLICIES (Continued)

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.   FAIR VALUE DISCLOSURES

Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value Measurements”, for financial assets and financial liabilities.  In accordance with Financial Accounting Standards Board Staff Position (FSP) No. 157-2, “Effective Date of FASB Statement No. 157,” the Company will delay application of SFAS 157 for non-financial assets and non-financial liabilities, until January 1, 2009.  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.  The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs.  An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction.  Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

SFAS 157 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach.  The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.  The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis.  The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).  Valuation techniques should be consistently applied.  Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability.  Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  In that regard, SFAS 157 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability; either directly or indirectly.  These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correction or other means.

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LINCOLN PARK BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5.   FAIR VALUE DISCLOSURES (Continued)

Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at the fair value effective January 1, 2008.

In general, fair value is based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counter-party credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Available for Sale Securities .  Securities classified as available for sale are reported at fair value utilizing Level 2 inputs.  For these securities, the Company obtains fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things.

At June 30, 2008, the following table represents the fair value measurement on available for sale securities.

		Fair Value Measurements at Reporting Date Using
(In thousands)
Description		6/30/2008				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Available-for-sale securities		$	10,685			$	399			$	10,286			$	-
Total:		$	10,685			$	399			$	10,286			$	-

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  Financial assets and financial liabilities measured at fair value on a nonrecurring basis, such as long-lived assets measured at fair value for impairment assessment, were not significant at June 30, 2008. As stated above, SFAS 157 will be applicable to these fair value measurements beginning January 1, 2009.

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LINCOLN PARK BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5.   FAIR VALUE DISCLOSURES (Continued)

Effective January 1, 2008, the Company adopted the provisions of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”.  SFAS 159 permits the Company to choose to measure eligible items at fair value at specified election dates.  Unrealized gains and losses on items for which the fair value measurement option has been elected are reported in earnings at each subsequent reporting date.  The fair value option (i) may be applied instrument by instrument, with certain exceptions, thus the Company may record identical financial assets and liabilities at fair value or by another measurement basis permitted under generally accepted accounting principles, (ii) is irrevocable (unless a new election date occurs), and (iii) is applied only to entire instruments and not to portions of instruments.  Adoption of SFAS 159 on January 1, 2008 did not have any material impact on the Company’s financial statements.

6.   DIRECTORS’ RETIREMENT PLAN

Periodic expenses for the Company’s Directors’ retirement plan were as follows:

		Three Months Ended June 30, 2008				Three Months Ended June 30, 2007				Six Months Ended June 30, 2008				Six Months Ended June 30, 2007
		(In thousands)
Service Cost		$	4			$	3			$	8			$	5
Interest Cost			6				6				12				10
Past Service Liability			7				7				14				14
Total:		$	17			$	16			$	34			$	29

7.   STOCK OPTIONS AND AWARDS

Under the Company’s Stock-Based Incentive Plan, stock options and restricted stock awards may be granted to outside directors and employees.  At June 30, 2008 and December 31, 2007, options to purchase 67,020 shares of Company common stock were outstanding.  Such options have an exercise price range of $7.00 to $9.00, a weighted average exercise price of $8.83, and at June 30, 2008, no intrinsic value and an average remaining life of 7.7 years.  No options were granted, cancelled, forfeited, or exercise during the six month periods ended June 30, 2008 and 2007.

At June 30, 2008 and December 31, 2007, there were 15,786 shares of restricted stock that had been granted, but were not yet vested.  Theses shares had a weighted average grant date fair value of $8.62.  During the six month periods ended June 30, 2008 and 2007, there were no grants of restricted shares nor did any prior grants vest.  At June 30, 2008, unrecognized future compensation costs related to restricted stock awards aggregated approximately $125,000 and are expected to be expensed over the next 5.4 years.

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LINCOLN PARK BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8.   RECENT ACCOUNTING PRONOUNCEMENTS

FAS -157-2

In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, “Effective Date of FASB Statement No. 157,” that permits a one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually).  Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years.   This deferral does not apply, however, to an entity that applied Statement 157 in interim or annual financial statements prior to the issuance of FSP-157-2.  The Company is currently evaluating the impact, if any, that the adoption of FSP 157-2 will have on the Company’s consolidated financial statements.

SAB 109

Staff Accounting Bulletin No. 109 (SAB 109), “Written Loan Commitments Recorded at Fair Value Through Earnings” expresses the views of the staff regarding written loan commitments that are accounted for at fair value through earnings under generally accepted accounting principles.  To make the staff’s views consistent with current authoritative accounting guidance, the SAB revises and rescinds portions of SAB No. 105, “Application of Accounting Principles to Loan Commitments.”  Specifically, the SAB revises the SEC staff’s views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment.  The SAB retains the staff’s views on incorporating expected net future cash flows related to internally-developed intangible assets in the fair value measurement of a written loan commitment.  The staff expects registrants to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007.  The Company does not expect SAB 109 to have a material impact on its consolidated financial statements.

SAB 110

Staff Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of Section D.2 of Topic 14, “Share-Based Payment,” of the Staff Accounting Bulletin series.  Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of expected term of “plain vanilla” share options and allows usage of the “simplified” method for share option grants prior to December 31, 2007.  SAB 110 allows public companies which do not have historically sufficient experience to provide a reasonable estimate to continue use of the “simplified” method for estimating the expected term of “plain vanilla” share option grants after December 31, 2007.  SAB 110 is effective January 1, 2008.  The Company does not expect SAB 110 to have a material impact on its consolidated financial statements.

FASB Statement No. 141 (R)

FASB Statement No. 141 (R) “Business Combinations” was issued in December of 2007.  This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree.  The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008.  This new pronouncement will impact the Company’s accounting for business combinations completed beginning January 1, 2009.

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LINCOLN PARK BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

8.   RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

FASB Statement No. 161

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (Statement 161).  Statement 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives.  Statement 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 has been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows.  Statement 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

FASB Statement No. 162

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. This Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”  The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

EITF 06-11

In June 2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”).  EITF 06-11 states that an entity should recognize a realized tax benefit associated with dividends on non-vested equity shares, non-vested equity share units and outstanding equity share options charged to retained earnings as an increase in additional paid in capital.  The amount recognized in additional paid in capital should be included in the pool of excess tax benefits available to absorb potential future tax deficiencies on share-based payment awards.  EITF 06-11 should be applied prospectively to income tax benefits of dividends on equity-classified share-based payment awards that are declared in fiscal years beginning after December 15, 2007.  The Company expects that EITF 06-11 will not have an impact on its consolidated financial statements.

FSP EITF 03-6-1

In June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.”  This FSP clarifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders.  Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied.  This FSP is effective for fiscal years beginning after December 15, 2008.  The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

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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 Statements

This Form 10-Q 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, 2008 and December 31, 2007

Our total assets increased by $21.3 million, or 20.7%, to $123.9 million at June 30, 2008, from $102.7 million at December 31, 2007.  At June 30, 2008, the level of cash and cash equivalents decreased $13,000 or 0.5% to $2.5 million.  Term deposits decreased $96,000 to $199,000 at June 30, 2008 as compared to $295,000 at December 31, 2007.   The decrease in term deposits was due to the maturity of a certificate of deposit.

Securities available for sale increased by $9.2 million or 602.5% to $10.7 million at June 30, 2008, from $1.5 million at December 31, 2007.  The increase was due to purchases of Collateralized Mortgage Obligations (CMOs) of $10.6 million, offset by maturities of $1.0 million of U.S. Government Agency step-up bonds and principal repayments of $386,000.  Securities held to maturity increased by $9.5 million or 44.7% to $30.7 million at June 30, 2008 when compared to $21.2 million at December 31, 2007.  During the six months ended June 30, 2008, purchases of Collateralized Mortgage Obligations amounted to $17.9 million, maturities and calls on securities held to maturity amounted to $7.8 million and repayments on securities held to maturity amounted to $655,000.  The increased securities balances were funded by increased deposits and advances from the FHLB.

CMOs are debt securities issued by a special-purpose entity that aggregate pools of mortgages and mortgage-backed securities and create different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics.  The cash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of principal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders.  All of the CMOs in our investment portfolio are rated “AAA” by at least one of the major investment securities rating services.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings.  Fluctuations in market value may be caused by decreases in interest rates, lower market prices for securities and lower investor demand.  Our securities portfolio is evaluated for other-than-temporary impairment on at least a quarterly basis.  If this evaluation shows an impairment to cash flow connected with one or more securities, a potential loss to earnings may occur.

Loans receivable amount ed to $ 75.3 million and $ 73.1 million at June 30, 200 8 and December 31, 200 7 , respectively, representing an increase of $ 2.2 million or 3.0 % .  The increase in loans resulted primarily from increases of $1.5 million in home equity loans and $849,000 in home equity lines of credit.  The increase in loans receivable was funded by increases in deposits.

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LINCOLN PARK BANCORP AND SUBSIDIARY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of Financial Condition at June 30, 2008 and December 31, 2007 (Cont’d.)

Federal Home Loan Bank of New York (“FHLB”) stock increased $742,000 to $1.9 million at June 30, 2008, from $1.2 million at December 31, 2007.  Purchase of FHLB stock amounted to $1.1 million and redemption of FHLB stock amounted to $398,000.  The increased level of FHLB stock owned is due to the increased level of FHLB advances outstanding.

Other assets decreased $299,000 or 41.6% to $419,000 at June 30, 2008 from $718,000 at December 31, 2007.

The decrease was mainly due to the closing of a loan in the amount of $270,000, that was originated and disbursed to an attorney in December of 2007, but closed in January of 2008.

Total deposits increased $5.0 million or 7.8% to $70.0 million at June 30, 2008 from $65.0 million at December 31, 2007.  The increase in deposits was due to a management decision to be more competitive with deposit rates.  

Advances from FHLB increased $16.1 million or 68.4% to $39.7 million at June 30, 2008 when compared with $23.6 million at December 31, 2007. The proceeds from new advances were primarily used to fund the purchase of securities.

St ockholders’ equity increased by $66,000 or 0.5% to $13.2 million at June 30, 2008 from $13.1 million at December 31, 2007, reflecting net income of $81,000 for the six months ended June 30, 2008, and the amortization of $42,000 for the ESOP, the restricted stock, and stock options, for the six months ended June 30, 2008.  Partially offsetting these increases was an other comprehensive loss of $57,000, which primarily represented unrealized losses on available for sale securities.

Our financial results may be adversely affected by changes in prevailing economic conditions, including decreases in real estate values, changes in interest rates which may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events.  Decreases in real estate values could potentially adversely affect the value of property used as collateral for our mortgage loans.  In the event that we are required to foreclose on a property securing a mortgage loan, there can be no assurance that we will recover funds in an amount equal to any remaining loan balance as a result of prevailing general economic conditions, real estate values and other factors associated with the ownership of real property.  As a result, the market value of the real estate underlying the loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans.  Consequently, we could sustain loan losses and potentially incur a higher provision for loan loss expense.  Adverse changes in the economy may also have a negative effect of the ability of borrowers to make timely repayments of their loans, which could have an adverse impact on earnings.

Comparison of Operating Results for the Three Months Ended June 30, 2008 and 2007

 

General. Net income increased by $67,000, or 418.8%, to $83,000 for the three months ended June 30, 2008, from $16,000 for the three months ended June 30, 2007.  The increase in net income reflects an increase in total interest income and a decrease in the provision for loan losses, partially offset by increases in total interest expense, non-interest expenses, and income taxes.

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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 Three Months Ended June 30, 2008 and 2007 (Cont’d.)

 

Interest Income. Interest income increased $197,000, or 15.0%, to $1.5 million for the three months ended June 30, 2008, from $1.3 million for the three months ended June 30, 2007.  Interest income from loans increased by $4,000, or 0.4%, for the three months ended June 30, 2008.  The increase was due to a $3.0 million, or 4.2%, increase in the average balance of loans to $73.8 million during the three months ended June 30, 2008 from $70.9 million for the three months ended June 30, 2007, offset by a decrease in the average yield to 5.61% from 5.83%.  Interest income from securities, including available for sale and held to maturity, increased $188,000, or 69.4%, to $459,000 for the three months ended June 30, 2008, from $271,000 for the three months ended June 30, 2007.  The average yield on these securities increased to 5.44 % for the three months ended June 30, 2008 as compared to 4.94% for the three months ended June 30, 2007.   The average balance of securities was $33.8 million during the three months ended June 30, 2008 as compared to $22.0 million for the three months ended June 30, 2007.  Interest income from other interest-earning assets increased $5,000, or 38.5%, to $18,000 for the three months ended June 30, 2008, from $13,000 for the three months ended June 30, 2007 due to an increase in the average balance to $3.6 million in 2008 from $1.3 million in 2007, offset by a decrease in the average yield to 2.0 % in 2008 from 4.0% in 2007.

 

Interest Expense . Total interest expense increased $17,000, or 2.2%, to $780,000 for the three months ended June 30, 2008, from $763,000 for the three months ended June 30, 2007.  The interest expense on interest-bearing deposits decreased by $62,000 or 11.6% to $472,000 for the quarter ended June 30, 2008, when compared with $534,000 in the comparable 2007 period.  The decrease in interest expense on interest bearing deposits resulted from a decrease in the average cost to 2.9% for the three months ended June 30, 2008 from 3.6% for the 2007 comparable period.  The average balance of interest bearing deposits increased by $4.5 million to $64.4 million for the quarter ended June 30, 2008, from $59.9 million for the quarter ended June 30, 2007.

 

The interest expense on borrowed money increased by $79,000, or 34.5%, to $308,000 in the 2008 period from $229,000 in the comparable 2007 period.  The increase was due to an increase of $12.6 million in the average balance of borrowed money to $34.0 million in 2008 from $21.4 million in 2007, offset by a decrease in the cost of borrowed money to 3.62% in 2008 from 4.27% in 2007.

 

Net Interest Income. Net interest income increased $180,000, or 32.6%, to $733,000 for the three months ended June 30, 2008 from $553,000 for the three months ended June 30, 2007.  Our interest rate spread increased to 2.27% in 2008 from 1.85% in 2007, reflecting a 58 basis points decrease in the cost of our interest bearing liabilities that exceeded a 16 basis points decrease in the yield on our interest-earning assets.  Our net interest margin increased to 2.63% from 2.35%.

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.

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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 Three Months Ended June 30, 2008 and 2007 (Cont’d.)

Based on our evaluation of these factors, a provision of $15,000 for loan losses was required for the three months ended June 30, 2008, compared to $44,000 for the three months ended June 30, 2007.  We had $21,000 in charge-offs during the three month period ended June 30, 2008, and no charge-offs during the three months ended June 30, 2007.  We used the same methodology and generally similar assumptions in assessing the allowance for both periods.  The allowance for loan losses was $201,000 or 0.27% of gross loans outstanding at June 30, 2008, as compared with $207,000, or 0.28% of gross loans outstanding as of March 31, 2008, and $187,000, or 0.26% of gross loans outstanding at June 30, 2007.  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 by $5,000, or 12.5%, to $35,000 for the three months ended June 30, 2008 as compared to $40,000 for the three months ended June 30, 2007.  This decrease was primarily due to a gain of $7,000 in available for sale securities for the three months ending June 30, 2007, with no gains on sale of securities for the three month period ending June 30, 2008.

 

Non-interest Expenses. Non-interest expenses were $615,000 and $526,000 for the three months ended June 30, 2008 and 2007, respectively, representing an increase of $89,000 or 16.9%. The increase in non-interest expenses was primarily due to increases of $35,000 in salary and employee benefit expenses, $8,000 in occupancy expenses, $17,000 in premises and equipment expenses, $9,000 in advertising expenses, and $20,000 in miscellaneous expenses.

 

Salary and employee benefits increased by $35,000, or 15.0%, to $268,000 for the three months ended June 30, 2008, from $233,000 in the 2007 comparable period.  The increase was due to an addition of full time personnel in general and also to staff the Montville branch, which opened in July 2007.

 

Equipment expense increased by $17,000, or 27.9%, primarily due to purchases, upgrading, and maintenance of equipment.  Miscellaneous expense increased by $20,000, or 10.8%, to $205,000 for the three months ended June 30, 2008, from $185,000 in the 2007 comparable period.  The increase was mainly due to increases in accounting and auditing fees, legal fees, and consulting fees.

 

Income Tax Expense. The provision for income taxes increased to $55,000 for the three months ended June 30, 2008 from $7,000 for the three months ended June 30, 2007. The increase in the provision for income taxes was primarily due to an increase of $115,000 in income before income taxes to $138,000 for the three months ended June 30, 2008, as compared to $23,000 for the three months ended June 30, 2007.

Comparison of Operating Results for the Six Months Ended June 30, 2008 and 2007

 

General. Net income increased $30,000, or 58.8%, to $81,000 for the six months ended June 30, 2008, compared to $51,000 for the same 2007 period.  The increase in net income during the 2008 period resulted primarily from an increase in total interest income and a decrease in the provision for loan losses, partially offset by increases in total interest expense, non-interest expense and income taxes.

 

Interest Income. Interest income increased $289,000, or 11.2%, to $2.9 million for the six months ended June 30, 2008, from $2.6 million for the six months ended June 30, 2007.  The increase in interest income was primarily due to increases of $206,000 in interest income from securities and $76,000 in interest income from loans.

 

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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 Six Months Ended June 30, 2008 and 2007 (Cont’d)

 

Interest income from loans increased by $76,000, or 3.8%, to $2.1 million for the six months ended June 30, 2008, from $2.0 million for the same 2007 period.  The increase was due to a $3.6 million, or 5.2%, increase in the average balance of loans to $73.5 million in 2008 from $69.9 million in 2007.  The average yield on loans decreased to 5.67% in 2008 from 5.74% in 2007.  Interest income from securities, including available for sale and held to maturity, increased $206,000, or 38.3%, to $744,000 for the six months ended June 30, 2008, from $538,000 for the six months ended June 30, 2007.  The average balance of securities increased to $28.0 million in 2008 when compared to $22.0 million in 2007.  The  average yield on securities increased by 43 basis points  to 5.32% for the six months ended June 30, 2008, when compared to 4.89% for the same period in 2007.  Interest income from other interest-earning assets increased $7,000, or 25.0%, to $35,000 for the six months ended June 30, 2008 when compared to $28,000 for the six months ended June 30, 2007.  The average balance of other interest earning assets increased to $3.2 million during the six months ended June 30, 2008, when compared to $1.4 million during the six months ended in June of 2007, partially offset by a decrease in the average yield. The average yield on other interest earning assets was 2.2% for the six months ended June 30, 2008 when compared to 4.0% for the same period in 2007.

 

Interest Expense. Total interest expense increased by $62,000, or 4.2%, to $1.6 million for the six months ended June 30, 2008, from $1.5 million for the six months ended June 30, 2007.  The interest expense on interest-bearing deposits decreased by $2,000, or 0.2%, in 2008.  The decrease in the average cost of interest-bearing deposits was due to a decrease in the average cost of interest-bearing deposits to 3.23% from 3.49%, reflecting a decrease in market interest rates between the comparable periods.  The decrease in the average cost of interest-bearing deposits was partially offset by an increase in the average balance of interest-bearing deposits to $63.6 million in 2008 from $59.1 million in 2007.  The interest expense on borrowed money increased by $64,000, or 13.9%, to $525,000 in the 2008 period from $461,000 in the comparable 2007 period.  The increase in interest expense on borrowed money was due to an increase of $6.2 million in the average balance of borrowed money to $27.9 million in 2008 from $21.7 million in 2007, partially offset by a decrease of 49 basis points in the cost of borrowed money to 3.76% in 2008 from 4.25% in 2007.

 

Net Interest Income . Net interest income increased $227,000, or 21.0%, to $1.3 million for the six months ended June 30, 2008 from $1.1 million for the six months ended June 30, 2007.  Our interest rate spread increased to 2.08% in 2008 from 1.82% in 2007, reflecting a decrease of 30 basis points in the cost of our interest-bearing liabilities that exceeded a decrease of 4 basis points in the yield on interest-earning assets.  Our net interest margin increased to 2.50% from 2.32%.

 

Provision for Loan Losses.   Based on our evaluation, we recorded provision for loan losses of $35,000 for the six months ended June 30, 2008, and $51,000 for the six months ended June 30, 2007.  We had $21,000 charge-offs during the six months ended June 30, 2008 and no charge-offs during the six months ended June 30, 2007.  We used the same methodology and generally similar assumptions in assessing the allowance for both periods.  The allowance for loan losses was $201,000 or 0.27% of gross loans outstanding at June 30, 2008, as compared with $187,000, or 0.26% of gross loans outstanding at December 31, 2007, and $187,000, or 0.26% of gross loans outstanding at June 30, 2007.  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 by $9,000, or 12.5%, to $63,000 for the six months ended June 30, 2008, as compared to $72,000 for the six months ended June 30, 2007.  The decrease in non-interest income was primarily due to a decrease of $10,000 in income from gains on sale of securities available for sale.  There was no income from sales of securities available for sale for the six months ended June 30, 2008, as compared to $10,000 for the same period in 2007.

 

Non-interest Expenses. Non-interest expenses were $1.2 million and $1.0 million for the six months ended June 30, 2008 and 2007, respectively, representing an increase of $172,000, or 16.7%. The increase in non-interest expenses was due to increases of $78,000 in salary and employee benefits, $27,000 in equipment expense, $17,000 in occupancy expense, $11,000 in advertising expense and $ 39,000 in miscellaneous expense.

 

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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 Six Months Ended June 30, 2008 and 2007 (Cont’d.)

 

Salaries and employee benefits increased by $78,000, or 17.0%, to $536,000 in 2008 from $458,000 in 2007.  The increase was due to an addition of full time personnel in general and also to staff the Montville branch, which opened in July 2007.  Equipment expenses increased by $27,000, or 21.3%, to $154,000 for the six months ended June 30, 2008, from $127,000 in the 2007 comparable period, primarily due to purchases of new equipment, upgrading and maintenance of software and other equipment.   Occupancy expense increased by $17,000, or 30.4%, to $73,000 for the six months ended June 30, 2008, from $56,000 for the 2007 comparable period.  Such increase was mainly due to the additional expense of the Montville branch.  Advertising expenses increased $11,000, or 44.0%, to $36,000 in 2008 from $25,000 in 2007 due to an effort to advertise more in our local community.  Miscellaneous expenses increased by $39,000, or 10.8%, to $399,000 for the six months ended June 30, 2008, when compared to $360,000 during the same 2007 period. This increase was primarily due to increases of $11,000 in consulting and other services, $20,000 in director fees, and $6,000 in legal fees.

 

Income Tax Expense. The provision for income taxes increased to $53,000 for the six months ended June 30, 2008 from $21,000 for the six months ended June 30, 2007.  The increase in the provision for income taxes was primarily due to an increase in income before income taxes of $62,000 to $134,000 for the six months ended June 30, 2008, as compared to $72,000 for the six months ended June 30, 2007.

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.  In addition, we have sought to manage and mitigate our exposure to interest rate risks in the following ways:

	●	We maintain moderate levels of short-term liquid assets.  At June 30, 2008, our short-term liquid assets totaled $2.5 million;
	●	We originate for portfolio adjustable-rate mortgage loans and adjustable home equity lines of credit.  At June 30, 2008, our adjustable-rate mortgage loans totaled $12.1 million and our adjustable home equity lines of credit totaled $5.6 million;
	●	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, 2008, we had $23.9 million of FHLB advances with terms to maturity of greater than three to thirteen years; and
	●	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.

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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.)

 

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 asset, liability and off-balance sheet contract under the assumption that the yield curve increases or decreases instantaneously by 100 and 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 March 31, 2008, the most recent date the Bank’s NPV was calculated.

Change in Interest Rates (basis points)			Net Portfolio Value												Net Portfolio Value as a Percentage of Present Value of Assets
			Estimated NPV				Amount of Change				Percent of Change				NPV Ratio					Change in Basis Points
			(Dollars in Thousands)
+200			$	13,250			$	(3,455	)			(20.7	)%			13.22	%			(239) basis points
0				16,705				—				—				18.02				—  basis points
-200				18,976				2,271				13.6				16.75				114  basis points

The table above indicates that at March 31, 2008 in the event of a 200 basis point decrease in interest rates, we would experience a 13.6% increase in net portfolio value.  In the event of a 200 basis point increase in interest rates, we would experience a 20.7% 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.

 

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LINCOLN PARK BANCORP AND SUBSIDIARY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources (Cont’d.)

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 securities.  Net loans amounted to $75.3 million and $73.1 million at June 30, 2008 and December 31, 2007, respectively.  Securities available for sale totaled $10.7 million at June 30, 2008 and $1.5 million December 31, 2007, respectively. Securities held to maturity totaled $30.7 million and $21.2 million at June 30, 2008 and December 31, 2007, 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, 2008, advances from the FHLB amounted to $39.7 million, and approximately $5.1 million borrowings are still available at the FHLB.

The Bank anticipates that it will have sufficient funds available to meet its current loan commitments.  At June 30, 2008, the Bank had outstanding commitments to originate loans of $755,000, standby letters of credit of $49,000, and unused lines of credit of $8.3 million.   Certificates of deposit scheduled to mature in one year or less at June 30, 2008, totaled $38.3 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, 2008, 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 Risk Based Capital
(to risk-weighted assets)		$	11,444				18.55	%		$	4,936				8.00	%		$	6,170				10.00	%
Tier 1 Capital
(to risk-weighted assets)			11,243				18.22	%			2,468				4.00	%			3,702				6.00	%
Core (Tier 1) Capital
(to average total assets)			11,243				9.93	%			4,528				4.00	%			5,660				5.00	%
Tangible Capital
(to average total assets)			11,243				9.93	%			1,698				1.50	%			-				-

 

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LINCOLN PARK BANCORP AND SUBSIDIARY

CONTROLS AND PROCEDURES

ITEM 3.   Quantitative and Qualitative Disclosure about Market Risk

Not applicable.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management of Market Risk” herein.

ITEM 4.  Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our   disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms.

There has been no change in the 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.

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LINCOLN PARK BANCORP AND SUBSIDIARY

PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings
	Lincoln Park Savings has, on September 13, 2007, been served with a Summons and Complaint in the matter of Donald Hom v. Lincoln Park Savings Bank and The Board of Directors of Lincoln Park Savings Bank , Superior Court of New Jersey, Law Division, Morris County, Docket No., MRS-L-1548-07.  The complaint by Donald Hom, former President and CEO of Lincoln Park Savings, alleges an employment related claim pursuant to the New Jersey Conscientious Employee Protection Act ( N.J.S. 34:19-1 et seq.)  The complaint has been referred to special counsel for Lincoln Park Savings for defense.
	Except as noted above, neither the Company nor the Bank is involved in any pending legal proceedings other then 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 1A.	Risk Factors
	Not applicable.
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	a)	Not applicable
	b)	Not applicable
	c)	Information regarding the Company’s purchases of its equity securities (common stock) during the three months ended June 30, 2008 is summarized below:

			Total Number of Shares Purchased			Average Price Paid For Shares			Total Number of Shares Purchased Under a Publicly Announced Repurchase Plan			Maximum Number of Shares That May Yet Be Purchased Under Repurchase Plan
April 1-April 30			-			-			25,655			16,125
May 1- May 31			-			-			25,655			57,905
June 1- June 30			-			-			25,655			57,905

On August 27, 2007, the Company announced that its Board of Directors authorized a stock repurchase program to repurchase up to 41,780 shares.  On May 30, 2008, the Company announced that its Board of Directors authorized an increase in the repurchase program by 41,780 shares.  As of June 30, 2008, an additional 57,905 shares remains to be purchased under the program as revised.

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LINCOLN PARK BANCORP AND SUBSIDIARY

PART II – OTHER INFORMATION

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 May 1, 2008.  At the meeting, the stockholders elected Stanford Stoller to a three year term and Henry Fitschen to a two year term as directors of the Company.  Also at the meeting, Beard Miller Company LLP was ratified as the Company’s independent auditors.  The results of the voting for each matter considered were 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
	Stanford Stoller	1,583,005		136,911

b)

The election as director to serve for a term of two years until a successor has been elected and qualified.

		For		Withheld
	Henry Fitschen	1,601,255		118,661

c)

The appointment of Beard Miller Company LLP as auditors of the Company for the fiscal year ending December 31, 2008.

	For		Against		Abstain
	1,636,101		41,263		42,552

	In addition, the following directors, in addition to those elected, continue to serve as directors after the annual meeting of stockholders:
		David G. Baker
		John F. Feeney
		Edith M. Perrotti
ITEM 5.	Other Information
	Not applicable.

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LINCOLN PARK BANCORP AND SUBSIDIARY

PART II – OTHER INFORMATION (Cont’d)

 

ITEM 6.	Exhibits
	The following Exhibits are filed as part of this report.
	31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

			LINCOLN PARK BANCORP
Date:	August 14, 2008		/s/ David G. Baker
			David G. Baker
			President and Chief Executive Officer
Date:	August 14, 2008		/s/ Nandini Mallya
			Nandini Mallya
			Vice President and Treasurer
			(Chief Financial Officer)

 

 

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