Executive Summary

The following discussion compares the financial condition of Park Bancorp, Inc. ("Company") and its wholly owned subsidiaries, Park Federal Savings Bank ("Bank") and PBI Development Corporation, and the Bank's subsidiaries, at June 30, 2009 to its financial condition at December 31, 2008 and the results of operations for the three and six months ended June 30, 2009 to the same period in 2008. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

Financial Condition

Total assets at June 30, 2009 increased $5.0 million or 2.3% to $224.6 million from $219.6 million at December 31, 2008. An increase of $9.2 million in cash and cash equivalents less a decrease of $4.2 million in securities available-for-sale during the six month period ended June 30, 2009 were the primary reasons for the change from December 31, 2008, as the Company concentrated on increasing its liquidity position.

For the six months ended June 30, 2009, total gross loans increased $307,000, or .2%, to $141.2 million from $140.9 million at December 31, 2008.

The Company continues to see an increase in loan delinquencies and nonperforming loans due to higher unemployment levels and the continued weakening economy in its market area. If the recession continues to worsen, the results could further negatively impact economic conditions in the Company's market areas and its borrowers, and the Company could experience significantly higher delinquencies and credit losses.

The allowance for loan losses was $901,000 at June 30, 2009 compared to $775,000 at December 31, 2008 while nonperforming assets were $7.1 million and $2.7 million for the comparable periods. The Company believes that the increase in the allowance for loan losses is consistent with the increase in credit risk. The Company's nonperforming loans are predominantly one-to-four family loans, and management estimates the collateral value is sufficient to limit losses on the outstanding loan balances. Collateral is estimated to be sufficient to limit losses, as the Company's loan to value underwriting guidelines are expected to limit the losses due to deterioration in the collateral values. Further, the Company does not originate riskier subprime loans, and the total second mortgage segment of the portfolio only represents $817,000 of the $141.2 million total gross loan portfolio.

The following table sets forth information regarding nonaccrual loans and other real estate owned. It is the policy of the Bank to cease accruing interest on loans more than 90 days past due.

                                              June 30, 2009     December 31, 2008
   Nonaccrual loans
   One-to-four-family                        $         3,177   $               780
   Multi-family                                        2,098                    -
   Commercial, construction and land                     337                    -
   Consumer and other                                     -                     -

   Total nonaccrual loans                              5,612                   780
   Loans past due 90 days still on accrual                -                     -

   Total nonperforming loans                           5,612                   780
   Real estate owned                                   1,600                 1,874

   Total nonperforming assets                $         7,212   $             2,654

Real estate owned decreased from $1.8 million at December 31, 2008 to $1.6 million at June 30, 2009 predominantly due to a $291,000 write-down on the existing properties. The write-down was the result of continued declines in the estimated value of the existing properties in 2009. Based on recent appraisals and sales contract negotiations, the Company's management believes the properties are recorded at the lower of cost or market as of June 30, 2009.

The following table sets forth the amount of the Company's allowance for loan losses by type, the percent of allowance for loan losses by type to total allowance, and the percent of gross loans by type to total gross loans in each of the categories listed at the dates indicated.

                                                        06/30/09                                            12/31/08
                                                   Percentage        Percentage of                     Percentage        Percentage of
                                                  of Allowance       Gross Loans to                   of Allowance       Gross Loans to
                                                    to Total          Total Gross                       to Total          Total Gross
                                       Amount      Allowance             Loans             Amount      Allowance             Loans
One-to-four-family                    $    636           70.59 %              65.68 %     $    529           68.26 %              65.90 %
Multi-family                               115           12.76                14.01            108           13.93                13.73
Commercial, construction and land           62            6.88                12.03             62            8.00                13.42
Consumer and other                          88            9.77                 8.29             76            9.81                 6.95

Total allowance for loan losses       $    901          100.00 %             100.00 %     $    775          100.00 %             100.00 %

Total liabilities at June 30, 2009 were $198.7 million, an increase of $6.0 million or 3.1%, compared to $192.7 million at December 31, 2008. The change was due primarily to an increase in deposits of $12.5 million or 9.1% from December 31, 2008. The Company has competitively priced its deposit products over the last six months to improve liquidity and reduce borrowings from the Federal Home Loan Bank of Chicago to increase its interest rate spread. The Company reduced its borrowings from the Federal Home Loan Bank of Chicago during the six months ended June 30, 2009 by $5.9 million or 8.6% to $43.0 million due to maturities and calls.

Stockholders' equity decreased $995,000 or 3.7% to $25.9 million at June 30, 2009 from $26.9 million at December 31, 2008. The decrease was primarily attributable to the net loss for the six months ended June 30, 2009 of $1.1 million.

Results of Operations

The net loss for the quarter ended June 30, 2009 was $585,000, an increase of $226,000 from the net loss of $359,000 for the comparable quarter in 2008. The change was due to a decrease in net interest income of $21,000, an increase in the provision for loan loss of $115,000 and a decrease in the income tax benefit of $218,000, offset by an increase in noninterest income of $26,000 and a decrease in noninterest expense of $102,000. The net loss for the six months ended June 30, 2009 was $1.1 million, an increase of

$752,000 from the net loss of $396,000 for the comparable six months in 2008. The change was due to an increase in the provision for loan loss of $145,000, an increase of $481,000 in noninterest expense of which $215,000 was primarily due to an increase in FDIC related insurance charges and a decrease in the income tax benefit of $208,000. These increases to the net loss were offset by an increase in net interest income of $49,000 and an increase in noninterest income of $33,000.

Net interest income for the quarter ended June 30, 2009 remained relatively unchanged from the comparable quarter in 2008 at $1.3 million. The average yield on interest-earning assets decreased 37 basis points to 5.28% for the quarter ended June 30, 2009 from 5.65% for the same period in 2008, while average interest-earning assets decreased $470,000 during the same time period. The average yield decreased partially as a result of foregone interest on nonaccrual loans of approximately $120,000 during the quarter ended June 30, 2009. The average cost of interest-bearing liabilities decreased 35 basis points to 2.85% from 3.20% for the quarters ended June 30, 2009 and 2008, respectively. Average interest-bearing liabilities decreased $303,000 during the second quarter of 2009 compared to the second quarter of 2008. The interest rate spread decreased 2 basis points to 2.43% for the quarter ended June 30, 2009 from 2.45% for the comparable quarter in 2008 while the net interest margin decreased to 2.56% from 2.60% for the same period. Net interest income was $2.6 million for the six months ended June 30, 2009 and 2008, respectively. The average yield on interest-earning assets decreased 32 basis points to 5.38% for the six months ended June 30, 2009 from 5.70% for the same period in 2008, while average interest-earning assets decreased $1.5 million compared to the same period. The average yield decreased partially as a result of foregone interest on nonaccrual loans of approximately $220,000 during the six month period ended June 30, 2009. The average cost of interest-bearing liabilities decreased 43 basis points to 2.89% from 3.32% for the six month periods ended June 30, 2009 and 2008, respectively. Average interest-bearing liabilities decreased $78,000 for the six months ended June 30, 2009 from the same period in 2008. The interest rate spread increased 11 basis points to 2.49% for the six months ended June 30, 2009 from 2.38% for the comparable six month period in 2008 while the net interest margin increased to 1.31% from 1.27% for the same period.

Management establishes provisions for loan losses, which are charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio. 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, estimated value of any underlying collateral, peer group information, 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 management's estimates, a $130,000 provision for loan loss was established for the quarter ended June 30, 2009, compared to $15,000 for the same quarter in 2008. The loan loss provision was $160,000 and $15,000 for the six months ended June 30, 2009 and 2008, respectively. The increase in the loan loss provision in 2009 is the result of an increase in impaired loans and nonperforming loans during the quarter and six months ended June 30, 2009.

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of June 30, 2009 is maintained at a level that represents management's best estimate of inherent losses in the loan portfolio, and such losses were both probable and reasonably estimable.

Noninterest income increased to $167,000 or $26,000 for the quarter ended June 30, 2009 from $141,000 for the quarter ended June 30, 2008. The increase was primarily due to an increase in revenue generated from a lease executed during the quarter by a major tenant at the Bank's 47th Street office. Noninterest income increased to $307,000 or $33,000 for the six months ended June 30, 2009 from $274,000 for the six months ended June 30, 2008. The increase was primarily due to an increase in rental revenue as described above.

Noninterest expense decreased $102,000 to $1.9 million for the quarter ended June 30, 2009 from $2.0 million for the corresponding three month period in 2008. The decrease for the quarter was primarily the result of a $476,000 loss on security impairment incurred in the second quarter of 2008, compared to a $55,000 loss on security impairment in the second quarter of 2009. The decrease was partially offset by an FDIC special assessment charge of $101,000, an increase in the regular FDIC assessment charge of $79,000, and an increase in other noninterest expenses, including compensation and other operating expenses from the 47th Street branch location which was not operational in the second quarter of 2008. Noninterest expense for the six months ended June 30, 2009 increased $481,000 to $4.0 million from $3.5 million for the same period in 2008. The increase was due primarily to a $176,000 increase related to REO losses and expenses, an increase in other expenses of $381,000 primarily due to an increase in the regular FDIC assessment charge of $114,000 and an FDIC special assessment charge of $101,000, and other operating expenses from the Bank's 47th Street branch location offset by a decrease of $246,000 due to a $476,000 loss on security impairment incurred in the six months ended June 30, 2008 compared to a $233,000 loss on security impairment in the same period during 2009.

The Company's federal income tax benefit was $21,000 for the three-month period ended June 30, 2009 compared to the federal income tax benefit of $239,000 for the three-month period ended June 30, 2008. The change in the income tax benefit for the three month period was attributable to the decrease in income before income taxes, partially offset by a deferred tax asset valuation allowance recorded in 2009. The Company recognized a deferred tax asset valuation allowance, as the Company is not able to project sufficient future taxable income to fully utilize the deferred tax asset given the present economic conditions. The Company's federal income tax benefit was $88,000 for the six month period ended June 30, 2009 compared to the federal income tax benefit of $296,000 for the six month period ended June 30, 2008. The change in the income tax benefit for the six month period was attributable to the decrease in income before income taxes for the period, partially offset by a deferred tax asset valuation allowance recorded in 2009. The Company recognized a deferred tax asset valuation allowance due to uncertainty as to whether the deferred tax assets would be fully utilized.

Liquidity and Capital Resources

The Company's primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from maturities and calls of securities, FHLB advances, and securities sold under repurchase agreements. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. The Bank's most liquid assets are cash and short-term investments. The levels of these assets are dependent on the Bank's operating, financing, lending, and investing activities during any given period. The Bank's liquidity ratio was 19.25% at June 30, 2009.

The Company's cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash from operating activities were $(299,000) and $118,000 for the six months ended June 30, 2009 and 2008, respectively. Net cash from investing activities consisted primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, and proceeds from maturing securities and paydowns on mortgage-backed securities. Net cash from investing activities were $3.4 million and $(17.3) million for the six months ended June 30, 2009

and 2008, respectively. Net cash from financing activities consisted primarily of the activity in deposit accounts, FHLB borrowings, and securities sold under repurchase agreements in addition to the purchase of treasury stock. The net cash from financing activities was $6.0 million and $5.9 million for the six months ended June 30, 2009 and 2008, respectively.

At June 30, 2009, the Bank exceeded all of its regulatory capital requirements with a Tier 1 (core) capital level of $23.3 million, or 10.47% of adjusted total assets, which is above the required level of $8.9 million, or 4.0%; and total risk-based capital of $24.2 million, or 19.11% of risk-weighted assets, which is above the required level of $10.1 million, or 8.0%. Accordingly the Bank was categorized as well capitalized at June 30, 2009. Management is not aware of any conditions or events since the most recent notification that would change the Bank's category.

A notification from the Office of Thrift Supervision ("OTS") received in July 2008, remains in effect as of June 30, 2009. The notification received in 2008 is typically delivered at the execution of a Supervisory Agreement, and requires the Bank to obtain OTS approval for any capital distribution, including payment of a dividend from the Bank to the Holding Company. Management believes future dividend requests, if necessary, will be approved given the Bank's current capital levels. The agreement will remain in effect until terminated, modified, or suspended in writing by the OTS. Failure to comply with the agreement could result in the initiation of formal enforcement action by the OTS.

At June 30, 2009, the Bank had outstanding commitments to originate mortgage loans of $2.5 million, commitments under unused lines of credit of $5.2 million and undisbursed portions of construction loans of $1.2 million. The Bank anticipates that it will have sufficient funds available to meet its current loan origination commitments. Certificate accounts that are scheduled to mature in less than one year from June 30, 2009 totaled $73.6 million. Management expects that a substantial portion of the maturing certificate accounts will be renewed at the Bank. However, if a substantial portion of these deposits is not retained, the Bank may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.