PARK BANCORP INC

In July 2010, the FASB updated disclosure requirements with respect to the credit quality of financing receivables and the allowance for credit losses. According to the guidance there are two levels of detail at which credit information will be presented—the portfolio segment and class levels. The portfolio segment level is defined as the level where financing receivables are aggregated in developing a Company’s systematic method for calculating its allowance for credit losses. The class level is the second level at which credit information will be presented and represents the categorization of financing related receivables at a slightly less aggregated level than the portfolio segment level. Companies will now be required to provide the following disclosures as a result of this update: a rollforward of the allowance for credit losses at the portfolio segment level with the ending balances further categorized according to impairment method along with the balance reported in the related financing receivables at period end; additional disclosure of nonaccrual and impaired financing receivables by class as of period end; credit quality and past due/aging information by class as of period end; information surrounding the nature and extent of loan modifications and troubled-debt restructurings and their effect on the allowance for credit losses during the period; and detail of any significant purchases or sales of financing receivables during the period. The increased period-end disclosure requirements became effective for periods ending on or after December 15, 2010, with the exception of additional disclosures surrounding troubled-debt restructurings, which were deferred in December 2010 and became effective for periods ending on or after June 15, 2011. The increased disclosures for activity within a reporting period became effective for periods beginning on or after December 15, 2010. The provisions of this update expanded the Company’s current disclosures with respect to credit quality in addition to the allowance for loan losses.

To date, the Bank has implemented numerous improvements that address the requirements of the Order such as: (1) revising the allowance for loan and lease losses policy to conform to regulatory guidance, (2) updating the loan policy to reflect the asset review and classification designations in the OTS regulations as well as new limits on concentrations and requirements regarding cross-collateralization, and (3) developing a written plan for the management and disposition of all REO properties and any adversely classified loans in excess of $500,000. The Bank has also restricted extensions of credit to any borrower who has a loan that has been classified or charged-off, reviewed and revised its liquidity policy to establish limits on the use of convertible funding sources, such as putable FHLB advances, and its investment policy to specifically reflect its policy relating to investments in unrated securities, revised its loan policy to include a new policy related to non-homogenous lending, and conducted a management review led by the independent directors.

As a result of the management review required by the Order, the Company and the Bank implemented several changes to the Board of Directors and management of the Company and the Bank, all effective on October 1, 2011. The Company’s Board of Directors appointed Paul Shukis to serve as Chairman of the Board of the Company replacing David A. Remijas. David A. Remijas was appointed as President and continues to serve as a director and Chief Executive Officer of the Company. Also, Victor E. Caputo, Treasurer and Chief Financial Officer of the Company and the Bank since November 2008, was appointed to the Board of Directors of the Company. Finally, Richard J. Remijas, Jr. was appointed as Executive Vice President and continues as Chief Operating Officer of the Company.

During the quarter ended September 30, 2011, several factors affected the financial performance and condition of the Company and its business. Unemployment in the City of Chicago generally averaged 10.0% during the third quarter of 2011, which approximates the Bank’s market area. The Bank’s primary market area is characterized by a heavy industrial presence and its customers are typically blue collar individuals employed in this manufacturing environment. The area consists of mature homes with little to no new development. The economy has performed poorly over the last few years in the Chicago metropolitan area with factory shutdowns and related layoffs creating the unemployment trends previously discussed. With unemployment high, many customers struggled to pay their mortgages on a timely basis, and, as a result, the Bank’s nonperforming assets have steadily increased over the past two years. As foreclosures increased there was a corresponding increase in the Bank’s charge-offs and other real estate owned. The historically low interest rate environment lowered the Bank’s cost of funds during the quarter; however, we believe customers are not refinancing or applying for new mortgages in an attempt to strengthen their individual balance sheets over concerns that the continuing weak economy could result in further job losses. In addition, the Bank’s growth is currently limited due to the restrictions imposed on it by the Cease and Desist Order.

Our Company’s results of operations depend primarily on its net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities, mortgage-backed securities and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting primarily of savings accounts, checking accounts, time certificates of deposit and FHLB advances. Net interest income for the quarter ended September 30, 2011 was $1.3 million compared to $1.4 million for the same period in 2010. Net interest income for the nine months ended September 30, 2011 and 2010 was $4.1 million and $4.3 million, respectively. The Company’s results of operation are also affected by its provisions for loan losses, noninterest income and noninterest expense. The provision for loan losses amounted to $1.0 million and $2.6 million for the three and nine months ended September 30, 2011 compared to $273,000 and $1.6 million for the comparable periods in 2010. The significant increase in the provision for loan losses, which is a result of the decline in our credit quality, has negatively impacted the Company’s results of operations since 2009. Noninterest income currently consists primarily of service charge income, earnings on bank-owned life insurance, gains and losses on the sales of securities, loans and REO and miscellaneous other income. Noninterest income was $165,000 for the quarter ended September 30, 2011 compared to $161,000 for the quarter ended September 30, 2010. For the nine months ended September 30, 2011 and 2010 noninterest income was $808,000 and $452,000, respectively. Noninterest expense currently consists primarily of salaries and employee benefits, real estate or investment securities impairment charges, occupancy, data processing, professional fees, and other operating expenses. Noninterest expense was $1.8 million and $2.0 million for the three months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, noninterest expense was $5.4 million and $5.7 million, respectively.