Form 10QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-QSB

(Mark One)

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

For the quarterly period ended June 30, 2007

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
(Exact name of registrant as specified in its charter)
 
 
FEDERAL
61-1479859
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)

31 Boonton Turnpike, Lincoln Park, New Jersey
07035
(Address of principal executive offices)
(Zip Code)


Registrant’s telephone number, including area code          (973) 694-0330                                      

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o     No x
 
 The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,851,500 shares of common stock, par value $.01 per share as of August 14, 2007.
 
Transitional Small Business Disclosure Format. Yes o         No x


LINCOLN PARK BANCORP AND SUBSIDIARY

INDEX

   
Page
PART I - FINANCIAL INFORMATION
  
Number
     
Item 1:    
Financial Statements
    
       
 
Consolidated Statements of Financial Condition
    
 
at June 30, 2007 and December 31, 2006 (Unaudited)
  
1
       
       
 
Consolidated Statements of Income for the Three Months and
    
 
Six Months Ended June 30, 2007 and 2006 (Unaudited)
  
2
       
       
 
Consolidated Statements of Changes in Stockholders’ Equity for the
    
 
Six Months Ended June 30, 2007 and 2006 (Unaudited)
  
3
       
       
 
Consolidated Statements of Cash Flows for the Six Months
   
 
Ended June 30, 2007 and 2006 (Unaudited)
  
4
       
       
 
Notes to Consolidated Financial Statements (Unaudited)
  
5 - 10
       
       
Item 2:    
Management’s Discussion and Analysis of
    
 
Financial Condition and Results of Operations
  
11 - 18
     
     
Item 3:    
Controls and Procedures
  
19
       
PART II - OTHER INFORMATION 
    
     
20 - 21
Item 1:    Legal Proceedings    
Item 2:    Unregistered Sales of Equity Securities and Use of Proceeds    
Item 3:     Defaults Upon Senior Securities    
Item 4:     Submission of Matters to a Vote of Security Holers    
Item 5:     Other Information    
Item 6:     Exhibits    
     
SIGNATURES
  
22
     


PART I -FINANCIAL INFORMATION
ITEM 1. Financial Statements

LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
   
June 30,
  
December 31,
  
ASSETS
  
2007
  
2006
  
           
Cash and amounts due from depository institutions
  
$
1,167,428
  
$
1,228,459
  
Interest-bearing deposits in other banks
    
1,237,484
   
1,372,050
 
               
Total cash and cash equivalents
    
2,404,912
   
2,600,509
 
               
Term deposits
    
390,523
   
189,771
 
Securities available for sale
    
2,596,656
   
2,573,628
 
Securities held to maturity
    
18,129,079
   
18,334,915
 
Loans receivable, net of allowance for loan losses of 2007 $187,000;
              
and 2006 $136,000; respectively
    
72,694,185
   
67,450,821
 
Premises and equipment
    
820,245
   
851,357
 
Federal Home Loan Bank of New York stock, at cost
    
1,146,400
   
1,121,400
 
Interest receivable
    
539,846
   
489,495
 
Other assets
    
439,841
   
358,258
 
               
Total assets
  
$
99,161,687
  
$
93,970,154
  
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
               
Liabilities:
              
Deposits: 
              
Non-interest bearing deposits 
  
$
1,355,009
  
$
768,473
  
 Interest bearing deposits
    
60,965,502
   
57,075,421
 
Total deposits
    
62,320,511
   
57,843,894
 
               
Advances from Federal Home Loan Bank of New York 
    
22,479,368
   
21,978,331
 
Advance payments by borrowers for taxes and insurance 
    
424,446
   
360,771
 
Other liabilities 
    
590,792
   
542,848
 
               
Total liabilities
    
85,815,117
   
80,725,844
 
               
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 
    
7,519,352
   
7,484,694
 
Retained earnings - substantially restricted 
    
6,301,510
   
6,252,608
 
Unearned ESOP shares 
    
(337,181
)
  
(346,861
)
Accumulated other comprehensive loss 
    
(155,626
)
  
(164,646
)
               
Total Stockholders' equity
    
13,346,570
   
13,244,310
 
               
Total liabilities and stockholders' equity
  
$
99,161,687
  
$
93,970,154
  

 
See notes to consolidated financial statements.

- 1 -
 
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 
   
Three Months Ended
  
Six Months Ended
  
   
June 30,
  
June 30,
  
   
2007
  
2006
  
2007
  
2006
  
Interest income:
                  
Loans
  
$
1,032,364
  
$
953,554
  
$
2,005,982
  
$
1,860,777
  
Securities
    
271,110
   
261,709
   
538,130
   
526,382
 
Other interest-earning assets
    
12,721
   
16,277
   
27,621
   
26,645
 
                           
 Total interest income
   
1,316,195
   
1,231,540
   
2,571,733
   
2,413,804
 
                           
Interest expense:
                          
Deposits
    
533,833
   
343,770
   
1,029,599
   
652,992
 
Advances and other borrowed money
    
229,130
   
282,766
   
461,239
   
532,704
 
                           
 Total interest expense
   
762,963
   
626,536
   
1,490,838
   
1,185,696
 
                           
Net interest income
    
553,232
   
605,004
   
1,080,895
   
1,228,108
 
Provision for loan losses
    
44,400
   
116
   
51,000
   
3,616
 
                           
Net interest income after provision for loan losses
    
508,832
   
604,888
   
1,029,895
   
1,224,492
 
                           
Non-interest income:
                          
Fees and service charges
    
25,909
   
18,036
   
49,517
   
36,635
 
Gains on calls of securities held to maturity
    
-
   
500
   
-
   
500
 
Gains on sale of securities available for sale
    
6,879
   
-
   
10,181
   
9,612
 
Miscellaneous
    
6,534
   
5,879
   
11,516
   
10,940
 
                           
 Total non-interest income
   
39,322
   
24,415
   
71,214
   
57,687
 
                           
Non-interest expenses:
                          
Salaries and employee benefits
    
233,314
   
208,742
   
458,441
   
413,588
 
Net occupancy expense of premises
    
27,800
   
25,242
   
55,606
   
55,252
 
Equipment
    
60,610
   
56,447
   
126,690
   
116,851
 
Advertising
    
17,247
   
10,505
   
25,324
   
20,238
 
Federal insurance premium
    
1,775
   
1,740
   
3,481
   
3,570
 
Miscellaneous
    
184,732
   
173,284
   
360,026
   
380,332
 
                           
 Total non-interest expenses
   
525,478
   
475,960
   
1,029,568
   
989,831
 
                           
Income before income taxes
    
22,676
   
153,343
   
71,541
   
292,348
 
Income taxes
    
6,407
   
58,566
   
20,603
   
111,305
 
                           
Net income
  
$
16,269
  
$
94,777
  
$
50,938
  
$
181,043
  
                           
Net income per common share:
                          
Basic 
  
$
0.01
  
$
0.05
  
$
0.03
  
$
0.10
  
                           
Weighted average number of common shares and
                          
common stock equivalents outstanding:
                          
Basic 
    
1,788,506
   
1,794,046
   
1,788,294
   
1,800,163
 
                           
Net income per common share:
                          
Diluted 
  
$
0.01
  
$
0.05
  
$
0.03
  
$
0.10
  
                           
Weighted average number of common shares and
                          
common stock equivalents outstanding:
                          
Diluted 
    
1,788,506
   
1,798,922
   
1,794,698
   
1,804,325
 
                           
 
See notes to consolidated financial statements.

- 2 -

LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
     
Common
Stock
    
Additional
Paid-in
Capital
    
Retained Earnings 
    
Unearned
ESOP
Shares
    
Accumulated Other Comprehensive Loss
    
Total 
  
                                       
Balance - December 31, 2005
  
$
18,515
  
$
7,776,418
  
$
5,982,726
  
$
(366,220
)
$
(23,901
)
$
13,387,538
  
                                       
Comprehensive income:
                                      
Net income for the six months ended
June 30, 2006
    
-
    
-
    
181,043
    
-
    
-
    
181,043
  
Other comprehensive loss:
Unrealized holding loss on
securities available for sale, net of
deferred income taxes of ($13,739)
    
-
    
-
    
-
    
-
    
(20,593
)
  
(20,593
)
                                       
Total Comprehensive Income
                                  
160,450
  
                                       
Purchase of restricted stock
   
-
    
(355,778
)
  
-
    
-
    
-
    
(355,778
)
Restricted stock earned
         
15,224
                      
15,224
  
Stock Options
          
20,328
                      
20,328
  
Dividends paid
                
(40,882
)
              
(40,882
)
ESOP shares committed to be released
    
-
    
-
    
(1,427
)
  
9,680
    
-
    
8,253
  
                                       
Balance - June 30, 2006
  
$
18,515
  
$
7,456,192
  
$
6,121,460
  
$
(356,540
)
$
(44,494
)
$
13,195,133
  
                                       
                                       
Balance - December 31, 2006
  
$
18,515
  
$
7,484,694
  
$
6,252,608
  
$
(346,861
)
$
(164,646
)
$
13,244,310
  
Comprehensive income:
    
-
    
-
    
-
    
-
    
-
    
-
  
Net income for the six months ended
June 30, 2007
    
-
    
-
    
50,938
    
-
    
-
    
50,938
  
Other comprehensive income:
                                      
Unrealized holding gain on securities available for sale, net of deferred income taxes of $693
    
-
    
-
    
-
    
-
    
405
    
405
  
Directors’ retirement plan, net of deferred taxes of $5,793
    
-
    
-
    
-
    
-
    
8,615
    
8,615
  
                                       
Total Comprehensive Income
                                  
59,958
  
                                       
Restricted stock earned
    
-
    
16,216
    
-
    
-
    
-
    
16,216
  
Stock options
    
-
    
18,442
    
-
    
-
    
-
    
18,442
  
ESOP shares committed to be released
    
-
    
-
    
(2,036
)
  
9,680
    
-
    
7,644
  
                                       
Balance - June 30, 2007
  
$
18,515
  
$
7,519,352
  
$
6,301,510
  
$
(337,181
)
$
(155,626
)
$
13,346,570
  

See notes to consolidated financial statements.

- 3 -
 
LINCOLN PARK BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Six Months Ended
  
   
June 30,
  
   
2007
  
2006
  
Cash flows from operating activities:
          
Net income
  
$
50,938
  
$
181,043
  
Adjustments to reconcile net income to net
              
cash provided by operating activities:
              
Depreciation of premises and equipment
   
34,146
   
33,528
 
Amortization and accretion, net
    
9,540
   
17,701
 
Net gain on sale of securities available for sale
    
(10,181
)
  
(9,612
)
Gain on calls of securities held to maturity
    
-
   
(500
)
Provision for loan losses
    
51,000
   
3,616
 
Increase in interest receivable
    
(50,351
)
  
(37,146
)
(Increase) decrease in other assets
    
(57,996
)
  
191,163
 
(Decrease) increase in accrued interest payable
    
(1,500
)
  
11,000
 
Deferred taxes
    
(24,290
)
  
(45,589
)
Increase (decrease) in other liabilities
    
60,918
   
(149,598
)
ESOP shares committed to be released
    
7,644
   
8,253
 
Restricted Stock earned
    
16,216
   
15,224
 
Stock options
    
18,442
   
20,328
 
Net cash provided by operating activities 
    
104,526
   
239,411
 
               
Cash flows from investing activities:
              
Purchases of term deposits
    
(297,000
)
  
-
 
Proceeds from maturities of term deposits
    
99,000
   
-
 
Purchases of securities available for sale
    
(322,336
)
  
(72,262
)
Proceeds from maturities and calls of securities available for sale
    
-
   
500,000
 
Proceeds from sales of securities available for sale
    
299,837
   
24,298
 
Principal repayments on securities available for sale
    
10,396
   
15,996
 
Purchases of securities held to maturity
    
-
   
(1,000,000
)
Proceeds from maturities and calls of securities held to maturity
    
100,000
   
710,500
 
Principal repayments on securities held to maturity
    
105,608
   
139,834
 
Net increase in loans receivable
    
(5,306,064
)
  
(2,688,221
)
Additions to premises and equipment
    
(3,034
)
  
(33,817
)
Purchase of Federal Home Loan Bank of New York stock
    
(133,800
)
  
(265,800
)
Redemption of Federal Home Loan Bank of New York stock
    
108,800
   
139,000
 
               
Net cash used in investing activities 
    
(5,338,593
)
  
(2,530,472
)
               
Cash flows from financing activities:
              
Net increase in deposits
    
4,473,758
   
199,235
 
Proceeds from advances from Federal Home Loan Bank of New York
    
29,800,000
   
49,250,000
 
Repayments of advances from Federal Home Loan Bank of New York
    
(29,298,963
)
  
(46,807,797
)
Net increase in payments by borrowers for taxes and insurance
    
63,675
   
37,596
 
Purchase of restricted stock
    
-
   
(355,778
)
Dividends paid
    
-
   
(40,882
)
Net cash provided by financing activities 
    
5,038,470
   
2,282,374
 
               
Net decrease in cash and cash equivalents
    
(195,597
)
  
(8,687
)
Cash and cash equivalents - beginning
    
2,600,509
   
2,316,178
 
               
Cash and cash equivalents - ending
  
$
2,404,912
  
$
2,307,491
  
               
Supplemental information:
              
Cash paid during the period for:
              
Interest on deposits and borrowings
  
$
1,491,736
  
$
1,175,131
  
Income taxes
  
$
480
  
$
295,797
  
See notes to consolidated financial statements.
 
- 4 -

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. RECENT ACCOUNTING PRONOUNCEMENTS
 
        In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that companies recognize in their financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The adoption of FIN 48 did not have a material effect on our consolidated financial statements.

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. FASB Statement No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. We are currently evaluating the potential impact, if any, of the adoption of SFAS Statement No. 157 on our consolidated financial position, results of operations and cash flows.

In February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for our Company on January 1, 2008. The Company is evaluating the impact that the adoption of SFAS No. 159 will have on our consolidated financial statements.

In February 2007, the FASB issued FASB Staff Position (FSP) FAS 158-1, “Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88, and No.106 and to the Related Staff Implementation Guides.” This FSP makes conforming amendments to other FASB statements and staff implementation guides and provides technical corrections to SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” The conforming amendments in this FSP shall be applied upon adoption of SFAS No. 158. The adoption of FSP FAS 158-1 did not have a material impact on our consolidated financial statements or disclosures.

In March 2007, the FASB ratified EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards as an increase to additional paid-in-capital. EITF 06-11 is effective for fiscal years beginning after September 15, 2007. The Company does not expect EITF 06-11 will have a material impact on its financial position, results of operations or cash flows.

 
-5-
 

LINCOLN PARK BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2. RECENT ACCOUNTING PRONOUNCEMENTS (Cont’d)

In May 2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective retroactively to January 1, 2007. The implementation of this standard did not have a material impact on our consolidated financial position or results of operations.


3. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-QSB and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three months and six months ended June 30, 2007, are not necessarily indicative of the results which may be expected for the entire fiscal year.


4. 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 (treasury stock method) along with the assumed tax benefit from the exercise of non-qualified options.


5. 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 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. 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.
 
 
-6-
 

LINCOLN PARK BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


6. STOCK COMPENSATION PLANS
 
        The Company has two stock-related compensation plans, including stock option and restricted stock plans, which are described in Note 12 to the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006. Through December 31, 2005, the Company accounted for its stock option and employee stock ownership plans using the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) and related interpretations for these plans. Under APB No. 25, generally, when the exercise price of the Company’s stock options equaled the market price of the underlying stock on the date of the grant, no compensation expense was recognized. The Company adopted SFAS No. 123 (R), using the modified-prospective transition method, beginning on January 1, 2006 and, therefore, began to expense the fair value of all options over their remaining vesting periods to the extent the options were not fully vested as of the adoption date and began to expense the fair value of all share-based compensation granted subsequent to December 31, 2005, over its requisite service periods.
 
        SFAS No. 123 (R) also requires the benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense to be reported as a financing cash flow (there were no realized tax benefits for the six months ended June 30, 2007) rather than an operating cash flow, as previously required. In accordance with Staff Accounting Bulletin (“SAB”) No. 107, the Company classified share-based compensation within salaries and employee benefits and other expenses to correspond with the same line item as the cash compensation paid to employees and non-employee directors.
 
                Employee options vest over a seven-year service period and non-employee director options vest over a five-year service period. Compensation expense recognized for all option grants is recognized over the awards’ respective requisite service periods. The fair values relating to all of calendar 2005 and 2006 option grants were estimated using the Black-Scholes option pricing model. Expected volatilities are based on historical volatility of our stock and other factors, such as implied market volatility. We used historical exercise data based on the age at grant of the option holder to estimate the options’ expected term, which represents the period of time that the options granted are expected to be outstanding. We anticipated the future option holding periods to be similar to the historical option holding periods.
 
                The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. We recognize compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. We did not grant any options during the six months ended June 30, 2007 and 2006.
 
                Restricted shares granted to outside directors and employees vest in five annual installments and seven annual installments, respectively. The fair value of restricted shares under the Company’s restricted stock plans is determined by the product of the number of shares granted and the grant date market price of the Company’s common stock. The fair value of restricted shares is expensed on a straight-line basis over the requisite service period of five years for the outside directors and seven years for the employees.
 
                During the six months ended June 30, 2007, the Company recorded $34,657 of share-based compensation expense, which was comprised of stock option expense of $18,442 and restricted stock expense of $16,216. The Company estimates it will record share-based compensation expense of approximately $70,000 in fiscal 2007.
 
 
-7-
 

 
LINCOLN PARK BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6. STOCK COMPENSATION PLANS (Cont’d)
 
                The following table illustrates the impact of share-based compensation on reported amounts:
 
                   
   
Three Months Ended June 30, 2007
  
Six Months Ended June 30, 2007
  
                   
       
Impact of
     
Impact of
 
       
Share-Based
     
Share-Based
 
       
Compensation
      
Compensation
  
   
As Reported
  
Expense
  
As Reported
  
Expense
  
                   
Net operating income before taxes
  
$
22,676
  
$
(17,373
)
$
71,541
  
$
(34,657
)
                           
Net Income
   
16,269
   
(15,173
)
  
50,938
   
(30,257
)
                           
                           
Earnings per share:
                          
                           
Basic
  
$
0.01
  
$
(0.01
)
$
0.03
  
$
(0.02
)
                           
Diluted
  
$
0.01
  
$
(0.01
)
$
0.03
  
$
(0.02
)
                           

 
-8-
 

LINCOLN PARK BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


6. STOCK COMPENSATION PLANS (Cont’d)
 
A summary of the Company’s stock option activity and related information for its option plans for the six months ended June 30, 2007, was as follows:
 
                     
 
  
Options
  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
Term
      
 
Outstanding at December 31, 2006
 
    
64,020
  
$
8.91
              
 
Granted
 
    
-
    
-
              
 
Exercised
 
    
-
    
-
              
 
Forfeited
 
    
-
    
-
              
                         
 
Outstanding at June 30, 2007
 
    
64,020
  
$
8.91
    
8.6 years
        
                         
 
Exercisable at June 30, 2007
 
    
10,018
  
$
8.90
    
8.6 years
    
 
  
 
  A summary of the status of the Company’s non-vested options as of June 30, 2007 and changes during the six months ended June 30, 2007 is presented below:
 
            
 
  
Options
  
Weighted
Average
Grant Date
Fair Value
  
 
Non-vested at December 31, 2006
 
    
54,002
  
$
3.34
  
 
Granted
 
    
-
    
-
  
 
Vested
 
    
-
    
-
  
 
Forfeited
 
    
-
    
-
  
             
 
Non-vested at June 30, 2007
 
    
54,002
  
$
3.34
  
             
 
 
-9-
 



LINCOLN PARK BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


6. STOCK COMPENSATION PLANS (Cont’d)

Expected future compensation expense relating to the 54,002 non-vested options outstanding as of June 30, 2007 is $160,000 over a weighted-average period of 4.5 years.
 
                A summary of the status of the Company’s restricted shares as of June 30, 2007 and changes during the six months ended June 30, 2007, is presented below:
 
            
 
  
Restricted
Shares
  
Weighted
Average
Grant Date
Fair Value
  
 
Non-vested at December 31, 2006
 
    
16,964
  
$
8.90
  
 
Granted
 
    
-
    
-
  
 
Vested
 
    
-
    
-
  
 
Forfeited
 
    
-
    
-
  
             
 
Non-vested at June 30, 2007
 
    
16,964
  
$
8.90
  
             
 
                Expected future compensation expense relating to the 16,964 restricted shares at June 30, 2007 is $134,000 over a weighted-average period of 4.5 years.


7. DIRECTORS’ RETIREMENT PLAN
 
                Periodic expenses for the Company’s Directors’ retirement plan were as follows:
 
 


 
 
Six Months Ended
June 30, 2007
Service Cost
$ 4,882
Interest Cost
9,768
Unrecognized Past Service Liability
14,358
   
TOTAL
$ 29,008


 
-10-
 

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-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, rules 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, 2007 and December 31, 2006

Our total assets increased by $5.2 million, or 5.5%, to $99.2 million at June 30, 2007, from $94.0 million at December 31, 2006. The level of cash and cash equivalents decreased $196,000 or 7.5% to $2.4 million from $2.6 million at December 31, 2006. Term deposits increased $201,000 to $391,000 at June 30, 2007 when compared with $190,000 at December 31, 2006. The increase in term deposits was due to the purchase of three certificates of deposits totaling $297,000, offset by maturities of $99,000.

Securities available for sale remained unchanged at $2.6 million at June 30, 2007 and December 31, 2006. For the six months ended June 30, 2007, purchases of securities available for sale amounted to $322,000, offset by $10,000 in repayments of principal and $300,000 in proceeds from sales of securities. Securities held to maturity decreased by $206,000 or 1.1% to $18.1 million at June 30, 2007 when compared with $18.3 million at December 31, 2006. During the six months ended June 30, 2007, maturities on securities held to maturity amounted to $100,000 and repayments on securities held to maturity amounted to $106,000.

Loans receivable amounted to $72.7 million and $67.5 million at June 30, 2007 and December 31, 2006, respectively, representing an increase of $5.2 million or 7.8%. Our increase in loans resulted from increased one to four family mortgage loan originations of $2.4 million, home equity loans of $2.0 million and business loans of $931,000. The loans receivable were funded by increases in deposits and advances from the Federal Home Loan Bank.

Federal Home Loan Bank of New York (“FHLB”) stock remained unchanged at $1.1 million at June 30, 2007, and at December 31, 2006. Purchase of FHLB stock amounted to $134,000 and redemption of FHLB stock amounted to $109,000.

Other assets increased $82,000 or 23.0% to $440,000 at June 30, 2007 from $358,000 at December 31, 2006.
The increase was primarily due to a $90,000 deposit for the purchase of the GSL Savings Montville Branch which was opened in July 2007.
 
 
-11-
 
 
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of Financial Condition at June 30, 2007 and December 31, 2006 (Cont’d.)

Total deposits increased $4.5 million or 7.7% to $62.3 million at June 30, 2007 from $57.8 million at December 31, 2006. The increase in deposits was due to a management decision to be more competitive with deposit rates.  Advances from FHLB increased $501,000 or 2.3% to $22.5 million at June 30, 2007 when compared with $22.0 million at December 31, 2006. The proceeds from new advances were used to fund loan originations.

Other liabilities increased $48,000 or 8.8% to $591,000 at June 30, 2007 when compared to $543,000 at December 31, 2006. The increase was primarily due to increases in accrued expenses of $15,000 for payroll and $12,000 for auditing expense.

Stockholders’ equity increased by $102,000 or .77% to $13.3 million at June 30, 2007 from $13.2 million at December 31, 2006, respectively, reflecting net income of $51,000 for the six months ended June 30, 2007, and the amortization of $51,000 for the ESOP, the restricted stock, stock options, and the directors’ retirement plan for the six months ended June 30, 2007. Other comprehensive loss totaled $156,000 and $165,000 at June 30, 2007 and December 31, 2006, respectively, representing a 5.0 % improvement. This improvement was due to the recognition of $9,000 in unrecognized past service liability of the directors’ retirement plan.

Comparison of Operating Results for the Three Months Ended June 30, 2007 and 2006
 
General. Net income decreased by $79,000, or 83.0%, to $16,000 for the three months ended June 30, 2007, from $95,000 for the three months ended June 30, 2006. The decrease in net income reflects increases in interest expense on deposits, provision for loan losses, and an increase in non-interest expenses, partially offset by increases in total interest income and non-interest income, and decreases in interest expense on borrowed money and income taxes.
 
Interest Income. Interest income increased $85,000, or 6.9%, to $1.3 million for the three months ended June 30, 2007, from $1.2 million for the three months ended June 30, 2006. The increase in interest income was due to an increase of $79,000 in interest income from loans, $9,000 in interest income from securities, offset by a decrease of $4,000 in interest income from other interest earning assets.
 
Interest income from loans increased by $79,000, or 8.3%, to $1.0 million for the three months ended June 30, 2007, from $954,000 for the three months ended June 30, 2006. The increase was due to a $2.6 million or 3.8% increase in the average balance of loans to $70.9 million in 2007 from $68.2 million in 2006 and an increase in the average yield to 5.83% from 5.59%. Interest income from securities, including available for sale and held to maturity, increased $9,000 or 3.6% to $271,000 for the three months ended June 30, 2007, from $262,000 for the three months ended June 30, 2006. The average yield on these securities increased to 4.94 % for the three months ended June 30, 2007 as compared to 4.57% for the three months ended June 30, 2006, sufficient to offset a decrease in the average balance of $986,000. The average balance of securities was $22.0 million during the three months ended June 30, 2007 as compared to $23.0 million for the three months ended June 30, 2006. Interest income from other interest-earning assets decreased $4,000, or 21.9% to $13,000 for the three months ended June 30, 2007, from $16,000 for the three months ended June 30, 2006. The decrease in interest income from other interest-earning assets was due to a decrease in the average yield to 4.0 % in 2007 from 4.3% in 2006, and a decrease in the average balance to $1.3 million in 2007 from $1.5 million in 2006.
 
Interest Expense. Total interest expense increased $136,000, or 21.8%, to $763,000 for the three months ended June 30, 2007, from $627,000 for the three months ended June 30, 2006. The interest expense on interest-bearing deposits increased by $190,000 or 55.3% to $534,000 in 2007, when compared with $344,000 in the comparable 2006 period. The increase in interest expense resulted from an increase of $5.9 million in the average balance of interest-bearing deposits to $60.0 million in 2007, compared to $54.0 million in 2006. In addition, the average cost of interest-bearing deposits increased to 3.6% for the three months ended June 30, 2007 from 2.6% for the three months ended June 30, 2006, reflecting increasing market interest rates during the period between the comparable quarters.
 
 
-12-
 
 
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, 2007 and 2006 (Cont’d.)
 
The interest expense on borrowed money decreased $54,000 or 19.0% to $229,000 in 2007 from $283,000 in the comparable 2006 period. The decrease was due to a decrease of $5.2 million in the average balance of borrowed money to $21.0 million in 2007 from $27.0 million in 2006, offset by an increase in the cost of borrowed money to 4.27% in 2007 from 4.25% in 2006.
 
Net Interest Income. Net interest income decreased $52,000, or 8.6%, to $553,000 for the three months ended June 30, 2007 from $605,000 for the three months ended June 30, 2006. Our interest rate spread decreased to 1.85% in 2007 from 2.21% in 2006, reflecting a 64 basis points increase in the cost of our interest bearing liabilities that exceeded a 28 basis points increase in yield on interest-earning assets. Our net interest margin decreased to 2.35% from 2.61%.

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, a provision of $44,000 for loan losses was required for the three months ended June 30, 2007, and $116 for the three months ended June 30, 2006. We had no charge-offs during the three month periods ended June 30, 2007 and 2006. We used the same methodology and generally similar assumptions in assessing the allowance for both periods. The allowance for loan losses was $187,000 or 0.26% of gross loans outstanding at June 30, 2007, as compared with $162,000, or 0.23% of gross loans outstanding at June 30, 2006. The level of the allowance is based on estimates and the ultimate losses may vary from the estimates.

Non-interest Income. Non-interest income increased $15,000 or 61.1%, to $39,000 for the three months ended June 30, 2007 as compared to $25,000 for the three months ended June 30, 2006. The increase in non-interest income was due to an increase of $8,000 in fees and service charges and a $7,000 increase in the gains in sales of securities.
 
Non-interest Expenses. Non-interest expenses were $525,000 and $476,000 for the three months ended June 30, 2007 and 2006, respectively, representing an increase of $50,000 or 10.4%. The increase in non-interest expenses was primarily due to increases of $25,000 in salary and employee benefit expenses, $7,000 in advertising expenses, and $11,000 in miscellaneous expenses.
 
 
-13-
 
 
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, 2007 and 2006 (Cont’d.)
 
Income Tax Expense. The provision for income taxes decreased to $6,000 for the three months ended June 30, 2007 from $59,000 for the three months ended June 30, 2006. The decrease in the provision for income taxes was primarily due to a decrease of $131,000 in income before income taxes to $23,000 for the three months ended June 30, 2007, as compared to $153,000 for the three months ended June 30, 2006.

Comparison of Operating Results for the Six Months Ended June 30, 2007 and 2006
 
General. Net income decreased $130,000, or 71.9%, to $51,000 for the six months ended June 30, 2007, compared with $181,000 for the same 2006 period. The decrease in net income during the 2007 period resulted primarily from an increase in interest expense and non-interest expense, partially offset by increases in total interest income and non-interest income and decreases in income taxes.
 
Interest Income. Interest income increased $158,000 or 6.5%, to $2.6 million for the six months ended June 30, 2007, from $2.4 million for the six months ended June 30, 2006. The increase in interest income was primarily due to an increase of $145,000 in interest income from loans and $12,000 in interest income from securities.
 
Interest income from loans increased by $145,000, or 7.8%, to $2.0 million for the six months ended June 30, 2007, from $1.9 million for the same 2006 period. The increase was due to a $2.7 million or 4.1% increase in the average balance of loans to $70.0 million in 2007 from $67.0 million in 2006. The average yield on loans increased to 5.74% in 2007 from 5.54% in 2006. Interest income from securities, including available for sale and held to maturity, increased $12,000, or 2.2%, to $538,000 for the six months ended June 30, 2007, from $526,000 for the six months ended June 30, 2006. The average balance of securities decreased to $22.0 million in 2007 when compared to $23.0 million in 2006. The decrease in the average balance of securities was offset by an increase of 30 basis points in the average yield. The average yield on securities for the six months ended June 30, 2007 was 4.89% when compared to 4.59% for the same period in 2006. Interest income from other interest-earning assets increased $1,000 or 3.7% to $27,000 for the six months ended June 30, 2007 when compared to $26,000 for the six months ended June 30, 2006. The average balance of other interest earning assets decreased to $1.4 million during the six months ended June 30, 2007, when compared to $1.7 million during the six months ended in June of 2006, partially offset by an increase in the average yield. The average yield on other interest earning assets was 4.00% for the six months ended June 30, 2007 when compared to 3.14 % for the same period in 2006.
 
Interest Expense. Total interest expense increased $305,000, or 25.7%, to $1.5 million for the six months ended June 30, 2007, from $1.2 million for the six months ended June 30, 2006. The interest expense on interest-bearing deposits increased by $377,000 or 57.7% to $1.0 million in 2007 when compared with $653,000 in the comparable 2006 period. The increase in interest expense on deposits was due to an increase in the average cost of interest-bearing deposits to 3.49% from 2.43%, reflecting an increase in market interest rates during the period between the comparable periods. The increase in interest expense on deposits was also partially due to an increase in the average balance of interest-bearing deposits to $59.0 million in 2007 from $53.7 million in 2006. The interest expense on borrowed money decreased $71,000 or 13.4% to $461,000 in 2007 from $533,000 in the comparable 2006 period. The decrease in interest expense on borrowed money was due to a decrease of $4.0 million in the average balance of borrowed money to $22.0 million in 2007 from $26.0 million in 2006, partially offset by an increase of 13 basis points in the cost of borrowed money to 4.25% in 2007 from 4.12% in 2006.
 
 
-14-
 
 
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, 2007 and 2006 (Cont’d.)
 
Net Interest Income. Net interest income decreased $147,000, or 12.0%, to $1.1 million for the six months ended June 30, 2007 from $1.2 million for the six months ended June 30, 2006. Our interest rate spread decreased to 1.82% in 2007 from 2.28% in 2006, reflecting an increase of 71 basis points in the cost of our interest-bearing liabilities that exceeded an increase of 25 basis points in the yield on interest-earning assets. Our net interest margin decreased to 2.32% from 2.68%.
 
Provision for Loan Losses. Based on our evaluation, we recorded provision for loan losses of $51,000 for the six months ended June 30, 2007, and $3,600 for the six months ended June 30, 2006. We had no charge-offs during the six month periods ended June 30, 2007 and 2006. We used the same methodology and generally similar assumptions in assessing the allowance for both periods. The allowance for loan losses was $187,000 or 0.26% of gross loans outstanding at June 30, 2007, as compared with $162,000, or 0.23% of gross loans outstanding at June 30, 2006. The level of the allowance is based on estimates, and the ultimate losses may vary from the estimates.

Non-interest Income. Non-interest income increased $14,000, or 23.5%, to $71,000 for the six months ended June 30, 2007, as compared to $58,000 for the six months ended June 30, 2006. The increase in non-interest income was primarily due to an increase of $13,000 in income from fees and service charges. Income from fees and service charges amounted to $50,000 for the six months ended June 30, 2007, when compared to $37,000 for the same period in 2006.
 
Non-interest Expenses. Non-interest expenses were $1.03 million and $990,000 for the six months ended June 30, 2007 and 2006, respectively, representing an increase of $40,000 or 4.0%. The increase in non-interest expenses was due to increases of $45,000 in salary and employee benefits, $10,000 in equipment expense and $5,000 in advertising expenses. This increase was offset by decreases of $20,000 in miscellaneous expenses.
 
Salaries and employee benefits increased $45,000 or 11.0%, primarily because the President now draws a salary as opposed to director fees and also due to an increase in full time personnel. Miscellaneous expenses decreased $20,000 or 5.3% to $360,000 in 2007 from $380,000 in 2006, primarily due to a reduction in director fees.
 
Income Tax Expense. The provision for income taxes decreased to $21,000 for the six months ended June 30, 2007 from $111,000 for the six months ended June 30, 2006. The decrease in the provision for income taxes was primarily due to a decrease in income before income taxes of $221,000 to $72,000 for the six months ended June 30, 2007, as compared to $292,000 for the six months ended June 30, 2006.
 
 
-15-
 

LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Our full board of directors is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. Senior management monitors the level of interest rate risk and reports to the board of directors on a regular basis with respect to our asset/liability policies and interest rate risk position.

We have emphasized the origination of fixed-rate mortgage loans for retention in our portfolio in order to maximize our net interest income. We accept increased exposure to interest rate fluctuations as a result of our investment in such loans. In a period of rising interest rates, our net interest rate spread and net interest income may be negatively affected. 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, 2007, our short-term liquid assets totaled $2.4 million;

·  
We originate for portfolio adjustable-rate mortgage loans and adjustable home equity lines of credit. At June 30, 2007, our adjustable-rate mortgage loans totaled $14.3 million and our adjustable home equity lines of credit totaled $5.3 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, 2007, we had $3.1 million of FHLB advances with terms to maturity of between three and fifteen 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.
 
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.

 
-16-
 
 
LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management of Market Risk (Cont’d.)
 
The following table sets forth the Bank’s NPV as of June 30, 2007, 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
$ 13,157
$ (4,116)
(23.8)%
   14.75%
(327) basis points
+100
  15,224
   (2,049)
(11.9)    
16.46
(156) basis points
0
  17,273
—
—
18.02
   —   basis points
-100
  19,120
  1,847
10.7   
19.30
   128  basis points
-200
  20,453
  3,180
18.4   
20.07
    205  basis points

The table above indicates that at June 30, 2007 in the event of a 200 basis point decrease in interest rates, we would experience an 18.4% increase in net portfolio value. In the event of a 200 basis point increase in interest rates, we would experience a 23.8% decrease in net portfolio value.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on its net interest income and will differ from actual results.


Liquidity and Capital Resources

The Bank is required to maintain levels of liquid assets sufficient to ensure the Bank’s safe and sound operation. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Bank adjusts its liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes from escrow accounts on mortgage loans, repayment of borrowings, when applicable, and loan funding commitments. The Bank also adjusts its liquidity level as appropriate to meet its asset/liability objectives.

The Bank’s primary sources of funds are deposits, amortization and prepayments of loans and mortgage-backed securities principal, FHLB advances, maturities of investment securities and funds provided from operations. While scheduled loan and mortgage-backed securities amortization and maturing investment securities are a relatively predictable source of funds, deposit flow and loan and mortgage-backed securities prepayments are greatly influenced by market interest rates, economic conditions and competition.

The Bank’s liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities.

 
-17-
 

LINCOLN PARK BANCORP AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Liquidity and Capital Resources (Cont’d.)

The primary sources of investing activity are lending and the purchase of mortgage-backed securities. Net loans amounted to $72.7 million and $67.4 million at June 30, 2007 and December 31, 2006, respectively. Securities available for sale totaled $2.6 million at June 30, 2007 and December 31, 2006, respectively. Securities held to maturity totaled $18.1 million and $18.3 million at June 30, 2007 and December 31, 2006, 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, 2007, advances from the FHLB amounted to $22.5 million.

The Bank anticipates that it will have sufficient funds available to meet its current loan commitments. At June 30, 2007, the Bank had outstanding commitments to originate loans of $1.5 million, and unused lines of credit of $8.9 million. Certificates of deposit scheduled to mature in one year or less at June 30, 2007, totaled $32.3 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, 2007, 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)
  
$
9,685
    
17.85
%
$
4,340
    
8.00
%
$
5,425
    
10.00
%
                                       
Tier 1 Capital
                                      
(to risk-weighted assets)
    
9,498
   
17.51
%
  
2,170
   
4.00
%
  
3,255
   
6.00
%
                                       
Core (Tier 1) Capital
                                      
(to average total assets)
    
9,498
   
10.13
%
  
3,750
   
4.00
%
  
4,688
   
5.00
%
                                       
Tangible Capital
                                      
(to adjusted average assets)
    
9,498
   
10.13
%
  
1,406
   
1.50
%
  
-
   
-
  
 
 
-18-
 
 
 
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.
 
 
-19-
 
 
LINCOLN PARK BANCORP

PART II - OTHER INFORMATION


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. 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, 2007 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 Repurchased
Plan
April 1-April 30
-
-
-
-
May 1 - May 31
-
-
-
-
June 1 - June 30
-
-
-
-
 
 
As of June 30, 2007, the Company has purchased 36,289 shares to fund the restricted stock of the Company’s 2005 Stock-Based Incentive Plan.



ITEM 3. Defaults Upon Senior Securities
 
Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

For information regarding the results of the annual meeting of stockholders held on April 19, 2007, reference is made to the information presented in item 4 of the Form 10-QSB for the quarter ended March 31, 2007, which information is incorporated herein by reference.
 
 
-20-
 

LINCOLN PARK BANCORP

 

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 Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 
 
-21-
 

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, 2007                          
/s/ David G. Baker
 
David G. Baker
 
President and Chief Executive Officer
   
   
   
Date:    August 14, 2007                          
/s/ Nandini Mallya
 
Nandini Mallya
 
Vice President and Treasurer
 
(Chief Financial Officer)
   

 
 
 
 
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