<PAGE>
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File No. 0-18014
PAMRAPO BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 22-2984813
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
611 Avenue C, Bayonne, New Jersey 07002
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 339-4600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $0.01 per share
(Title of class)
Indicate by check mark 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, i.e., persons other than directors and executive officers of
the registrant is $48,331,723 and is based upon the last sales price as quoted
on The Nasdaq Stock Market for March 20, 1997.
The Registrant had 2,868,094 shares outstanding as of March 20, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1996 ARE INCORPORATED BY REFERENCE INTO PARTS I AND II OF THIS FORM
10-K.
PORTIONS OF THE PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF
STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I PAGE
----
<S> <C> <C>
Item 1. Business............................................... 1
Item 2. Properties............................................. 39
Item 3. Legal Proceedings...................................... 41
Item 4. Submission of Matters to a Vote of Security Holders.... 42
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholders Matters........................ 42
Item 6. Selected Financial Data................................ 42
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 42
Item 8. Financial Statements and Supplementary Data............ 42
Item 9. Changes in Disagreements with Accountants on
Accounting and Financial Disclosure................. 42
PART III
Item 10. Directors and Executive Officers of the Registrant..... 43
Item 11. Executive Compensation................................. 43
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................... 43
Item 13. Certain Relationships and Related Transactions......... 43
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K............................. 44
</TABLE>
SIGNATURES
<PAGE>
PART I
ITEM 1. BUSINESS.
- -----------------
Pamrapo Bancorp, Inc. (also referred to as the "Company" or the
"Registrant") was incorporated under Delaware law on June 26, 1989. On November
10, 1989, the Registrant acquired Pamrapo Savings Bank, S.L.A. (the "Bank" or
"Pamrapo") as a part of the Bank's conversion from a New Jersey chartered
savings association in mutual form to a New Jersey chartered stock savings
association. The Registrant is a savings and loan holding company and is
subject to regulation by the Office of Thrift Supervision ("OTS"), the Federal
Deposit Insurance Corporation ("FDIC") and the Securities and Exchange
Commission ("SEC"). Currently, the Registrant does not transact any material
business other than through its sole subsidiary, the Bank.
Pamrapo was organized in 1886 as the Pamrapo Building and Loan
Association. On October 6, 1952, it changed its name to Pamrapo Savings and
Loan Association, a New Jersey chartered savings and loan association in mutual
form, and in 1988 it changed its name to Pamrapo Savings Bank, S.L.A. The
Bank's principal office is located in Bayonne, New Jersey. Its deposits are
insured up to applicable limits by the Savings Association Insurance Fund (the
"SAIF") which is administered by the FDIC. At December 31, 1996, the Bank had
total assets of $362.3 million, deposits of $304.0 million and stockholders'
equity of $47.0 million before elimination of intercompany accounts with the
Company, respectively.
As a community-oriented institution, the Bank is principally engaged
in attracting retail deposits from the general public and investing those funds
in fixed-rate one- to four-family residential mortgage loans and, to a lesser
extent, in multi-family residential mortgage loans, commercial real estate
loans, home equity and second mortgage loans, consumer loans and mortgage-backed
securities. The Bank's revenues are derived principally from interest on loans
and mortgage-backed securities, interest and dividends on investment securities
and short-term investments, and other fees and service charges. The Bank's
primary sources of funds are deposits and, to a lesser extent, Federal Home Loan
Bank of New York ("FHLB-NY") advances and other borrowings.
MARKET AREA
The Bank, which is headquartered in Bayonne, New Jersey, conducts its
business through eight retail banking offices, six of which are located in
Bayonne, New Jersey, one in Hoboken, New Jersey and one in Fort Lee, New Jersey.
The Bank's deposit base is located primarily in Hudson County, with a large
concentration in Bayonne, an older, stable, residential community of one-family
and two-family residences and middle income families who have lived in the area
for many years. The communities in which the Bank's branches are located are
strategically located in the New York City metropolitan area and many residents
of these communities commute to Manhattan to work on a daily basis. The Bank's
lending activities have also been concentrated in Hudson County and to a lesser
extent in Bergen, Monmouth and Ocean Counties, areas which have had a high level
of new development in recent years.
<PAGE>
LENDING ACTIVITIES
GENERAL. Pamrapo principally originates fixed-rate mortgage loans on
one- to four-family residential dwellings primarily for retention in its own
portfolio. The Bank also originates acquisition, development and construction
loans in addition to multi-family and commercial real estate loans. At December
31, 1996, the Bank's total gross loans outstanding amounted to $212.8 million,
of which $151.2 million consisted of loans secured by one- to four-family
residential properties, $2.0 million consisted of construction and land loans,
and $55.7 million consisted of loans secured by multi-family and commercial real
estate. Substantially all of the Bank's real estate loan portfolio consists of
conventional mortgage loans, of which $1.5 million are either insured by the
Federal Housing Administration ("FHA") or partially guaranteed by the Veterans
Administration ("VA").
2
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of
the Bank's loan and mortgage-backed securities portfolios in dollar amounts and
in percentages at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
-----------------------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
REAL ESTATE MORTGAGE LOANS:
CONVENTIONAL LOANS:
Permanent:
Fixed-rate.................... $181,674 84.16% $174,984 81.24% $179,492 80.68% $175,034 80.24% $168,727 81.35%
Adjustable rate............... 9,333 4.32 8,703 4.04 7,823 3.52 7,131 3.27 5,453 2.63
Construction(1).................. 4,708 2.18 5,530 2.57 3,572 1.60 3,584 1.64 1,986 .96
Guaranteed by VA or
insured by FHA................ 3,752 1.74 3,037 1.41 2,404 1.08 1,958 .90 1,520 .73
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans............... 199,467 92.40 192,254 89.26 193,291 86.88 187,707 86.05 177,686 85.67
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
CONSUMER LOANS:
Passbook or certificate.......... 739 0.34 537 .25 481 .22 441 .20 391 .19
Home improvement................. 587 0.27 539 .25 535 .24 501 .23 446 .22
Equity and second mortgages...... 19,015 8.81 26,286 12.20 31,622 14.21 31,487 14.43 30,683 14.79
Education........................ 1,218 0.56 1,377 .64 1,820 .82 1,691 .78 1,351 .65
Automobile....................... 821 0.38 848 .39 920 .41 1,074 .49 1,107 .53
Personal......................... 984 0.46 1,267 .59 1,302 .59 1,188 .55 1,158 .56
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans............... 23,364 10.82 30,854 14.32 36,680 16.49 36,382 16.68 35,136 16.94
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans........................ 222,831 103.22 223,108 103.58 229,971 103.37 224,089 102.73 212,822 102.61
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
LESS:
Allowance for loan losses......... 3,100 1.44 4,000 1.86 3,650 1.64 2,725 1.25 2,800 1.35
Loans in process.................. 767 0.35 976 .45 1,162 .52 852 .39 466 .22
Deferred loan fees and discounts.. 3,077 1.43 2,736 1.27 2,687 1.21 2,372 1.09 2,151 1.04
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total.............................. 6,944 3.22 7,712 3.58 7,499 3.37 5,949 2.73 5,417 2.61
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total net loans.................... $215,887 100.00% $215,396 100.00% $222,472 100.00% $218,140 100.00% $207,405 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
MORTGAGE-BACKED SECURITIES:
GNMA (2).......................... $ -- --% $ 510 .41% $ 950 .79% $ 849 .75% $ 707 .65%
FHLMC (3)(5)...................... 100,460 83.44 102,221 82.96 95,972 79.54 89,234 79.12 86,023 78.34
FNMA (4)(5)....................... 19,191 15.94 19,390 15.74 22,769 18.87 22,066 19.56 22,736 20.71
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage-backed securities... 119,651 99.38 122,121 99.11 119,691 99.20 112,149 99.43 109,466 99.70
ADD/LESS:..........................
Premiums(discounts), net(5)....... 743 0.62 1,092 .89 1,070 .89 881 .78 749 .68
Unrealized loss on securities
available for sale.............. -- -- -- -- (105) (.09) (239) (.21) (419) (.38)
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Net mortgage-backed securities..... $120,394 100.00% $123,213 100.00% $120,656 100.00% $112,791 100.00% $109,796 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
(1) Includes acquisition and development and land loans.
(2) Government National Mortgage Association ("GNMA").
(3) Federal Home Loan Mortgage Corporation ("FHLMC").
(4) Federal National Mortgage Association ("FNMA").
(5) Includes available for sale securities having a principal balance of
$6,690,000 and a net premium of $39,000 for 1994, a principal balance of
$16,053,000 and a net premium of $412,000 for 1995,
and a principal balance of $13,145,000 and a net premium of
$344,000 for 1996.
3
<PAGE>
The following table sets forth the composition of the Bank's gross loan
portfolio by type of security at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------------------------------------------------------
1994 1995 1996
--------------------- ----------------------- ----------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
One- to four-family............. $164,277 71.44% $159,934 71.37% $151,175 71.04%
Multi-family.................... 33,974 14.77 33,658 15.02 34,051 16.00
Commercial real estate.......... 23,625 10.27 22,519 10.05 21,604 10.15
Construction and land........... 3,572 1.55 3,584 1.60 1,985 .93
Consumer-secured and unsecured.. 4,523 1.97 4,394 1.96 4,007 1.88
-------- ------ -------- ------ -------- ------
Total gross loans............. $229,971 100.00% $224,089 100.00% $212,822 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
4
<PAGE>
ORIGINATION, PURCHASE AND SALE OF LOANS AND MORTGAGE-BACKED SECURITIES. The
following table sets forth the Bank's loan originations, purchases, sales and
principal repayments for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------------------------------
<S> <C> <C> <C>
(In thousands)
MORTGAGE LOANS (GROSS):
At beginning of period........................... $192,254 $193,291 $187,707
-------- -------- --------
Mortgage loans originated:
One- to four-family residential................. 15,009 7,082 10,462
Multi-family residential........................ 10,514 4,950 4,654
Commercial...................................... 4,333 4,474 1,477
Construction(1)................................. 1,543 642 1,810
-------- -------- --------
Total mortgage loans originated............... 31,399 17,148 18,403
-------- -------- --------
Mortgage loans purchased......................... 627 62 109
-------- -------- --------
Transfer to REO.................................. 1,439 1,190 2,176
Charge offs...................................... 782 976 398
Repayments....................................... 28,768 20,628 25,959
-------- -------- --------
Total mortgage repayments and other reductions 30,989 22,794 28,533
-------- -------- --------
At end of period................................. $193,291 $187,707 $177,686
======== ======== ========
CONSUMER LOANS (GROSS):
At beginning of period........................... $ 30,854 $ 36,681 $ 36,382
Consumer loans originated........................ 44,626 8,050 8,102
Consumer loans sold.............................. -- 765 771
Charge-offs...................................... 129 365 240
Repayments....................................... 38,670 7,219 8,337
-------- -------- --------
At end of period................................. $ 36,681 $ 36,382 $ 35,136
======== ======== ========
MORTGAGE-BACKED SECURITIES (GROSS):
At beginning of period........................... $122,121 $119,691 $112,149
Mortgage-backed securities purchased............. 26,235 8,023 12,699
Repayments....................................... 28,665 15,565 15,382
-------- -------- --------
At end of period................................. $119,691 $112,149 $109,466
======== ======== ========
</TABLE>
___________________
(1) Includes acquisition and development and land loans.
5
<PAGE>
LOAN MATURITY. The following table sets forth the maturity of the Bank's loan
portfolio at December 31, 1996. The table does not include prepayments or
scheduled principal repayments. Prepayments and scheduled principal repayments
on mortgage loans totaled $28.8 million, $20.6 million, and $26.0 million for
the years ended December 31, 1994, 1995 and 1996 respectively.
<TABLE>
<CAPTION>
ONE- TO CONSUMER-
FOUR-FAMILY MULTI-FAMILY SECURED
RESIDENTIAL AND COMMERCIAL CONSTRUCTION AND UNSECURED
MORTGAGE LOANS(1) REAL ESTATE LOANS LOANS(2) LOANS TOTAL
------------------- ----------------- --------------- ---------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year..................... $ 285 $ 1,006 $1,685 $ 453 $ 3,429
-------- ------- ------ ------ --------
After 1 year:
1 to 3 years.................... 1,020 247 119 1,345 2,731
3 to 5 years.................... 5,155 1,284 -- 599 7,038
5 to 10 years................... 28,444 16,628 70 709 45,851
10 to 20 years.................. 77,422 35,745 111 901 114,179
Over 20 years................... 38,849 745 -- -- 39,594
-------- ------- ------ ------ --------
Total due after 1 year........ 150,890 54,649 300 3,554 209,393
-------- ------- ------ ------ --------
Total amounts due................. $151,175 $55,655 $1,985 $4,007 212,822
======== ======= ====== ======
Less:
Allowance for loan losses....... 2,800
Loans in process................ 466
Deferred loan fees and discounts 2,151
--------
Loans receivable, net............. 5,417
--------
Total............................. $207,405
========
</TABLE>
_______________________________
(1) Includes equity and second mortgages.
(2) Includes acquisition and development and land loans.
6
<PAGE>
The following table sets forth at December 31, 1996, the dollar amount of
all mortgage and consumer loans, excluding construction loans, due after
December 31, 1997, which have fixed interest rates or adjustable interest rates:
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1997
------------------------------- TOTAL DUE
FLOATING OR AFTER ONE
FIXED RATES ADJUSTABLE RATES YEAR
------------- ------------------ ---------
(In thousands)
<S> <C> <C> <C>
One- to four-family residential (1)... $146,706 $4,184 $150,890
Construction loans.................... 300 -- 300
Multi-family and commercial real 53,380 1,269 54,649
estate...............................
Consumer-secured and unsecured loans.. 3,554 -- 3,554
-------- ------ --------
Totals.............................. $203,940 $5,453 $209,393
======== ====== ========
- --------------------
</TABLE>
(1) Includes equity and second mortgages.
RESIDENTIAL MORTGAGE LENDING. Pamrapo presently originates first mortgage
loans secured by one- to four-family residences, multi-family residences and
commercial real estate. As of December 31, 1996, 95.8% of gross mortgage loans
were fixed-rate loans and 4.2% were ARMs or shorter term construction loans, and
were principally originated for the Bank's portfolio. Residential loan
originations are generally obtained from existing or past customers and members
of the local community. As of December 31, 1996, $185.2 million or 87.0% of the
Bank's total gross loan portfolio consisted of one- to four-family and multi-
family residential mortgage loans, home improvement loans, second mortgage loans
and home equity loans. Of this amount $151.2 million were one- to four-family
and $34.0 million were multi-family.
The one- to four-family residential loans originated by the Bank are
primarily fixed-rate mortgages, generally with terms of 15 or 25 years.
Typically, such homes in the Bayonne area are one- or two-family owner-occupied
dwellings. The Bank generally makes one- to four-family residential mortgage
loans in amounts up to 80% of the appraised value of the secured property. The
Bank will originate loans with loan-to-value ratios up to 90% within the local
community, provided that private mortgage insurance on the amount in excess of
such 80% ratio is obtained. Mortgage loans in the Bank's portfolio generally
include due-on-sale clauses, which provide the Bank with the contractual right
to demand the loan immediately due and payable in the event that the borrower
transfers ownership of the property that is subject to the mortgage. It is the
Bank's policy to enforce due-on-sale provisions. As of December 31, 1996, the
interest rate for one- to four-family residential fixed-rate mortgages offered
by the Bank was 6.75% on 15-year loans and 7.25% on 25-year loans. An
origination fee of 2.5% is usually charged.
7
<PAGE>
The Bank also originates loans on multi-family residences. Such residences
generally consist of 6 to 24 units. Such loans are generally fixed-rate loans
with interest rates 1% higher than those offered on one- to four-family
residences. An origination fee of 3% is usually charged. The Bank generally
makes multi-family residential loans in amounts up to 75% of the appraised value
of the secured property. Such appraisals are based primarily on the income
producing ability of the property. The terms of multi-family residential loans
range from 10 to 15 years. As of December 31, 1996, $34.0 million or 16.0% of
the Bank's total gross loan portfolio consisted of multi-family residential
loans.
Upon receipt of an application for a mortgage loan from a prospective
borrower, a credit report is ordered to verify information relating to the
applicant's employment, income and credit standing. A preliminary inspection of
the subject premises is made by at least one member of the Executive Committee.
The report of that inspection is brought before the Executive Committee or the
full Board of Directors to approve the amount of the loan and the terms.
Approval is given subject to a report of value from an independent appraiser and
credit approval. Any mortgage application of $300,000 or more is not considered
at an Executive Committee meeting but held over for the Board of Director's
meeting. Approval of credit is given by the Bank's president or loan officer.
It is the Bank's policy to obtain title insurance on all real estate loans.
Borrowers also must obtain hazard insurance and flood insurance, if required,
prior to closing. The Bank generally requires borrowers to advance funds on a
monthly basis together with each payment of principal and interest to a tax
escrow account from which the Bank can make disbursements for items such as real
estate taxes and certain insurance premiums, if any, as they become due.
ACQUISITION, DEVELOPMENT AND CONSTRUCTION LENDING. The Bank originates
loans to finance the construction of one- to four-family dwellings, multi-family
dwellings and, to a lesser extent, commercial real estate. It also originates
loans for the acquisition and development of unimproved property to be used
principally for residential purposes in cases where the Bank is to provide the
construction funds to improve the properties.
The interest rates and terms of the construction and land development loans
vary, depending upon market conditions, the size of the construction or
development project and negotiations with the borrower. Advances are generally
made to the borrower to cover actual construction costs incurred. On larger
constructions loans, the Bank requires the project to be built out in phases.
Advancement of funds is dependent upon completion of the project stages. The
Bank generally limits its exposure to 75% of the projected market value of the
completed project. The amount of the loans are generally determined as follows:
(i) land acquisition loans with no immediate plans for construction are limited
to 65% of the appraised value of the land; (ii) acquisition and development
loans are limited to 65% of appraised value of the improved lot not to exceed
150% of the original acquisition cost and (iii) in addition to the disbursement
for acquisition and development, in an acquisition, development and construction
loan, the Bank will not advance more than 90% of the construction costs. Prior
to making any disbursements, the Bank requires that the projects securing the
construction and development loans be inspected. The Bank will finance the
construction of properties without a prospective buyer or without permanent
take-out financing in place at the time of origination.
8
<PAGE>
The underwriting criteria used by the Bank are designed to evaluate and
minimize the risks of each construction loan. Among other things, the Bank
generally considers an appraisal of the project, the reputation of the borrower
and the contractor, the amount of the borrower's equity in the project,
independent valuations and review of cost estimates, plans and specifications,
preconstruction sale and leasing information, current and expected economic
conditions in the area of the project, cash flow projections of the borrower,
and, to the extent available, guarantees by the borrower and/or third parties.
Virtually all of the Bank's acquisition, development and construction loan
portfolio is secured by real estate properties located in northern and central
New Jersey.
Acquisition, development and construction lending is generally considered to
involve a higher level of risk than one- to four-family permanent residential
lending due to the concentration of principal in a limited number of loans and
borrowers and the effects of general economic conditions on development
projects, real estate developers and managers. In addition, the nature of these
loans is such that they are generally less predictable and more difficult to
evaluate and monitor. As of December 31, 1996, the Bank's acquisition,
development and construction loans varied in size from $24,500 to $350,000, net
of loans in process, and represented .93% of total gross loans.
COMMERCIAL REAL ESTATE LENDING. Loans secured by commercial real estate
totaled $21.6 million, or 10.2% of the Bank's total gross loan portfolio, at
December 31, 1996. Commercial real estate loans are generally originated in
amounts up to 70% of the appraised value of the property. Such appraised value
is determined by an independent appraiser previously approved by the Bank. The
Bank's commercial real estate loans are secured by improved property such as
office buildings, retail stores, warehouses and other non-residential buildings.
Once the loan has been determined to be creditworthy and of sufficient property
value, in the case of corporate borrowers, the Bank obtains a personal guaranty
from third party principals of the corporate borrower as supplemental security
on the loan. This enables the Bank to proceed against the guarantor in the
event of default without first exhausting remedies against the borrower.
Inquiry as to collectability pursuant to such third party guarantees may be made
by means of review of other properties secured by the Bank, personal interviews
with the applicants, review of the applicant's personal financial statements and
income tax returns and review of credit bureau reports. Borrowers must
personally guarantee loans made for commercial real estate. Commercial real
estate loans have terms ranging from 5 to 15 years and are generally fixed-rate
loans.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject to adverse conditions in the real estate market or the
economy. Emphasis is placed on the income producing capability of the
collateral rather than on management-intensive projects.
CONSUMER LENDING. The Bank offers various other secured and unsecured
consumer loan products such as equity and second mortgage loans, automobile
loans, personal loans, passbook loans and government guaranteed educational
loans. At December 31, 1996, the balance of such
9
<PAGE>
loans was $35.1 million, or 16.5% of the Bank's total gross loan portfolio.
$30.7 million, or 87.5% of total consumer loans are represented by equity loans
and second mortgages, down from $31.5 million at December 31, 1995.
LOAN REVIEW. The Bank has a formalized loan review policy, providing for
detailed post-closing reviews for all loans over $150,000 and a random sampling
of loans under $150,000. After review, reports are made to the mortgage and
loan officers and the Board of Directors. Classification determination is
presently the responsibility of the Asset Classification Committee. See "-
Classification of Assets." The purpose of these procedures is to enhance the
Bank's ability to properly document the loans it originates and to improve the
performance of such loans.
LENDING AUTHORITY. The Bank's Executive Committee has the authority to
approve loans up to $300,000. All loans in excess of $300,000 must be approved
by the Bank's Board of Directors. The Bank's Vice President and Loan Officer
has the authority to approve consumer and equity loans of up to $40,000.
LOAN SERVICING. The Bank originates all of the loans that it has sold and
services for other investors. Pamrapo receives fees for these servicing
activities, which include collecting and remitting loan payments, inspecting the
properties and making certain insurance and tax payments on behalf of the
borrowers. At December 31, 1996 the Bank was servicing $6.2 million of loans
for others. There were no new loans sold in 1996 which required servicing .
LOAN ORIGINATION FEES AND OTHER FEES. Loan origination fees and certain
related direct loan origination costs are deferred and the resulting net amount
is amortized over the life of the related loan as an adjustment to the yield of
such loans. In addition, commitment fees are required to be offset against
related direct costs and the resulting net amount generally recognized over the
life of the related loans as an adjustment of yield or if the commitment expires
unexercised, recognized upon expiration of the commitment. The Bank had $2.2
million in deferred origination fees and discounts at December 31, 1996.
NON-PERFORMING ASSETS
When a borrower fails to make a required payment by the fifteenth day of the
month in which the payment is due, the Bank sends a late notice advising the
borrower that the payment has not been received. In most cases delinquencies
are cured promptly; however, if a loan has been delinquent for more than 60
days, the Bank reviews the loan status more closely and, where appropriate,
appraises the condition of the property and the financial circumstances of the
borrower. Based upon the results of any such investigation, the Bank (1) may
accept a repayment program for the arrearage from the borrower; (2) may seek
evidence, in the form of a listing contract, of efforts by the borrower to sell
the property if the borrower has stated that he is attempting to sell; (3) may
request a deed in lieu of foreclosure or (4) generally will initiate foreclosure
proceedings when a loan payment is delinquent for more than three monthly
installments.
10
<PAGE>
The following table sets forth information regarding non-accrual loans,
loans which are 90 days or more delinquent but on which the Bank is accruing
interest and other real estate owned held by the Bank at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
ONE- TO FOUR-FAMILY
RESIDENTIAL REAL ESTATE
LOANS:
Non-accrual loans............ $ 3,936 $ 4,430 $ 5,122 $ 5,099 $ 4,532
Accruing loans 90 days
overdue..................... 4,642 4,136 2,928 2,326 2,993
------- ------- ------- ------- -------
Total...................... 8,578 8,566 8,050 7,425 7,525
------- ------- ------- ------- -------
MULTI-FAMILY RESIDENTIAL AND
COMMERCIAL REAL ESTATE LOANS:
Non-accrual loans............ 1,505 2,472 2,905 2,014 1,881
Accruing loans 90 days
overdue..................... 1,135 1,208 642 890 542
------- ------- ------- ------- -------
Total...................... 2,640 3,680 3,547 2,904 2,423
------- ------- ------- ------- -------
CONSTRUCTION LOANS:(1)
Non-accrual loans............ 1,923 1,331 686 237 237
Accruing loans 90 days
overdue..................... -- 13 -- -- --
------- ------- ------- ------- -------
Total...................... 1,923 1,344 686 237 237
------- ------- ------- ------- -------
CONSUMER LOANS:
Non-accrual loans............ 586 567 512 274 277
Accruing loans 90 days
overdue..................... 125 108 33 23 30
------- ------- ------- ------- -------
Total...................... 711 675 545 297 307
------- ------- ------- ------- -------
TOTAL NON-PERFORMING LOANS:
Non-accrual loans............ 7,950 8,800 9,225 7,624 6,927
Accruing loans 90 days
overdue..................... 5,902 5,465 3,603 3,239 3,565
------- ------- ------- ------- -------
Total...................... $13,852 $14,265 $12,828 $10,863 $10,492
======= ======= ======= ======= =======
Total foreclosed real
estate, net of related
reserves.................. $ 1,182 $ 831 $ 1,118 $ 1,467 $ 1,996
======= ======= ======= ======= =======
Total non-performing loans
and foreclosed real estate
to total assets........... 3.76% 3.83% 3.63% 3.32% 3.44%
======= ======= ======= ======= =======
</TABLE>
____________________
(1) Includes acquisition and development loans.
At December 31, 1994, 1995, and 1996 nonaccrual loans for which interest has
been discontinued totaled approximately $9.2 million, $7.6 million, and $6.9
million, respectively. During the years ended December 31, 1994, 1995 and 1996,
the Bank recognized interest income of approximately $451,000, $260,000 and
$172,000, respectively, on these loans. Interest income that would have been
recorded, had the loans been on the accrual status, would have amounted to
approximately $934,000, $745,000 and $665,000 for the years ended December 31,
1994, 1995 and 1996, respectively. The Bank is not committed to lend additional
funds to the borrowers whose loans have been placed on nonaccrual status.
11
<PAGE>
DELINQUENT LOANS. At December 31, 1994, 1995 and 1996, respectively,
delinquencies in the Bank's portfolio were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 AT DECEMBER 31, 1995
------------------------------------------ -----------------------------------------
60 - 89 DAYS 90 DAYS OR MORE 60 - 89 DAYS 90 DAYS OR MORE
------------------ ------------------ ------------------ ------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF BALANCE OF BALANCE OF BALANCE
LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS
------ --------- ------ --------- ------ --------- ------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Delinquent loans........... 42 $2,635 165 $12,828 56 $2,286 153 $10,863
As a percent of total
gross loans............... 1.15% 5.58% 1.02% 4.85%
<CAPTION>
At December 31, 1996
----------------------------------------
60 - 89 Days 90 Days or more
----------------------------------------
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
------ --------- ------ ---------
<S> <C> <C> <C> <C>
(In thousands)
Delinquent loans........... 52 $3,660 146 $10,492
As a percent of total
gross loans............... 1.72% 4.93%
</TABLE>
12
<PAGE>
As of December 31, 1996, the Bank had 146 loans which were 90 days or more
past due totaling $10.5 million. The average balance of such loans was
approximately $71,900. Management is of the opinion that the Bank will not incur
any additional substantial losses on such loans, giving consideration to
existing loan loss reserves. Most of the loans are of moderate size; six of the
loans have loan balances greater than $200,000, the largest of which is
$296,000. All loans are within the Bank's lending areas.
The Bank's level of non-performing loans 90 days or more delinquent decreased
from $10.9 million at December 31, 1995 to $10.5 at December 31, 1996. The total
of such loans in the lower risk one-to four-family residential category
increased to $7.5 million or 71.7% of non-performing loans 90 days or more
delinquent at December 31, 1996, when compared with $7.4 million, or 68.4% at
December 31, 1995. Non-performing multi-family residential, commercial real
estate and construction loans, loans normally having greater elements of risk,
decreased from $3.1 million at December 31, 1995, to $2.7 million at December
31, 1996, which represents a decrease of 15.3%. The decrease in non-performing
loans can be attributed to the Bank's greater emphasis on collection efforts.
CLASSIFIED ASSETS. Federal regulations provide for the classification of
loans and other assets such as debt and equity securities considered to be of
lesser quality as "substandard," "doubtful" or "loss" assets. Assets which do
not currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention" by management.
A classification of either substandard or doubtful requires the establishment
of general allowances for loan losses in an amount deemed prudent by management.
Assets classified as "loss" require either a specific allowance for losses equal
to 100% of the amount of the asset so classified or a charge off of such amount.
A savings institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the OTS which
can order the establishment of additional general or specific loss allowances.
The OTS, in conjunction with the other federal banking agencies, recently
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation allowances. Generally, the policy
statement requires that institutions have effective systems and controls to
identify, monitor and address asset quality problems; have analyzed all
significant factors that affect the collectability of the portfolio in a
reasonable manner; and have established acceptable allowance evaluation
processes that meet the objectives set forth in the policy statement.
Management of the Bank has classified $12.3 million of its assets as
substandard and approximately $840,000 as loss based upon its review of the
Bank's loan and foreclosed real estate portfolios. Such review, among other
things, takes into consideration the appraised value of underlying collateral,
economic conditions and paying capacity of the borrowers. However,
13
<PAGE>
the Bank's Asset Classification Committee carefully monitors all of the Bank's
delinquent loans to determine whether or not they should be classified. At a
minimum, the Bank classifies all foreclosed real estate and non-performing loans
90 days or more delinquent as substandard assets. At December 31, 1996, the
allowance for loan losses totaled $2.8 million.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of all loans of which full
collectability may not be reasonably assured, considers among other matters, the
estimated net realizable value of the underlying collateral, economic
conditions, historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan loss allowance.
During the years ended December 31, 1994, 1995 and 1996, gross charge-offs
totaled $911,000, $1.3 million and $638,000, respectively. A majority of the
charge-offs in all three years resulted from the transferring of loans to
foreclosed real estate and charging-off the difference between the carrying
value of the loans and the fair values of the properties securing such loans to
the loan loss allowance.
The following table sets forth the activity of the Bank's allowance for loan
losses at the dates indicated:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1992 1993 1994 1995 1996
----- ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period...... $3,350 $3,100 $4,000 $3,650 $2,725
Provision for loan losses........... 1,933 1,224 495 411 644
Charge-offs:........................
Real estate mortgage loans..... 2,070 290 879 1,008 404
Consumer loans................. 114 35 32 333 234
Recoveries..................... 1 1 66 5 69
------ ------ ------ ------ ------
Net charge-offs..................... 2,183 324 845 1,336 569
------ ------ ------ ------ ------
Balance at end of period............ $3,100 $4,000 $3,650 $2,725 $2,800
------ ====== ====== ====== ======
Ratio of net charge offs during
the period to average loans
receivable during the period..... .99% .15% .38% .61% .27%
Ratio of allowance for loan
losses to total outstanding
loans (gross) at end of period... 1.39% 1.79% 1.59% 1.22% 1.32%
Ratio of allowance for loan losses
to non-performing loans 22.38% 28.04% 28.45% 25.09% 26.69%
</TABLE>
14
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation to the allowance by category is not necessarily indicative of further
losses and does not restrict the use of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- -----------
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans (1).. $2,500 $3,400 $3,050 $2,325 $2,450
Consumer loans.................. 600 600 600 400 350
------ ------ ------ ------ ------
Total allowance................. $3,100 $4,000 $3,650 $2,725 $2,800
====== ====== ====== ====== ======
</TABLE>
- --------------------
(1) Includes equity and second mortgages.
MORTGAGE-BACKED SECURITIES
The Bank has significant investments in mortgage-backed securities and has,
during periods when loan demand was low and the interest yields on alternative
investments was minimal, utilized such investments as an alternative to mortgage
lending. All of the securities in the portfolio were insured or guaranteed by
the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC") and have coupon rates as of December 31, 1996 ranging from 5.50% to
10.00%. At December 31, 1996 the unamortized principal balance of mortgage-
backed securities, both held to maturity and available for sale, totaled $109.5
million or 30.2% of total assets. The carrying value of such securities amounted
to $120.7 million, $112.8 million and $109.8 million at December 31, 1994, 1995
and 1996, respectively, and the fair market value of such securities totaled
approximately $113.0 million, $113.6 million and $109.2 million at December 31,
1994, 1995 and 1996, respectively.
The following table sets forth the contractual maturities of the Bank's gross
mortgage-backed securities portfolio which includes available for sale and held
to maturity at December 31, 1996.
<TABLE>
<CAPTION>
CONTRACTUAL MATURITIES DUE IN YEAR(S) ENDED
DECEMBER 31,
------------------------------------------------------------------
1998- 2000- 2002- 2007- 2017 AND
1997 1999 2001 2006 2016 THEREAFTER TOTAL
--------- -------- -------- -------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities:
Held to maturity.... $ -- $ -- $ 441 $8,914 $83,368 $ 3,599 $ 96,322
Available for sale.. 584 3,060 -- -- -- 9,500 13,144
----- ------ ------ ------ ------- ------- --------
Total.............. $ 584 $3,060 $ 441 $8,914 $83,368 $13,099 $109,466
===== ====== ====== ====== ======= ======= ========
</TABLE>
15
<PAGE>
Mortgage-backed securities are a low risk investment for the Bank. The
Bank's substantial investment in mortgage-backed securities will significantly
enhance the Bank's ability to meet risk based capital requirements as mortgage-
backed securities are assigned a risk rating, generally from 0% to 20%. Based on
historical experience, the Bank believes that the mortgage-backed securities
will be repaid significantly in advance of the stated maturities reflected in
the above table.
INVESTMENT ACTIVITIES
SAIF-insured savings institutions have the authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and savings institutions, certain bankers' acceptances, repurchase agreements
and federal funds. Subject to various restrictions, SAIF-insured savings
institutions may also invest their assets in commercial paper, corporate debt
securities and mutual funds whose assets conform to the investments that a SAIF-
insured savings institution is otherwise authorized to make directly.
The Board of Directors sets the investment policy of the Bank. This policy
dictates that investments will be made based on the safety of the principal,
liquidity requirements of the Bank and the return on the investment and capital
appreciation. The Bank's Chief Executive Officer may make investments up to $5.0
million, subject to ratification by the Bank's Board of Directors.
The Bank's conservative policy does not permit investment in junk bonds or
speculative strategies based upon the rise and fall of interest rates. Pamrapo's
goal, however, has always been to realize the greatest possible return
commensurate with its interest rate risk. Pamrapo has emphasized shorter term
securities for their liquidity to increase sensitivity of its investment
securities to changes in interest rates.
As a member of the FHLB-NY, the Bank is required to maintain liquid assets
at minimum levels which vary from time to time. See "Regulation - Federal Home
Loan Bank System." The Bank's liquid investments primarily include federal
agency securities, overnight deposits and federal funds. The average liquidity
for the month of December 1996 was 9.90%, which exceeded the minimum level of
5.0% prescribed by the OTS.
16
<PAGE>
INVESTMENT PORTFOLIO
The following table sets forth certain information regarding the Bank's
investment portfolio, which includes available for sale securities carried at
fair value and held to maturity, at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------
1994 1995 1996
------------------ ------------------- -------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS:
U.S. Government (including
federal agencies) held to maturity....... $ 1,997 $ 1,870 $ -- $ -- $ -- $ --
U.S. Government (including
federal agencies) available for sale..... 13,042 12,824 12,020 12,136 8,000 8,023
Mutual Funds available for sale........... -- -- -- -- 1,049 1,049
Equity securities available for sale...... 7 23 7 64 7 91
FHLB-NY stock............................. 3,025 3,025 3,073 3,073 2,979 2,979
Net unrealized (loss) gain on available
for sale securities...................... (202) -- 173 -- 107 --
------- ------- ------- ------- ------- -------
Total investment securities.............. $17,869 $17,742 $15,273 $15,273 $12,142 $12,142
======= ======= ======= ======= ======= =======
OTHER INTEREST-EARNING ASSETS:
Overnight deposits........................ $ 1,300 $ 1,300 $ 4,500 $ 4,500 $ 9,000 $ 9,000
Certificates of deposit................... 99 99 99 99 -- --
Federal funds sold........................ 100 100 100 100 100 100
------- ------- ------- ------- ------- -------
Total other interest-earning assets...... $ 1,499 $ 1,499 $ 4,699 $ 4,699 $ 9,100 $ 9,100
======= ======= ======= ======= ======= =======
Total investment portfolio............... $19,368 $19,241 $19,972 $19,972 $21,242 $21,242
======= ======= ======= ======= ======= =======
</TABLE>
As of December 31, 1996, most of the Bank's investment securities were issued
by the U.S. Government and its agencies having a carrying value of $8.0 million,
a weighted average yield of 6.8% and maturities of five years or less.
The Bank has no investments with any one issuer, other than the U.S.
Government and Federal agencies, which exceed ten percent of stockholders'
equity.
17
<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of the Bank's funds for use in
lending and for other general business purposes. In addition to deposits, the
Bank obtains funds from advances from the FHLB-NY and other borrowings.
DEPOSITS. Pamrapo offers a variety of deposit accounts having a wide range of
interest rates and terms. The Bank's deposits consist of regular savings, non-
interest bearing demand, NOW and Super NOW, money market and certificate
accounts. Pamrapo's deposits are obtained primarily from the Hudson County area.
Pamrapo had acquired brokered deposits totaling $5.3 million, at December 31,
1996, as compared to $5.4 million at December 31, 1995. The Bank relies
primarily on customer service and long-standing relationships with customers to
attract and retain deposits. The $1.9 million or .64% increase in total deposits
from $298.9 million at December 31, 1995 to $300.8 million at December 31, 1996
was the result a more competitive interest rate environment.
The flow of deposits is influenced significantly by general economic
conditions, changes in the money market and prevailing interest rates and
competition.
18
<PAGE>
DEPOSIT PORTFOLIO. The following table sets forth the distribution and
weighted average nominal interest rate of the Bank's deposit accounts at the
dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31.
-------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------- ----------------------------- ---------------------------------
WEIGHTED WEIGHTED WEIGHTED
% OF AVERAGE % OF AVERAGE % OF AVERAGE
TOTAL NOMINAL TOTAL NOMINAL TOTAL NOMINAL
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
---------- -------- -------- -------- --------- -------- --------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook and club accounts........ $127,968 41.83% 2.74% $113,072 37.83% 2.74% $116,712 38.80% 2.74%
0.00% demand...................... 10,097 3.30 0.00 9,789 3.27 0.00 8,320 2.76 0.00
NOW............................... 16,497 5.39 2.50 17,748 5.94 2.50 17,207 5.72 2.50
Super NOW......................... 171 .06 2.50 221 .07 2.50 179 .06 2.50
Money market demand............... 24,482 8.00 2.70 22,773 7.62 2.69 22,152 7.37 2.98
-------- ------ -------- ------ -------- ------
Total passbook, club, NOW, and
money market accounts.......... 179,215 58.58 2.56 163,603 54.73 2.54 164,570 54.71 2.60
-------- ------ -------- ------ -------- ------
Certificate accounts:
91-day money market.............. 1,571 .51 3.75 979 .33 4.34 1,297 .43 4.51
26-week money market............. 45,356 14.83 3.87 56,296 18.83 4.83 36,161 12.02 4.69
12- to 30-month money market..... 32,491 10.62 3.91 33,769 11.30 5.16 55,071 18.31 5.04
30- to 48-month money market..... 7,441 2.43 5.11 7,849 2.63 5.44 8,551 2.84 5.65
IRA and KEOGH.................... 33,638 11.00 4.24 30,272 10.13 4.91 28,829 9.59 4.92
Negotiated rate.................. 6,198 2.03 5.48 6,133 2.05 6.08 6,306 2.10 6.00
-------- ------ -------- ------ -------- ------
Total certificates.............. 126,695 41.42 4.13 135,298 45.27 5.03 136,215 45.29 5.02
-------- ------ -------- ------ -------- ------
Total deposits.................. $305,910 100.00% 3.21% $298,901 100.00% 3.67% $300,785 100.00% 3.69%
======== ====== ===== ======== ====== ===== ======== ====== ====
</TABLE>
19
<PAGE>
The following table sets forth the deposit activity of the Bank for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
----------- --------- -------
(In thousands)
<S> <C> <C> <C>
Deposits (less than) withdrawals...... $(31,673) $(17,759) $(9,291)
Interest credited..................... 10,030 10,750 11,175
-------- -------- -------
Net (decrease) increase in deposits.. $(21,643) $ (7,009) $ 1,884
======== ======== =======
</TABLE>
The following table sets forth, by various rate categories, the amount of
certificate accounts outstanding as of the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996,
AT DECEMBER 31, MATURING IN
------------------------------ ------------------------------------------
ONE YEAR TWO THREE GREATER THAN
1994 1995 1996 OR LESS YEARS YEARS THREE YEARS
-------- -------- -------- -------- ------- ------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
CERTIFICATE ACCOUNTS:
2.99% or less.......... $ 649 $ 613 $ 60 $ 60 $ -- $ -- $ --
3.00% to 4.99%......... 105,357 71,416 82,499 75,583 5,736 140 1,040
5.00% to 5.99%......... 13,787 41,615 45,518 33,948 8,665 1,817 1,088
6.00% to 6.99%......... 5,430 20,186 7,302 3,072 1,334 1,011 1,885
7.00% to 7.99%......... 452 1,308 815 -- 7 119 689
8.00% to 8.99%......... 1,020 141 6 -- 6 -- --
9.00% to 9.99%......... -- 19 15 -- -- 15 --
-------- -------- -------- -------- ------- ------ ------
Total............. $126,695 $135,298 $136,215 $112,663 $15,748 $3,102 $4,702
======== ======== ======== ======== ======= ====== ======
</TABLE>
20
<PAGE>
At December 31, 1996, the Bank had outstanding $20.0 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(In thousands)
<S> <C>
Three months or less............................. $ 5,237
Over three through six months.................... 5,753
Over six through 12 months....................... 5,807
Over 12 months................................... 3,237
-------
Total.......................................... $20,034
=======
</TABLE>
BORROWINGS. Although deposits are the Bank's primary source of funds, the
Bank utilizes borrowings when they are a less costly source of funds or can be
invested at a positive rate of return.
Pamrapo obtains advances from the FHLB-NY upon the security of its capital
stock of the FHLB-NY and certain of its mortgage loans and mortgage-backed
securities. Such advances are made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. As
of December 31, 1996, outstanding advances from the FHLB-NY amounted to $3.5
million.
The following table sets forth certain information regarding FHLB-NY
advances at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1994 1995 1996
-------------------------
(In thousands)
<S> <C> <C> <C>
FIXED-RATE ADVANCES FROM THE FHLB-NY:
4.03% due 1995........................ $ 3,000 $ -- $ --
5.93% due 1995........................ 5,000 -- --
6.60% due 1995........................ 5,000 -- --
6.45% due 1996........................ -- 3,000 --
6.63% due 1996........................ 4,000 4,000 --
6.47% due 1999........................ -- -- 3,000
5.10% due 2001........................ 243 243 243
4.62% due 2003........................ 340 340 340
------- ------ ------
Total advances from the FHLB-NY.... $17,583 $7,583 $3,583
======= ====== ======
</TABLE>
21
<PAGE>
The Bank obtained a mortgage loan of $325,000 in connection with the purchase
of premises. The mortgage loan carries an interest rate of 8% and is amortized
over a 12 year term. The unpaid mortgage loan balance at December 31, 1996
amounted to $293,094.
See Note 10 to the Consolidated Financial Statement, for the fiscal year ended
December 31, 1996, contained in the 1996 Annual Report to Shareholders attached
hereto as Exhibit 13 for a discussion of the loan to the Employee Stock
Ownership Plan.
COMPETITION
Pamrapo has substantial competition for both loans and deposits. The New York
City metropolitan area has a high density of financial institutions, many of
which are significantly larger and have substantially greater financial
resources than the Bank, and all of which are competitors of the Bank to varying
degrees. The Bank faces significant competition both in making mortgage loans
and in attracting deposits. The Bank's competition for loans comes principally
from savings and loan associations, savings banks, mortgage banking companies,
insurance companies, commercial banks and other institutional lenders. Its most
direct competition for deposits has historically come from savings and loan
associations, savings banks, commercial banks, credit unions and other financial
institutions. The Bank faces additional competition for deposits from short-
term money market funds and other corporate and government securities funds.
The Bank faces increased competition among financial institutions for deposits.
Competition also may increase as a result of the continuing reduction in the
effective restrictions on the interstate operations of financial institutions
and legislation authorizing the acquisition of thrifts by Banks.
The Bank competes for loans principally through the interest rates and loan
fees it charges and the efficiency and quality of services it provides borrowers
and real estate brokers. It competes for deposits through pricing, service and
by offering a variety of deposit accounts. New powers for thrift institutions
provided by New Jersey and federal legislation enacted in recent years have
resulted in increased competition between savings banks and other financial
institutions for both deposits and loans. Management believes that
implementation of new powers set forth in such recent legislation is expected to
intensify this competition.
SUBSIDIARIES
Pamrapo is generally permitted under New Jersey law and the regulations of the
Commissioner of the New Jersey Department of Banking (the "Commissioner") to
invest an amount equal to 3% of its assets in subsidiary service corporations.
As of December 31, 1996, Pamrapo had $1.6 million, or .44%, of its assets
invested in Pamrapo Service Corporation (the "Corporation"), a wholly owned
subsidiary of the Bank. In the past, the Corporation has entered into real
estate joint ventures for the principal purpose of land acquisition and
development. However, the Corporation has disposed of all such real estate
joint ventures. Currently, the Corporation's only investments are in bank
premises and real estate held for investment.
22
<PAGE>
Under OTS regulation, investments in and loans to subsidiaries not engaged in
activities permissible to national banks, such as the real estate investment
activities previously entered into by the Bank, generally are required to be
deducted from capital. Although the Bank will continue to consider joint
venture opportunities, it will do so with the effects of the OTS regulations in
mind. The Bank currently has no plans to enter into any joint ventures.
YIELDS EARNED AND RATES PAID
The Bank's earnings depend primarily on its net interest income. Net interest
income is affected by (i) the volume of interest-earning assets and interest-
bearing liabilities, (ii) rates of interest earned on interest-earning assets
and rates paid on interest-bearing liabilities and (iii) the difference
("interest rate spread") between rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
A large portion of the Bank's real estate loans are long-term, fixed-rate
loans. Accordingly, the average yield recognized by the Bank on its total loan
portfolio changes slowly and generally does not keep pace with changes in
interest rates on deposit accounts and borrowings. At December 31, 1996,
approximately 95.8% of the Bank's gross mortgage loan portfolio, excluding
mortgage-backed securities, consisted of fixed-rate mortgage loans with original
terms consisting primarily of 15 to 30 years. Accordingly, when interest rates
rise, the Bank's yield on its loan portfolio increases at a slower pace than the
rate by which its cost of funds increases, which may adversely impact the Bank's
interest rate spread.
The following tables set forth for the periods indicated information regarding
the average balances of interest-earning assets and interest-bearing
liabilities, the dollar amount of interest income earned on such assets and the
resultant yields, the dollar amount of interest expense paid on such liabilities
and the resultant costs. The tables also reflect the interest rate spread for
such periods, the net yield on interest-earning assets (i.e., net interest
income as a percentage of average interest-earning assets) and the ratio of
average interest-earning assets to average interest-bearing liabilities.
Average balances are based on month-end amounts.
23
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1994 1995 1996
--------------------------- ----------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ------- ------- -------- -------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans(1)............................. $219,697 $20,368 9.27% $220,001 $20,445 9.29% $213,122 $19,191 9.00%
Mortgage-backed securities........... 126,147 8,464 6.71 115,803 7,696 6.65 108,500 7,324 6.75
Investments.......................... 18,039 1,143 6.34 11,195 779 6.96 11,725 906 7.73
Other interest-earning assets........ 10,140 491 4.84 8,332 651 7.81 12,599 614 4.87
-------- ------- -------- ------- -------- -------
Total interest-earning assets....... 374,023 30,466 8.15 355,331 29,571 8.32 $345,946 28,035 8.10
-------- ------- -------- ------- -------- -------
NON-INTEREST-EARNING ASSETS........... 20,504 21,167 21,301
-------- -------- --------
Total assets(1)..................... $394,527 $376,498 $367,247
======== ======== ========
INTEREST-BEARING LIABILITIES:
Passbook and club account............ $138,335 $ 3,835 2.77 120,209 3,316 2.76 114,939 3,166 2.75
NOW and money market accounts........ 42,090 1,198 2.85 37,645 1,076 2.86 33,481 1,079 3.22
Certificates of deposits............. 129,727 4,976 3.84 131,520 6,341 4.82 142,551 6,930 4.86
Advances and other borrowings........ 12,476 617 4.95 11,679 723 6.19 3,369 206 6.11
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities.. 322,628 10,626 3.29 301,053 11,456 3.81 294,340 11,381 3.87
-------- ------- -------- ------- -------- -------
NON-INTEREST-BEARING LIABILITIES:
Non-interest-bearing demand accounts. 10,620 $ 13,114 11,004
Other................................ 7,823 4,366 5,606
-------- -------- --------
Total non-interest-bearing demand
liabilities......................... 18,443 17,480 16,610
-------- -------- --------
Total liabilities................... 341,071 318,533 310,950
Stockholders' equity.................. 53,456 57,965 56,297
-------- -------- --------
Total liabilities and stockholders'
equity......................... $394,527 $376,498 $367,247
======== ======== ========
Net interest income/interest rate
spread............................... $19,840 4.86% $18,115 4.51% $16,654 4.23%
Net interest-earning assets/net yield ======= ==== ======= ==== ======= ====
on interest-earning assets........... $51,395 5.30% $54,278 5.10% $51,606 4.81%
======= ===== ======= ===== ======= ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities......................... 1.16x 1.18x 1.17x
======== ======== ========
</TABLE>
_____________________________
(1) Non-accruing loans are part of the average balances of loans outstanding.
24
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. During a period of rising
interest rates, a negative gap would tend to adversely affect net interest
income while a positive gap would tend to result in an increase in net interest
income. During a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income while a positive gap would tend
to adversely affect net interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1996, which are
expected to reprice or mature in each of the future time periods shown. Except
as stated below, the amount of assets and liabilities shown which reprice or
mature during a particular period were determined in accordance with the
contractual terms of the asset or liability. Loans and mortgage-backed
securities that have adjustable rates are shown as being due in the period
during which the interest rates are next subject to change. The Bank has
assumed that its passbook savings and club accounts which totaled $116.7 million
at December 31, 1996, are withdrawn at the following rates, 17.00%, 31.11%,
29.44%, 52.96%, 77.87% and 100.00% on the cumulative declining balance of such
accounts during the periods shown. The Bank has further assumed that its money
market accounts which totaled $22.1 million at December 31, 1996, are withdrawn
at the following rates, 79.00%, 52.39%, 52.39%, 84.36%, 97.62% and 100.00% on
the cumulative declining balance of such accounts during the periods shown.
Additionally, the Bank has assumed that its NOW and Super NOW accounts which
totaled $17.4 million at December 31, 1996, are withdrawn at the following
rates, 37.00%, 53.76%, 31.11%, 60.62%, 84.47% and 100.00% on the cumulative
declining balance of such accounts during the periods shown.
25
<PAGE>
<TABLE>
<CAPTION>
MORE THAN MORE THAN MORE THAN MORE THAN
1 YEAR 1 YEAR TO 3 YEARS TO 5 YEARS TO 10 YEARS TO MORE THAN
OR LESS 3 YEARS 5 YEARS 10 YEARS 20 YEARS 20 YEARS TOTAL
--------- ---------- ----------- ---------- ----------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans........................................ $ 3,429 $ 2,731 $ 7,038 $ 45,851 $114,179 $39,594 $212,822
Mortgage-backed securities(1)................ 584 3,060 441 8,914 83,368 13,099 109,466
Investments(1)(2)............................ 5,058 2,000 998 -- 1,000 -- 9,056
Other interest-earning assets(3)............. 12,079 -- -- -- -- -- 12,079
--------- --------- --------- --------- -------- ------- --------
Total interest-earning assets............... 21,150 7,791 8,477 54,765 198,547 52,693 343,423
--------- --------- --------- --------- -------- ------- --------
INTEREST-BEARING LIABILITIES:
NOW and Super NOW accounts(4)................ 6,433 5,889 1,576 2,115 1,161 213 17,387
Money market accounts........................ 17,500 2,437 1,160 890 161 4 22,152
Passbook and club accounts................... 19,841 30,137 19,647 24,938 17,248 4,901 116,712
Certificate accounts......................... 112,663 18,850 4,322 380 -- -- 136,215
Advances and other borrowings................ -- 3,000 243 340 293 -- 3,876
--------- --------- --------- --------- -------- ------- --------
Total interest-bearing liabilities.......... 156,437 60,313 26,948 28,663 18,863 5,118 296,342
--------- --------- --------- --------- -------- ------- --------
Interest sensitivity gap per period............ $(135,287) $ (52,522) $ (18,471) $ 26,102 $179,684 $47,575 $ 47,081
========= ========= ========= ========= ======== ======= ========
Cumulative interest sensitivity gap............ $(135,287) $(187,809) $(206,280) $(180,178) $ (494) $47,081
========= ========= ========= ========= ======== =======
Cumulative gap as a percent of total assets.... (37.28)% (51.75)% (56.84)% (49.65)% (.14)% 12.97%
========= ========= ========= ========= ======== =======
Cumulative interest-sensitive assets as
a percent of interest-sensitive liabilities.. 13.52% 13.35% 15.35% 33.85% 99.83% 115.89%
========= ========= ========= ========= ======== =======
</TABLE>
- -------------------------------------
(1) Includes available for sale securities.
(2) Includes marketable equity securities which have no stated maturity.
(3) Includes FHLB-NY common stock.
(4) Excluding non-interest bearing demand accounts.
26
<PAGE>
RATE/VOLUME ANALYSIS
Changes in net interest income are attributable to three factors: (i) a
change in volume or amount of an interest-earning asset or interest-bearing
liability, (ii) a change in interest rates or (iii) a change caused by a
combination of changes in volume and interest rate. The table below sets forth
certain information regarding changes in interest income and interest expense of
the Bank for the periods indicated, reflecting the extent to which such changes
are attributable to changes in volume and changes in rate. The amount
attributable to a change in volume or amount is calculated by multiplying the
average interest rate for the prior period by the increase (decrease) in the
average balance of the related asset or liability. The amount attributable to a
change in rate is calculated by multiplying the increase (decrease) in the
average interest rate from the prior period by the average balance of the
related asset or liability for the prior period. The rate/volume change
represents a change in rate multiplied by a change in volume and is allocated
proportionately to volume and rate changes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1995 v. 1994 1996 v. 1995
------------------------------------ ---------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
------------------------------------ ---------------------------------------
VOLUME RATE NET VOLUME RATE NET
-------- ------ ----- -------- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans............................. $ 30 $ 47 $ 77 $(627) $(627) $(1,254)
Mortgage-backed securities........ (691) (77) (768) (488) 115 (373)
Investments....................... (467) 103 (364) 38 89 127
Other interest-earning assets..... (98) 258 160 261 (298) (37)
------- ------- ------- ----- ----- -------
Total interest-earning assets.. (1,226) 331 (895) (816) (721) (1,537)
------- ------- ------- ----- ----- -------
Interest expense:
Passbook and club accounts........ (505) (14) (519) (139) (11) (150)
NOW and money market
accounts.......................... (126) 4 (122) (119) 121 2
Certificates of deposit............. 70 1,295 1,365 536 53 589
Advances and other borrowings (41) 147 106 (509) (8) (517)
------- ------- ------- ----- ----- -------
Total interest-bearing
liabilities...................... (602) 1,432 830 (231) 155 (76)
------- ------- ------- ----- ----- -------
Net change in net interest income... $ (624) $(1,101) $(1,725) $(585) $(876) $(1,461)
======= ======= ======= ===== ===== =======
</TABLE>
27
<PAGE>
REGULATION AND SUPERVISION
GENERAL
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA"). In addition, the
activities of savings institutions, such as the Bank, are governed by the HOLA
and the Federal Deposit Insurance Act ("FDI Act").
The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer.
The Bank is a member of the Federal Home Loan Bank ("FHLB") System and its
deposit accounts are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") managed by the FDIC. The Bank must file reports with
the OTS and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other savings
institutions. The OTS and/or the FDIC conduct periodic examinations to test the
Bank's safety and soundness and compliance with various regulatory requirements.
This regulation and supervision establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulatory requirements and policies, whether by the OTS, the FDIC or the
Congress, could have a material adverse impact on the Company, the Bank and
their operations. Certain of the regulatory requirements applicable to the Bank
and to the Company are referred to below or elsewhere herein. The description
of statutory provisions and regulations applicable to savings institutions and
their holding companies set forth in this Form 10-K does not purport to be a
complete description of such statutes and regulations and their effects on the
Bank and the Company.
HOLDING COMPANY REGULATION
The Company is a nondiversified unitary savings and loan holding company
within the meaning of the HOLA. As a unitary savings and loan holding company,
the Company generally is not restricted under existing laws as to the types of
business activities in which it may engage, provided that the Bank continues to
be a qualified thrift lender ("QTL"). See "Federal Savings Institution
Regulation - QTL Test." Upon any non-supervisory acquisition by the Company of
another savings institution or savings bank that meets the QTL test and is
deemed to be a savings institution by the OTS, the Company would become a
multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8)
28
<PAGE>
of the Bank Holding Company Act ("BHC Act"), subject to the prior approval of
the OTS, and certain activities authorized by OTS regulation.
The HOLA prohibits a savings and loan holding company, directly or indirectly,
or through one or more subsidiaries, from acquiring more than 5% of the voting
stock of another savings institution or holding company thereof, without prior
written approval of the OTS; acquiring or retaining, with certain exceptions,
more than 5% of a nonsubsidiary company engaged in activities other than those
permitted by the HOLA; or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
funds, the convenience and needs of the community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions as described below. The Bank must notify the OTS 30 days
before declaring any dividend to the Company. In addition, the financial impact
of a holding company on its subsidiary institution is a matter that is evaluated
by the OTS and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
FEDERAL SAVINGS INSTITUTION REGULATION
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core) capital ratio and an 8% risk-based capital ratio.
In addition, the prompt corrective action standards discussed below also
establish, in effect, a minimum 2% tangible capital standard, a 4% leverage
(core) capital ratio (3% for institutions receiving the highest rating on the
CAMEL financial institution rating system), and, together with the risk-based
capital standard itself, a 4% Tier I risk-based capital standard. Core capital
is defined as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain purchased mortgage servicing rights and credit card relationships.
The OTS regulations also require that, in meeting the tangible, leverage (core)
and risk-based capital standards, institutions must generally deduct investments
in and loans to subsidiaries engaged in activities not permissible for a
national bank.
29
<PAGE>
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of 4% and 8%, respectively.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%,
as assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset. The components of Tier I (core) capital are
equivalent to those discussed earlier. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and the allowance for loan and lease losses limited to a maximum
of 1.25% of risk-weighted assets. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The OTS regulatory capital requirements also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings institution's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets. The Director of the OTS may waive or defer a savings
institution's interest rate risk component on a case-by-case basis. A savings
institution with assets of less than $300 million and risk-based capital ratios
in excess of 12% is not subject to the interest rate risk component, unless the
OTS determines otherwise. For the present time, the OTS has deferred
implementation of the interest rate risk component. At December 31, 1995, the
Bank met each of its capital requirements, in each case on a fully phased-in
basis and it is anticipated that the Bank will not be subject to the interest
rate risk component.
<TABLE>
<CAPTION>
CAPITAL
EXCESS ----------------------
ACTUAL REQUIRED (DEFICIENCY) ACTUAL REQUIRED
CAPITAL CAPITAL AMOUNT PERCENT PERCENT
------- -------- ------------ ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible..... $45,440 $ 5,412 $40,028 12.59% 1.50%
Core
(Leverage)... $45,440 $10,824 $34,616 12.59% 3.00%
Risk-based... $47,400 $14,389 $33,011 26.35% 8.00%
</TABLE>
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization.
30
<PAGE>
Generally, a savings institution is considered "well capitalized" if its ratio
of total capital to risk-weighted assets is at least 10%, its ratio of Tier I
(core) capital to risk-weighted assets is at least 6%, its ratio of core capital
to total assets is at least 5%, and it is not subject to any order or directive
by the OTS to meet a specific capital level. A savings institution generally is
considered "adequately capitalized" if its ratio of total capital to risk-
weighted assets is at least 8%, its ratio of Tier I (core) capital to risk-
weighted assets is at least 4%, and its ratio of core capital to total assets is
at least 4% (3% if the institution receives the highest CAMEL rating). A
savings institution that has a ratio of total capital to risk weighted assets of
less than 8%, a ratio of Tier I (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the banking regulator is required to appoint a receiver or
conservator for an institution that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
OTS within 45 days of the date a savings institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS. Deposits of the Bank are presently
insured by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"), (the
deposit insurance fund that covers most commercial bank deposits), are
statutorily required to be recapitalized to a 1.25% of insured reserve deposits
ratio. Until recently, members of the SAIF and BIF were paying average deposit
insurance premiums of between 24 and 25 basis points. The BIF met the required
reserve in 1995, whereas the SAIF was not expected to meet or exceed the
required level until 2002 at the earliest. This situation was primarily due to
the statutory requirement that SAIF members make payments on bonds issued in the
late 1980s by the Financing Corporation ("FICO") to recapitalize the predecessor
to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately
adopted a new assessment rate schedule of from 0 to 27 basis points under which
92% of BIF members paid an annual premium of only $2,000. With respect to SAIF
member institutions, the FDIC adopted a final rule retaining the existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it may have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Bank were placed at a substantial competitive disadvantage
to BIF members with respect to pricing of loans and deposits and the ability to
achieve lower operating costs.
31
<PAGE>
On September 30, 1996, the President signed into law the Deposit
Insurance Funds Act of 1996 (the "Funds Act") which, among other things, imposed
a special one-time assessment on SAIF member institutions, including the Bank,
to recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a
special assessment of 65.7 basis points on SAIF assessable deposits held as of
March 31, 1995, payable November 27, 1996 (the "SAIF Special Assessment"). The
SAIF Special Assessment was recognized by the Bank as an expense in the quarter
ended December 31, 1996 and is generally tax deductible. The SAIF Special
Assessment recorded by the Bank amounted to $2.02 million on a pre-tax basis and
$1.30 million on an after-tax basis.
The Funds Act also spreads the obligations for payment of the FICO
bonds across all SAIF and BIF members. Beginning on January 1, 1997, BIF
deposits will be assessed for FICO payment of 1.3 basis points, while SAIF
deposits will pay an estimated 6.5 basis points. Full pro rata sharing of the
FICO payments between BIF and SAIF members will occur on the earlier of January
1, 2000 or the date the BIF and SAIF are merged. The Funds Act specifies that
the BIF and SAIF will be merged on January 1, 1999, provided no savings
associations remain as of that time.
As a result of the Funds Act, the FDIC recently proposed to lower SAIF
assessment to 0 to 27 basis points effective January 1, 1997, a range comparable
to that of BIF members. SAIF members will also continue to make the higher FICO
payments described above. Management cannot predict the level of FDIC insurance
assessments on an on-going basis, whether the savings association charter will
be eliminated or whether the BIF and SAIF will eventually be merged.
The Bank's assessment rate for fiscal 1996 ranged from 6.48 to 23
basis points and the premium paid exclusive of the SAIF Special Assessment for
this period was $662,000. A significant increase in SAIF insurance premiums
would likely have an adverse effect on the operating expenses and results of
operations of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
THRIFT RECHARTERING LEGISLATION. The Funds Act provides that the BIF
and SAIF will merge on January 1, 1999 if there are no more savings associations
as of that date. That legislation also requires that the Department of Treasury
submit a report to Congress by March 31, 1997 that makes recommendations
regarding a common financial institutions charter, including whether the
separate charters for thrifts and banks should be abolished. Various proposals
to eliminate the federal thrift charter, create a uniform financial institutions
charter and abolish the OTS have been introduced in Congress. The bills would
require federal savings institutions to convert to a national bank or some type
of state charter by a specified date (January 1, 1998 in one bill, June 30, 1998
in the other) or they would automatically become national banks. Converted
federal thrifts would generally be required to conform their activities
32
<PAGE>
to those permitted for the charter selected and divestiture of nonconforming
assets would be required over a two year period, subject to two possible one
year extensions. State chartered thrifts would become subject to the same
federal regulation as applies to state commercial banks. Holding companies for
savings institutions would become subject to the same regulation as holding
companies that control commercial banks, with a limited grandfather provision
for unitary savings and loan holding company activities. The Bank is unable to
predict whether such legislation would be enacted, the extent to which the
legislation would restrict or disrupt its operations or whether the BIF and SAIF
funds will eventually merge.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. Generally, savings institutions may not make a loan or extend credit to
a single or related group of borrowers in excess of 15% of its unimpaired
capital and surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral, which is defined to include certain financial instruments and
bullion. At December 31, 1996, the Bank's limit on loans to one borrower was
$6.8 million. At December 31, 1996, the Bank's largest aggregate outstanding
balance of loans to one borrower was $4.1 million.
QTL TEST. The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings and loan association is required to maintain at
least 65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed securities) in at least 9 months out of each
12 month period.
A savings institution that fails the QTL test is subject to certain
operating restrictions and may be required to convert to a bank charter. As of
December 31, 1996, the Bank maintained 88.3% of its portfolio assets in
qualified thrift investments and, therefore, met the QTL test.
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose
limitations upon all capital distributions by savings institutions, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other distributions
charged against capital. The rule establishes three tiers of institutions,
which are based primarily on an institution's capital level. An institution
that exceeds all fully phased-in capital requirements before and after a
proposed capital distribution ("Tier 1 Bank") and has not been advised by the
OTS that it is in need of more than normal supervision, could, after prior
notice but without obtaining approval of the OTS, make capital distributions
during a calendar year equal to the greater of (i) 100% of its net earnings to
date during the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year or (ii) 75% of its net
income for the previous four quarters. Any additional capital distributions
would require prior regulatory approval. In the event the Bank's capital fell
below its regulatory requirements or the OTS notified it that it was in need of
more than normal supervision, the Bank's ability to make capital distributions
could be restricted. In addition, the OTS could prohibit a proposed capital
distribution by any institution, which would otherwise be permitted by the
regulation, if the OTS
33
<PAGE>
determines that such distribution would constitute an unsafe or unsound
practice. In December 1994, the OTS proposed amendments to its capital
distribution regulation that would generally authorize the payment of capital
distributions without OTS approval provided that the payment does not cause the
institution to be undercapitalized within the meaning of the prompt corrective
action regulation. However, institutions in a holding company structure would
still have a prior notice requirement. At December 31, 1996, the Bank was a
Tier 1 Bank.
LIQUIDITY. The Bank is required to maintain an average daily balance
of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 5% but may be changed from
time to time by the OTS to any amount within the range of 4% to 10% depending
upon economic conditions and the savings flows of member institutions. OTS
regulations also require each member savings institution to maintain an average
daily balance of short-term liquid assets at a specified percentage (currently
1%) of the total of its net withdrawable deposit accounts and borrowings payable
in one year or less. Monetary penalties may be imposed for failure to meet
these liquidity requirements. The Bank's liquidity and short-term liquidity
ratios for December 31, 1996 were 9.9% and 4.8% respectively, which exceeded the
applicable requirements. The Bank has never been subject to monetary penalties
for failure to meet its liquidity requirements.
ASSESSMENTS. Savings institutions are required to pay assessments to
the OTS to fund the agency's operations. The general assessments, paid on a
semi-annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest quarterly
thrift financial report. The assessments paid by the Bank for the fiscal year
ended December 31, 1996 totalled $91,000.
BRANCHING. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (e.g., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B generally provides that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies. In addition, savings institutions
are prohibited from lending to any
34
<PAGE>
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors
and 10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder.
Among other things, such loans are required to be made on terms substantially
the same as those offered to unaffiliated individuals and to not involve more
than the normal risk of repayment. Recent legislation created an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. Regulation O also places individual and
aggregate limits on the amount of loans the Bank may make to insiders based, in
part, on the Bank's capital position and requires certain board approval
procedures to be followed.
ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS enforcement action to be taken with respect to a particular
savings institution. If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances. Federal law also
establishes criminal penalties for certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; asset quality; earnings; and
compensation, fees and benefits. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
Guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by the FDI
Act. The final rule establishes deadlines for the submission and review of such
safety and soundness compliance plans when such plans are required.
35
<PAGE>
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $49.3 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement is
3%; and for accounts aggregating greater than $49.3 million, the reserve
requirement is $1.48 million plus 10% (subject to adjustment by the Federal
Reserve Board between 8% and 14%) against that portion of total transaction
accounts in excess of $49.3 million. The first $4.4 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve Board) are
exempted from the reserve requirements. The Bank is in compliance with the
foregoing requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the OTS.
NEW JERSEY LAW
The Bank is chartered under and its basic banking and corporate powers
are provided by New Jersey law. The Commissioner regulates the Bank's internal
business procedures as well as its deposits, lending and investment activities.
The Commissioner must approve changes to the Bank's Certificate of
Incorporation, the establishment or relocation of branch offices and mergers.
In addition, the Commissioner conducts periodic examinations of the Bank and
maintains certain enforcement authority. Certain of the areas regulated by the
Commissioner are not subject to similar regulation by the OTS.
Legislation enacted in New Jersey (the "New Jersey Act") provides that
upon satisfaction of certain triggering conditions, as determined by the
Commissioner, insured institutions or savings and loan holding companies located
in a state which has reciprocal legislation in effect on substantially the same
terms and conditions as stated in the New Jersey Act may acquire, or be acquired
by, New Jersey insured institutions or holding companies on either a regional or
national basis. The New Jersey Act explicitly prohibits interstate branching.
An institution for sale under the New Jersey Department of Banking's emergency
power provisions is not subject to these restrictions.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Bank report their income on a
consolidated basis and the accrual method of accounting, and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary
and does not purport to be a comprehensive description of the tax rules
applicable to the Bank or the
36
<PAGE>
Company. The Bank has not been audited by the IRS within the last seven years.
For its 1996 taxable year, the Bank is subject to a maximum federal income tax
rate of 34%.
BAD DEBT RESERVES. For fiscal years beginning prior to December 31,
1995, thrift institutions which qualified under certain definitional tests and
other conditions of the Internal Revenue Code of 1986 (the "Code") were
permitted to use certain favorable provisions to calculate their deductions from
taxable income for annual additions to their bad debt reserve. A reserve could
be established for bad debts on qualifying real property loans (generally
secured by interests in real property improved or to be improved) under (i) the
Percentage of Taxable Income Method (the "PTI Method") or (ii) the Experience
Method. The reserve for nonqualifying loans was computed using the Experience
Method.
The Small Business Job Protection Act of 1996 (the "1996 Act"), which
was enacted on August 20, 1996, requires savings institutions to recapture
(i.e., take into income) certain portions of their accumulated bad debt
reserves. The 1996 Act repeals the reserve method of accounting for bad debts
effective for tax years beginning after 1995. Thrift institutions that would be
treated as small banks are allowed to utilize the Experience Method applicable
to such institutions, while thrift institutions that are treated as large banks
(those generally exceeding $500 million in assets) are required to use only the
specific charge-off method. Thus, the PTI Method of accounting for bad debts is
no longer available for any financial institution.
A thrift institution required to change its method of computing
reserves for bad debts will treat such change as a change in method of
accounting, initiated by the taxpayer, and having been made with the consent of
the IRS. Any Section 481(a) adjustment required to be taken into income with
respect to such change generally will be taken into income ratably over a six-
taxable year period, beginning with the first taxable year beginning after 1995,
subject to the residential loan requirement.
Under the residential loan requirement provision, the recapture
required by the 1996 Act will be suspended for each of two successive taxable
years, beginning with the Bank's current taxable year, in which the Bank
originates a minimum of certain residential loans based upon the average of the
principal amounts of such loans made by the Bank during its six taxable years
preceding its current taxable year.
Under the 1996 Act, for its current and future taxable years, the Bank
is not permitted to make additions to its tax bad debt reserves. In addition,
the Bank is required to recapture (i.e., take into income) over a six year
period the excess of the balance of its tax bad debt reserves as of December 31,
1995, other than its supplemental reserve for losses on loans, over the balance
of such reserves as of December 31, 1987. As a result of such recapture, the
Bank will incur an additional tax liability of approximately $150,000 which is
expected to be paid beginning in 1996 over a six year period.
DISTRIBUTIONS. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the
37
<PAGE>
extent thereof, and then from the Bank's supplemental reserve for losses on
loans, to the extent thereof, and an amount based on the amount distributed (but
not in excess of the amount of such reserves) will be included in the Bank's
income. Non-dividend distributions include distributions in excess of the
Bank's current and accumulated earnings and profits, as calculated for federal
income tax purposes, distributions in redemption of stock, and distributions in
partial or complete liquidation. Dividends paid out of the Bank's current or
accumulated earnings and profits will not be so included in the Bank's income.
The amount of additional taxable income triggered by a non-dividend is
an amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Thus, if the Bank makes a non-dividend
distribution to the Company, approximately one and one-half times the amount of
such distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserves.
SAIF RECAPITALIZATION ASSESSMENT. The Funds Act levies a 65.7-cent
fee on every $100 of thrift deposits held on March 31, 1995. For financial
statement purposes, this assessment was reported as an expense for the quarter
ended September 30, 1996. The Funds Act includes a provision which states that
the amount of any special assessment paid to capitalize SAIF under this
legislation is deductible under Section 162 of the Code in the year of payment.
CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code (the
"Code") imposes a tax on alternative minimum taxable income ("AMTI") at a rate
of 20%. The excess of the bad debt deduction using the percentage of taxable
income method over the deduction that would have been allowable under the
experience method is treated as a preference item for purposes of computing the
AMTI. Only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which a corporation's
adjusted current earnings exceeds its AMTI (determined without regard to this
adjustment and prior to reduction for net operating losses). In addition, for
taxable years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of .12% of the excess of AMTI (with certain modifications)
over $2.0 million is imposed on corporations, including the Company and the
Bank, whether or not an Alternative Minimum Tax ("AMT") is paid. The Company
and the Bank do not expect to be subject to the AMT.
DIVIDENDS RECEIVED DEDUCTION. The Company may exclude from its income
100% of dividends received from the Bank as a member of the same affiliated
group of corporations. The corporate dividends received deduction is generally
70% in the case of dividends received from unaffiliated corporations with which
the Company and the Bank will not file a consolidated tax return, except that if
the Company or the Bank own more than 20% of the stock of a corporation
distributing a dividend, 80% of any dividends received may be deducted.
38
<PAGE>
STATE AND LOCAL TAXATION
NEW JERSEY TAXATION. The Bank is taxed under the New Jersey Savings
Institutions Tax Act. The tax is an annual privilege tax imposed at a rate of
3% of the net income of the Bank has reported for federal income tax purposes
with certain modifications. The Company is taxed under the New Jersey
Corporation Business Tax Act. If it meets certain tests, the Company would be
taxed as an investment company at an effective annual rate of approximately
2.25% of New Jersey taxable income. If it fails to meet such test, it will be
taxed at an annual rate of approximately 9% of New Jersey taxable income. As a
Delaware business corporation, the Company will be required to file annual
returns with the Secretary of the State of Delaware and pay an annual Delaware
franchise tax. The Bank's subsidiary, Pamrapo Service Corporation, which is
taxed at an annual rate of 9%, files its own tax return.
PERSONNEL
As of December 31, 1996, the Bank had 80 full-time employees and 44
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employers to be
good.
ITEM 2. PROPERTIES.
- -------------------
The Bank conducts its business through eight branch offices and one
administrative office, all of which are located in Hudson County, New Jersey and
two of which are drive-up facilities. The Bank has automatic teller machines at
six of its eight branch facilities. The following table sets forth information
relating to each of the Bank's offices as of December 31, 1996. The total net
book value of the Bank's premises and equipment at December 31, 1996 was $3.6
million.
39
<PAGE>
<TABLE>
<CAPTION>
YEAR NET
LOCATION OFFICE OPENED BOOK VALUE
- ----------------------------------- ------------- ----------
(In thousands)
<S> <C> <C>
EXECUTIVE OFFICE
591 Avenue C
Bayonne, New Jersey.............. 1985 $ 648
BRANCH OFFICES
611 Avenue C
Bayonne, New Jersey.............. 1984 454
155 Broadway
Bayonne, New Jersey.............. 1973 159
175 Broadway
Bayonne, New Jersey.............. 1985 --(1)
861 Broadway
Bayonne, New Jersey.............. 1962 186
987 Broadway
Bayonne, New Jersey.............. 1977 309
401-403 Washington Street
Hoboken, New Jersey.............. 1990 579
1475 Bergen Boulevard
Fort Lee, New Jersey............. 1990 --(2)
544 Broadway
Bayonne, New Jersey.............. 1995 --(2)
595-597 Avenue C
Bayonne, New Jersey.............. (3) 405
609-611 Avenue C
Bayonne, New Jersey.............. (4) 295
------
Net book value of properties..... 3,035
Furnishings and equipment........ 596
------
Total premises and equipment.. $3,631
======
</TABLE>
- ----------------------
(1) The net book value of the property is included in investment in real
estate.
(2) Leased Property.
(3) To be renovated.
(4) To be used for parking.
40
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
On February 15, 1994, Bank Polska Kasa Opieki, S.A. ("Pekao") filed an action
against the Bank and Chemical Bank ("Chemical") in the United States District
Court for the District of New Jersey. The suit arises out of a $2.0 million
check drawn by Pekao, certified by Chemical, and accepted for deposit at the
Bank. In accepting the check for deposit, the Bank relied both upon
representations made by a local attorney, Donald J. Meliado, Esq. ("Meliado"),
and upon Chemical's certification of the check. Pekao alleges that the
endorsement of the check was fraudulent and resulted in its losing $2.0 million,
plus interest and costs, and that the losses are the responsibility of Chemical
and the Bank.
Chemical filed a cross-claim against the Bank on or about May 5, 1994. On May
11, 1994, the Bank filed an Answer to the Complaint as well as a counterclaim
against Pekao, cross-claim against Chemical and Third-Party Complaint against
Meliado, that deny that the Bank is responsible for any of the losses sustained
by Pekao. In the counterclaim, the Bank alleges that Pekao's own conduct
resulted in the loss and requests that Pekao indemnify the Bank for any losses
sustained by the Bank in the suit. Against Chemical, the cross-claim alleges
that Chemical is responsible to the Bank for any losses sustained as a result of
the certification. The Third-Party Complaint alleges that the Bank relied upon
Meliado's representations concerning the check and requests indemnification and
contribution to the Bank for any losses.
On December 11, 1995, the Court granted the Bank's motion for partial summary
judgment dismissing Pekao's claims against the Bank. On the same date, the
Court also denied Meliado's motion for summary judgment against the Bank. The
Bank's cross-claim against Chemical was dismissed by the Court on February 2,
1995. As a result of these rulings, the only claims remaining are: (i)
Pekao's direct claims against Chemical; (ii) Chemical's cross-claim against the
Bank for indemnification and counsel fees; and (iii) the Bank's claim for
indemnification against Meliado.
Pretrial discovery is ongoing. The Bank is contesting liability, which at
this point could only arise if Pekao succeeds on its claims against Chemical.
In that connection, Chemical has substantial defenses which, if successful,
would result in a judgment in its favor dismissing Pekao's claim against it.
The Bank has also made a demand upon its insurance carrier for reimbursement of
any losses, including all counsel fees, ultimately sustained by the Bank. The
insurance carrier has preliminary denied coverage, but has indicated a
willingness to settle. There is currently pending before the Court cross-
motions for summary judgement both by Chemical and Pekao. It is anticipated
that the motions will be argued in late March, 1997. In the interim, all
parties are exploring settlement as to the litigation. In addition, the Bank is
exploring settlement of the insurance coverage issues. Although the Bank
believes it will ultimately obtain a favorable resolution both as to the
litigation and the insurance coverage issue, both the outcome of the litigation
and the Bank's demand for insurance coverage cannot be predicted at this time.
41
<PAGE>
The Bank is also a party to litigation which arises primarily in the ordinary
course of business. In the opinion of management, the ultimate disposition of
such litigation should not have material effect on the consolidated financial
position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- ------------------------------------------------------------------------------
Information relating to the market for Registrant's common stock and related
stockholder matters appears under Market for Common Stock and Related Matters in
the Registrant's 1996 Annual Report to Stockholders on page 35 and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
- --------------------------------
The selected financial data appears under Selected Consolidated Financial
Condition and Other Data of the Corporation in the Registrant's 1996 Annual
Report to Stockholders on page 34 and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
The above-captioned information appears under Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Registrant's
1996 Annual Report to Stockholders on pages 4 through 10 and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ----------------------------------------------------
The Consolidated Financial Statements and related notes thereto, of Pamrapo
Bancorp, Inc. and its subsidiaries, together with the report thereon by Radics &
Co., LLC appears in the Registrant's 1996 Annual Report to Stockholders on pages
11 through 32 and are incorporated herein by reference.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
Not Applicable.
42
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------------------------------
The information relating to Directors and Executive Officers of the Registrant
is incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 16, 1997 at pages 5 and 6.
ITEM 11. EXECUTIVE COMPENSATION.
- --------------------------------
The information relating to executive compensation is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 16, 1997 at pages 7 through 15 excluding the
Stock Performance Graph and the Compensation Committee Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 16, 1997 at
pages 3, 5 and 6.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The information relating to certain relationships and related transactions is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 16, 1997 at page 16.
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K.
- ---------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of Pamrapo Bancorp, Inc. are
incorporated by reference to the indicated pages of the 1996 Annual
Report to Stockholders.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Financial Condition as of
December 31, 1995 and 1996.................................... 11
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1995 and 1996.............................. 12
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1994, 1995 and 1996.......... 13
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1995 and 1996..................... 14-15
Notes to Consolidated Financial Statements...................... 16-31
Independent Auditors' Report....................................... 32
</TABLE>
The remaining information appearing in the 1996 Annual Report to Stockholders is
not deemed to be filed as part of this report, except as expressly provided
herein.
(2) All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial
statements or the notes thereto.
44
<PAGE>
(3) Exhibits
(a) The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
<S> <C>
3.1 Certificate of Incorporation of Pamrapo Bancorp, Inc.*
3.2 Bylaws of Pamrapo Bancorp, Inc.*
4.0 Stock Certificate of Pamrapo Bancorp, Inc.*
10.1 Employment Agreement between the Bank and William J. Campbell.*
10.2 Employment Agreement between the Company and William J.
Campbell.*
10.3 Special Termination Agreement (Delikat).*
10.4 Special Termination Agreement (Thomas).*
10.5 Special Termination Agreement (Russo).*
10.6 Pamrapo Bank, S.L.A. Employee Stock Ownership Plan and Trust.*
10.8 Management Recognition and Retention Plan and Trust.*
10.9 Incentive Stock Option Plan.*
10.10 Stock Option Plan for Outside Directors.*
10.11 Outside Directors' Consultation and Retirement Plan.*
10.12 Board of Directors' Compensation and Trust Agreement.*
10.13 Standstill Agreement between Pamrapo Bancorp, Inc., and
Roger T. Conlan dated March 12, 1997.**
11.0 Computation of earnings per share (filed herewith)
13.0 Portions of the 1996 Annual Report to Stockholders (filed
herewith).
21.0 Subsidiary information is incorporated herein by reference to
"Part I -Subsidiaries."
23.0 Consent of Auditors (filed herewith).
27.0 Financial Data Schedule (filed herewith)
99.1 Form 11-K (to be filed subsequently).
</TABLE>
- --------------------------
* Incorporated herein by reference to the Form S-1, Registration Statement,
as amended, filed on August 11, 1989, Registration No. 33-30370.
** Incorporated herein by reference to the Form 8-K filed on March 25, 1997.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
PAMRAPO BANCORP, INC.
By: /s/ William J. Campbell
-----------------------
William J. Campbell
President
DATED: March 25, 1997
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ William J. Campbell President, Chief Executive Officer March 25, 1997
- -----------------------
William J. Campbell and Director
/s/ Gary J. Thomas Treasurer/Chief Financial Officer March 25, 1997
- -----------------------
Gary J. Thomas (Principal Financial and Accounting Officer)
/s/ Daniel J. Massarelli Chairman of the Board and Director March 25, 1997
- ------------------------
Daniel J. Massarelli
/s/ John A. Morecraft Vice Chairman of the Board and Director March 25, 1997
- ---------------------
John A. Morecraft
/s/ James J. Kennedy Director March 25, 1997
- --------------------
James J. Kennedy
/s/ Jaime Portela Director March 25, 1997
- -----------------
Dr. Jaime Portela
/s/ Francis J. O'Donnell Director March 25, 1997
- ------------------------
Francis J. O'Donnell
</TABLE>
46
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<PAGE>
EXHIBIT NO. 11 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Net income $2,964,868
Weighted average shares outstanding 3,304,417
Common stock equivalents due to dilutive
effect on stock options 4,123
----------
Total weighted average common shares
and equivalents outstanding 3,308,540
==========
Primary earnings per share $ .90
==========
Total weighted average common shares and
equivalents outstanding for fully diluted
computation 3,308,540
==========
Fully diluted earnings per share $ .90
==========
</TABLE>
<PAGE>
EXHIBIT 13
1996 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
PAMRAPO BANCORP, INC. (NASDAQ/PBCI) IS THE HOLDING COMPANY FOR PAMRAPO SAVINGS
BANK, S.L.A., FOUNDED IN 1886. PAMRAPO IS A COMMUNITY BANK SERVING HUDSON AND
BERGEN COUNTIES THROUGH OFFICES IN BAYONNE, HOBOKEN AND FORT LEE, N.J. FINANCIAL
SERVICES INCLUDE A FULL RANGE OF DEPOSIT, MORTGAGE AND CONSUMER LOAN PRODUCTS,
AS WELL AS ANNUITIES AND MUTUAL FUNDS. TOTAL DEPOSITS AT DECEMBER 31, 1996 WERE
$301 MILLION AND PRIMARILY CONSIST OF FIXED MATURITY (45%), PASSBOOK (39%),
MONEY MARKET (7%), TRANSACTION (6%) AND NON-INTEREST BEARING (3%) DEPOSITS. THE
BANK'S $213 MILLION GROSS LOAN PORTFOLIO CONSISTS ON ONE-TO-FOUR FAMILY \MULTI-
FAMILY RESIDENTIAL MORTGAGE LOANS (72%), CONSTRUCTION AND COMMERCIAL REAL ESTATE
LOANS (11%) AND CONSUMER LOANS (17%). IN ADDITION, THE BANK HAS A PORTFOLIO OF
MORTGAGE-BACKED SECURITIES TOTALLING $110 MILLION.
<TABLE>
<CAPTION>
INDEX
<S> <C>
Financial Highlights....................................................... 1
Letter to Stockholders..................................................... 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 4
Consolidated Statements of Financial Condition............................. 11
Consolidated Statements of Income.......................................... 12
Consolidated Statements of Changes in Stockholders' Equity................. 13
Consolidated Statements of Cash Flows...................................... 14
Notes to Consolidated Financial Statements................................. 16
Independent Auditors' Report............................................... 32
Management Responsibility Statement........................................ 33
Selected Consolidated Financial Condition and
Other Data of the Corporation.............................................. 34
Stockholder Information.................................................... 35
Corporate Information...................................................... 36
</TABLE>
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
1994 1995 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR (In thousands)
Interest income $ 30,466 $ 29,571 $ 28,035
Interest expense 10,626 11,456 11,381
Net interest income 19,840 18,115 16,654
Net income 7,178 5,628 2,965
- ----------------------------------------------------------------------
AVERAGE FOR THE YEAR (In thousands)
Assets $394,527 $376,498 $367,247
Loans receivable 219,697 220,001 213,122
Mortgage-backed securities 126,147 115,803 108,500
Investment securities 18,039 11,195 11,725
Deposits 320,772 302,488 301,975
Stockholders' Equity 53,456 57,965 56,297
- ----------------------------------------------------------------------
SIGNIFICANT PERCENTAGES
Return on Average Assets 1.82% 1.49% 0.81%
Return on Average Equity 13.43% 9.71% 5.27%
Interest Rate Spread 4.86% 4.51% 4.23%
- ----------------------------------------------------------------------
YEAR END (In thousands)
Assets $384,085 $371,365 $362,910
Loans receivable 222,472 218,140 207,405
Securities available for sale 19,471 28,427 22,232
Mortgage-backed securities 114,032 96,565 96,727
Investment securities 2,096 99 --
Deposits 305,910 298,901 300,785
Stockholders' Equity 55,372 59,375 53,509
- ----------------------------------------------------------------------
</TABLE>
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Pamrapo Bancorp, Inc. (the "Company") owns 100% of the issued and outstanding
stock of Pamrapo Savings Bank, SLA (the "Bank"), which is the primary asset of
the Company. The Company's business is conducted principally through the Bank.
BUSINESS OF THE COMPANY
The Bank's principal business has been and continues to be attracting retail
deposits from the general public and investing those deposits, together with
funds generated from operations, primarily in one-to-four family, owner occupied
residential mortgage loans. In addition, in times of low loan demand, the Bank
will invest in mortgage-backed securities to supplement its lending portfolio.
The Bank also invests, to a lesser extent, in multi-family residential mortgage
loans, commercial real estate loans, home equity and second mortgage loans, and
consumer loans.
The earnings of the Bank depend primarily upon the level of net interest income,
which is the difference between the interest earned on assets such as loans,
mortgage-backed securities, investments and other interest-earning assets and
the interest paid on liabilities such as deposits and borrowings. Net interest
income is affected by many factors, including regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit flow.
Net interest income is also affected by the amount, composition and relative
interest rates of the Bank's assets and liabilities and by the repricing of such
assets and liabilities. The Bank is vulnerable to interest rate fluctuations to
the extent that its interest-bearing liabilities mature or reprice more rapidly
than its interest-earning assets. Such asset/liability structure may result in
lower net interest income during periods of rising interest rates and may be
beneficial in times of declining interest rates. The Bank's net income is also
affected by provisions for loan losses, non-interest income, non-interest
expenses and income taxes.
FINANCIAL CONDITION
The Company's consolidated assets at December 31, 1996 totaled $362.9 million,
which represents a decrease of $8.5 million, or 2.29%, when compared to $371.4
million at December 31, 1995.
Investment securities held to maturity of $99,000 at December 31, 1995 matured
during the year ended December 31, 1996. Securities available for sale decreased
$6.2 million, or 21.83%, to $22.2 million at December 31, 1996 when compared
with $28.4 million at December 31, 1995. The decrease during the year ended
December 31, 1996 resulted primarily from proceeds from maturities and calls of
and repayments on securities available for sale amounting to $8.8 million along
with an increase of unrealized loss on such portfolio of $247,000 which offset
purchases of securities available for sale of $3.0 million.
Mortgage-backed securities held to maturity totaled $96.7 million and $96.6
million at December 31, 1996 and 1995, respectively. During the year ended
December 31, 1996, purchases totaled $12.7 million and principal repayments
amounted to $12.5 million.
Net loans amounted to $207.4 million and $218.1 million at December 31, 1996 and
1995, respectively, which represents a decrease of $10.7 million or 4.91%.
During the year ended December 31, 1996, loan principal repayments exceeded loan
originations by $7.7 million due to a lack in loan demand. During the year ended
December 31, 1996, the Bank transferred eighteen mortgage loans totaling $2.2
million to foreclosed real estate. Additionally, the Bank provided $644,000 as a
provision for loan losses during the year ended December 31, 1996. At December
31, 1996 and 1995, loans delinquent ninety days or more totaled $10.5 million or
5.06% of loans receivable and $10.9 million or 4.98% of loans receivable,
respectively.
4
<PAGE>
Foreclosed real estate amounted to $2.0 million and $1.5 million at December 31,
1996 and 1995, respectively. At December 31, 1996, foreclosed real estate
consisted of twenty one properties, of which fourteen were residential, four
were land and three were commercial properties. During the year ended December
31, 1996, thirteen properties with a combined book value of $1.5 million were
sold and another five properties with a combined book value of $317,000 remain
under contract for sale. At December 31, 1995, foreclosed real estate consisted
of sixteen properties, of which nine were residential, six were land and one was
a commercial property. At December 31, 1996 and 1995, non-performing assets
totaled $12.5 million or 3.44% of total assets and $12.4 million or 3.32% of
total assets, respectively.
Other assets amounted to $1.9 million and $640,000 at December 31, 1996 and
1995, respectively. The increase during 1996 was primarily due to an increase in
refundable income taxes of $900,000.
Total deposits at December 31, 1996 increased $1.9 million to $300.8 million
compared to $298.9 million at December 31, 1995.
Advances from the Federal Home Loan Bank of New York ("FHLB-NY") totaled $3.6
million and $7.6 million at December 31, 1996 and 1995, respectively. The
decrease, during the year ended December 31, 1996, in advances from the FHLB-NY
resulted from repayments of advances of $11.0 million offset in part by new
advances of $7.0 million.
Stockholders' equity amounted to $53.5 million and $59.4 million at December 31,
1996 and 1995, respectively. During the years ended December 31, 1996 and 1995,
net income of $3.0 million and $5.6 million, respectively, was recorded and cash
dividends of $3.3 million and $2.4 million, respectively, were paid on the
Company's common stock. The dividend paid during the year ended December 31,
1996 includes a special cash dividend of $0.10 per share, an aggregate of
$345,000, declared on December 19, 1995 by the Board of Directors of the
Company, payable on January 19, 1996 to the Company's shareholders of record on
January 5, 1996. During the year ended December 31, 1996, the Company
repurchased 294,000 shares of its common stock at prices ranging from $18.75 to
$23.00 per share totalling $6.2 million, under the stock repurchase program and
reissued 56,930 shares of its common stock from treasury stock for $328,000 as a
result of the excercise of stock options by directors, officers and employees.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NET INCOME
Net income decreased by $2.6 million, or 47.32%, to $3.0 million during the year
ended December 31, 1996 compared with $5.6 million for the year ended December
31, 1995. The decrease in net income during the 1996 period was primarily from
a charge of $2.0 million to recapitalize the Savings Association Insurance Fund
("the SAIF"). During the year ended December 31, 1996, a one-time special
assessment was levied amounting to 65.7 basis points on SAIF assessable deposits
held as of March 31, 1995. The after-tax charge of $1.3 million reduced net
income for the year ended December 31, 1996 by $.40 per share. In addition, the
results also reflect decreases in total interest income of $1.5 million and in
non-interest income of $86,000, along with increases in non-interest expenses of
$705,000, excluding the aforementioned special assessment and provision for loan
losses of $233,000, which more than offset decreases in total interest expense
of $75,000 and income taxes of $1.8 million.
INTEREST INCOME
Interest income on loans during the year ended December 31, 1996 decreased by
$1.2 million, or 5.88%, to $19.2 million when compared to $20.4 million during
1995. During the years ended December 31, 1996 and 1995, the yield earned on the
loan portfolio was 9.00% and 9.29% respectively. The average balance of loans
outstanding during the years ended December 31, 1996 and 1995, totaled $213.1
million and $220.0 million, respectively.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONT'D
Interest on mortgage-backed securities decreased $373,000, or 4.84%, during the
year ended December 31, 1996 to $7.3 million compared to $7.7 millon for 1995.
During the year ended December 31, 1996, the average balance of mortgage-backed
securities outstanding decreased $7.3 million, or 6.31%. The yield earned on the
mortgage-backed securities portfolio increased six basis points from 6.65% in
1995 to 6.71% in 1996. The decrease in the average balance of mortgage-backed
securities during 1996 resulted primarily from principal repayments which more
than offset purchases of mortgage-backed securities.
Interest earned on investment securities increased by $127,000, or 16.30%, to
$906,000 for the year ended December 31, 1996, when compared to $779,000 for
1995. The increase resulted from an increase of $530,000, or 4.73%, in the
average balance of the investment securities portfolio, which includes U.S.
Government and agency obligations, along with an increase of 77 basis points in
the yield earned on the investment securities portfolio from 6.96% in 1995 to
7.73% in 1996.
Interest on other interest-earning assets decreased $37,000, or 5.68%, to
$614,000 during the year ended December 31, 1996, compared to $651,000 for
1995. Such decrease was attributable to a decrease of 294 basis points in the
yield earned on other interest-earning assets from 7.81% in 1995 to 4.87% in
1996, which more than offset an increase of $4.3 million, or 51.21%, in the
average balance of other interest-earning assets outstanding. Such increase in
the average balance of other interest-earning assets outstanding was primarily a
result of increased levels of interest-bearing deposits in other banks.
INTEREST EXPENSE
Interest on deposits increased $441,000, or 4.11%, to $11.2 million during the
year ended December 31, 1996 compared to $10.7 million for 1995. The increase
during 1996 was attributable to an increase of 13 basis points in the Bank's
average cost of interest-bearing deposits to 3.84% for 1996 from 3.71% for 1995,
which more than offset a decrease of $1.6 million, or .55%, in the average
balance of interest-bearing deposits outstanding. The increase in the Bank's
cost of interest-bearing deposits reflected a trend of higher general market
interest rates paid on deposits.
Interest on advances and other borrowed money decreased $517,000, or 71.51%, to
$206,000 during the year ended December 31, 1996 compared to $723,000 for 1995.
The decrease during 1996 was attributable to a decrease of $8.3 million in the
average balance of advances and other borrowings outstanding, along with a
decrease of eight basis points in the Bank's cost of borrowings to 6.11% for
1996 from 6.19% for 1995.
NET INTEREST INCOME
Net interest income for the year ended December 31, 1996, decreased $1.4
million, or 8.07%, from $18.1 million for 1995 to $16.7 million for 1996. The
Bank's net interest rate spread decreased from 4.51% in 1995 to 4.23% in 1996
and its interest rate margin decreased from 5.10% in 1995 to 4.81% in 1996.
These decreases primarily resulted from a six basis point increase in the cost
of average interest-bearing liabilities from 3.81% in 1995 to 3.87% in 1996,
along with a 22 basis point decrease in the yield on interest-earning assets to
8.10% in 1996 from 8.32% in 1995.
PROVISION FOR LOAN LOSSES
During the years ended December 31, 1996 and 1995, the Bank provided $644,000
and $411,000, respectively, for loan losses. At December 31, 1996 and 1995, the
Bank's loan portfolio included loans totaling $10.5 million and $10.9 million,
respectively, which were delinquent ninety days or more. The Bank maintains an
allowance for loan losses based on
6
<PAGE>
management's evaluation of the risks inherent in its loan portfolio which gives
due consideration to changes in general market conditions and in the nature and
volume of the Bank's loan activity. The allowance for loan losses amounted to
$2.8 million at December 31, 1996, representing 1.32% of total loans and 26.69%
of loans delinquent ninety days or more compared to an allowance of $2.7 million
at December 31, 1995, representing 1.22% of total loans and 25.09% of loans
delinquent ninety days or more. During the years ended December 31, 1996 and
1995, the Bank charged off loans aggregating $638,000 and $1.3 million,
respectively. The Bank monitors its loan portfolio and intends to continue to
provide for loan losses based on its ongoing periodic review of the loan
portfolio and general market conditions.
NON-INTEREST INCOME
Non-interest income decreased by $85,000, or 11.56%, to $650,000 during the year
ended December 31, 1996 as compared to $735,000 for 1995. The decrease in non-
interest income during 1996 resulted primarily from decreases in fees and
service charges of $25,000 and miscellaneous income of $60,000.
NON-INTEREST EXPENSES
Non-interest expenses increased $2.7 million, or 27.83%, to $12.5 million during
the year ended December 31, 1996 compared to $9.8 million for 1995. The increase
during the year ended December 31, 1996 was primarily attributable to a one-time
SAIF assessment of $2.0 million. Non-interest expenses other than a one-time
SAIF assessment of $2.0 million increased $705,000, or 7.19%, in 1996 over the
1995 levels. Salaries and employee benefits, the major component of non-interest
expenses, increased $221,000, or 4.55%, during the year ended December 31, 1996,
while occupancy, equipment, legal, loss on foreclosed real estate and
miscellaneous expenses increased by $104,000, $1,000, $66,000, $80,000 and
$339,000, respectively, which increases were partially offset by decreases in
advertising and federal insurance premium (exclusive of a one-time SAIF
assessment) of $49,000 and $56,000, respectively. Non-interest expenses during
the year ended December 31, 1996 include a non-recurring expense of $300,000
related to the 1996 Annual Meeting of Stockholders.
INCOME TAXES
Income tax expense totaled $1.2 million and $3.0 million during the years ended
December 31, 1996 and 1995, respectively. The decrease in 1996 resulted
primarily from a decrease in pre-tax income of $4.5 million from 1995 and a
reduction of income tax expense of $250,000 resulting from the exercise of non-
statutory stock options.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NET INCOME
Net income decreased by $1.6 million, or 21.60%, to $5.6 million during the year
ended December 31, 1995 compared with $7.2 million for the year ended December
31, 1994. The decrease in net income during the 1995 period was primarily due
to decreases in total interest income of $895,000 and in non-interest income of
$50,000, along with increases in total interest expense of $830,000 and in non-
interest expenses of $691,000, which more than offset decreases in the
provision for loan losses of $84,000 and in income taxes of $833,000.
INTEREST INCOME
Interest income on loans during the year ended December 31, 1995 increased
nominally by $77,000, or 0.38%, to $20.445 million when compared to $20.368
million during 1994. During the years ended December 31, 1995 and 1994, the
yield earned on the loan portfolio was 9.29% and 9.27%, respectively. The
average balance of loans outstanding, during the years ended December 31, 1995
and 1994, totaled $220.0 million and $219.7 million, respectively.
Interest on mortgage-backed securities decreased $767,000, or 9.06%, during the
year ended December 31, 1995 to $7.7 million compared to $8.5 millon for 1994.
During the year
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONT'D
ended December 31, 1995, the average balance of mortgage-backed securities
outstanding decreased $10.3 million, or 8.20%. In addition, the yield earned on
the mortgage-backed securities portfolio decreased six basis points from 6.71%
to 6.65%. The decrease in the average balance of mortgage-backed securities
during 1995 resulted primarily from principal repayments which more than offset
purchases of mortgage-backed securities.
Interest earned on investment securities decreased by $364,000, or 31.85%, to
$779,000 for the year ended December 31, 1995, when compared to $1.1 million for
1994. The decrease resulted from a decrease of $6.8 million, or 37.94%, in the
average balance of the investment securities portfolio, which more than offset
an increase of 62 basis points in the yield earned on the investment securities
portfolio from 6.34% in 1994 to 6.96% in 1995.
Interest on other interest-earning assets increased $160,000, or 32.59%, to
$651,000 during the year ended December 31, 1995, compared to $491,000 for 1994.
Such increase was attributable to an increase of 297 basis points in the yield
earned on other interest-earning assets from 4.84% in 1994 to 7.81% in 1995,
which more than offset a decrease of $1.8 million, or 17.83%, in the average
balance of other interest-earning assets outstanding. Such decrease in the
average balance of other interest-earning assets outstanding was primarily as a
result of decreased levels of interest-bearing deposits in other banks.
INTEREST EXPENSE
Interest on deposits increased $725,000, or 7.24%, to $10.7 million during the
year ended December 31, 1995 compared to $10.0 million for 1994. The increase
during 1995 was attributable to an increase of 48 basis points in the Bank's
average cost of interest-bearing deposits to 3.71% for 1995 from 3.23% for 1994,
which offset a decrease of $20.8 million, or 6.70%, in the average balance of
interest-bearing deposits outstanding. The increase in the Bank's cost of
interest-bearing deposits reflected a trend of higher general market interest
rates paid on deposits, which levelled off during the year ended December 31,
1994 before increasing in 1995.
Interest on advances and other borrowed money increased $106,000, or 17.18%, to
$723,000 during the year ended December 31, 1995 compared to $617,000 for 1994.
The increase during 1995 was attributable to an increase of 124 basis points in
the Bank's cost of borrowings to 6.19% for 1995 from 4.95% for 1994, which was
partially offset by a decrease of $797,000 in the average balance of advances
and other borrowings outstanding.
NET INTEREST INCOME
Net interest income for the year ended December 31, 1995, decreased $1.7
million, or 8.70%, from $19.8 million for 1994 to $18.1 million for 1995. The
Bank's net interest rate spread decreased from 4.86% in 1994 to 4.51% in 1995
and its interest rate margin decreased from 5.30% in 1994 to 5.10% in 1995.
These decreases primarily resulted from a 52 basis point increase in the cost of
average interest-bearing liabilities from 3.29% in 1994 to 3.81% in 1995, which
was partially offset by a 17 basis point increase in the yield on interest-
earning assets to 8.32% in 1995 from 8.15% in 1994.
PROVISION FOR LOAN LOSSES
During the years ended December 31, 1995 and 1994, the Bank provided $411,000
and $495,000, respectively, for loan losses. At December 31, 1995 and 1994, the
Bank's loan portfolio included loans totaling $10.9 million and $12.8 million,
respectively, which were delinquent ninety days or more. The Bank maintains an
allowance for loan losses based on management's evaluation of the risks inherent
in its loan portfolio which gives due consideration to changes in general market
conditions and in the nature and volume of the Bank's loan activity. The
allowance for loan losses amounted to $2.7
8
<PAGE>
million at December 31, 1995, representing 1.22% of total loans and 25.09% of
loans delinquent ninety days or more compared to an allowance of $3.7 million at
December 31, 1994, representing 1.59% of total loans and 28.91% of loans
delinquent ninety days or more. During the years ended December 31, 1995 and
1994, the Bank charged off loans aggregating $1.3 million and $911,000,
respectively. The Bank monitors its loan portfolio and intends to continue to
provide for loan losses based on its ongoing periodic review of the loan
portfolio and general market conditions.
NON-INTEREST INCOME
Non-interest income decreased nominally by $50,000 to $735,000 during the year
ended December 31, 1995 as compared to $785,000 for 1994. The decrease in non-
interest income during 1995 resulted primarily from decreases in gain on sale of
securities available for sale of $35,000 and miscellaneous income of $45,000
which offset an increase in fees and service charges of $30,000. During the year
ended December 31, 1994, proceeds from sales of securities available for sale
totaled $1.5 million and a net gain of $35,000 was realized on those sales.
NON-INTEREST EXPENSES
Non-interest expenses increased $692,000, or 7.59%, to $9.8 million during the
year ended December 31, 1995 compared to $9.1 million for 1994. During the year
ended December 31, 1994, the Bank signed a settlement agreement with another
bank to settle a complaint filed, dealing with the responsibility for credit
card losses, during the 1993 period. As a result of the loss recovery of
$239,000, total non-interest expenses for the 1994 period were reduced. Non-
interest expenses other than the recovery of credit card losses increased 4.84%
in 1995 over the 1994 levels. Salaries and employee benefits, the major
component of non-interest expenses, increased $72,000 or 1.50% during the year
ended December 31, 1995, while equipment, advertising, legal, loss on foreclosed
real estate and miscellaneous expenses increased by $55,000, $86,000, $200,000,
$80,000 and $46,000, respectively, which increases were partially offset by
decreases in occupancy and federal insurance premium of $43,000 and $42,000,
respectively.
INCOME TAXES
Income tax expense totaled $3.0 million and $3.8 million during the years ended
December 31, 1995 and 1994, respectively. The decrease in 1995 resulted
primarily from a decrease in pre-tax income of $2.4 million over 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, amortization and prepayments
of loan and mortgage-backed securities principal, FHLB-NY advances, maturities
of investment securities and funds provided from operations. While scheduled
loan and mortgage-backed securities amortization and maturities of 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 is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision ("OTS") regulations. This requirement, which
may vary from time to time, depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
required ratio currently is 5%. The Bank's liquidity averaged 9.9% during
December, 1996. The Bank adjusts its liquidity levels in order to meet funding
needs for deposit outflows, payments 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. In addition, the Bank invests its excess funds
in federal funds and overnight deposits with the FHLB-NY, which provides
liquidity to meet lending requirements. Federal funds sold and interest-bearing
deposits in other banks at December 31, 1996 and 1995 amounted to $9.1 million
and $4.6 million, respectively.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONT'D
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operating, investing and financing activities. These activities are
summarized below:
<TABLE>
<CAPTION>
(In Thousands)
YEAR ENDED DECEMBER 31, 1995 1996
- --------------------------------------------------------------
- --------------------------------------------------------------
<S> <C> <C>
Cash and cash
equivalents-beginning $ 12,135 $ 13,894
- --------------------------------------------------------------
Operating activities:
Net income 5,628 2,965
Adjustments to reconcile net
income to net cash provided
by operating activities 1,461 411
- --------------------------------------------------------------
Net cash provided by
operating activities 7,089 3,376
Net cash provided by
investing activities 13,680 15,358
Net cash (used in)
financing activities (19,010) (11,485)
Net increase in
cash and cash equivalents 1,759 7,249
- --------------------------------------------------------------
Cash and cash equivalents-ending $ 13,894 $ 21,143
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
Cash was generated by operating activities in each of the above periods. The
primary source of cash from operating activities during each period was net
income.
The primary sources of investing activities of the Bank are lending and
investment in mortgage-backed securities. In addition to funding new loan
production and the purchases of mortgage-backed securities through operations
and financing activities, new loan production and the purchase of mortgage-
backed securities were also funded by principal repayments on existing loans and
mortgage-backed securities.
The primary uses of financing activities during the 1996 period resulted from
the purchase of 294,000 shares of the Company's common stock for treasury for
$6.2 million and a net decrease in advances from the FHLB-NY of $4.0 million.
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-earning deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB-NY, which provide an additional source of funds. At December 31, 1996
and 1995, advances from the FHLB-NY amounted to $3.6 million and $7.6 million,
respectively.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At December 31, 1996, the Bank has outstanding
commitments to originate mortgage loans of $3.5 million and to purchase
mortgage-backed securities of $1.0 million. Certificates of deposit scheduled to
mature in one year or less, at December 31, 1996, totaled $112.7 million.
Management believes that, based upon historical experience, a significant
portion of such deposits will remain with the Bank.
At December 31, 1996, the Bank exceeded each of the three OTS capital
requirements. The Bank's tangible, core and risk-based capital ratios were
12.59%, 12.59% and 26.35%, respectively. The Bank qualifies as "well-
capitalized" under the prompt corrective action regulations of the OTS.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and the related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
requires the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
the Bank are monetary in nature. As a result, interest rates have a more
significant impact on the Bank's performance than the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services because such prices are
affected by inflation to a larger extent than interest rates.
10
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
NOTE(S) 1995 1996
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and amounts due from depository institutions $ 9,293,609 $ 12,042,656
Interest-bearing deposits in other banks 4,500,000 9,000,000
Federal funds sold 100,000 100,000
- ----------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 1 and 19 13,893,609 21,142,656
Securities available for sale 1, 2, 9 and 19 28,427,064 22,232,193
Investment securities held to maturity 1, 3, 9 and 19 99,000 --
Mortgage-backed securities held to maturity 1, 4, 9 and 19 96,564,583 96,726,545
Loans receivable 1, 5, 9 and 19 218,140,313 207,405,393
Foreclosed real estate 1 1,467,396 1,995,801
Investment in real estate 1 307,375 300,080
Premises and equipment 1, 6 and 10 3,716,785 3,630,828
Federal Home Loan Bank of New York stock, at cost 9 3,072,600 2,979,400
Interest receivable 1, 7 and 19 2,954,256 2,677,043
Deferred tax asset 1 and 15 1,536,030 1,496,514
Excess of cost over assets acquired 1 545,850 424,550
Other assets 15 639,769 1,899,475
- ---------------------------------------------------------------------------------------------------------------------
Total assets $371,364,630 $362,910,478
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 8 and 19 $298,900,764 $300,785,420
Advances from Federal Home Loan Bank of New York 9 and 19 7,583,100 3,583,100
Other borrowed money 10 and 19 459,855 293,094
Advance payments by borrowers for taxes and insurance 1,632,215 1,598,104
Other liabilities 3,413,267 3,141,799
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 311,989,201 309,401,517
- ---------------------------------------------------------------------------------------------------------------------
Commitments and contingencies 17, 18 and 19 -- --
STOCKHOLDERS' EQUITY 1, 10, 11, 12, 13, 14 and 15
Preferred stock; authorized 3,000,000 shares;
issued and outstanding - none -- --
Common stock; par value $.01; authorized
7,000,000 shares; shares issued 3,450,000 (1995 and
1996);
shares outstanding 3,393,034 (1995) and 3,155,964 (1996) 34,500 34,500
Paid-in capital in excess of par value 18,906,768 18,906,768
Retained earnings - substantially restricted 41,284,431 40,944,218
Unrealized loss on securities available for sale, net (41,154) (196,935)
Debt of employee stock ownership plan (148,781) --
Treasury stock, at cost; 56,966 shares (1995) and 294,036 shares (1996) (660,335) (6,179,590)
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 59,375,429 53,508,961
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $371,364,630 $362,910,478
- ---------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
NOTE(S) 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans 1 $20,367,629 $20,445,023 $19,191,106
Mortgage-backed securities 1 8,463,230 7,695,969 7,323,334
Investments 1 1,143,386 778,920 905,838
Other interest-earning assets 491,349 651,434 614,239
- --------------------------------------------------------------------------------------------------------------------------
Total interest income 30,465,594 29,571,346 28,034,517
- --------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 8 10,009,152 10,733,652 11,174,695
Advances and other borrowed money 616,826 722,556 205,937
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 10,625,978 11,456,208 11,380,632
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 19,839,616 18,115,138 16,653,885
Provision for loan losses 1 and 5 494,659 411,301 644,466
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 19,344,957 17,703,837 16,009,419
- --------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Fees and service charges 427,737 457,319 431,924
Gain on sale of securities available for sale 34,625 -- --
Miscellaneous 322,929 277,262 217,881
- --------------------------------------------------------------------------------------------------------------------------
Total non-interest income 785,291 734,581 649,805
- --------------------------------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and employee benefits 13 and 14 4,789,871 4,861,549 5,082,192
Net occupancy expense of premises 716,623 673,809 778,225
Equipment 719,371 773,991 775,360
Advertising 78,480 164,073 114,580
Legal 250,017 450,483 516,292
Federal insurance premium 16 760,602 718,276 2,684,879
Loss on foreclosed real estate 1 123,485 203,399 283,187
(Recovery of) credit card losses (239,256) -- --
Amortization of intangibles 1 121,300 121,300 121,300
Miscellaneous 1,795,278 1,840,520 2,179,858
- --------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 9,115,771 9,807,400 12,535,873
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 11,014,477 8,631,018 4,123,351
Income taxes 1 and 15 3,836,403 3,003,220 1,158,483
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 7,178,074 $ 5,627,798 $ 2,964,868
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Net income per common share
and common stock equivalents 1 $ 2.12 $ 1.65 $ 0.90
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Dividends per common share 1 $ .485 $ .800 $ .900
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
and common stock equivalents outstanding 1 3,379,293 3,417,475 3,308,540
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION> COST OF STOCK
CONTRIBUTED
UNREALIZED UNREALIZED TO
RETAINED LOSS ON LOSS ON DEBT OF MANAGEMENT
PAID-IN EARNINGS - MARKETABLE SECURITIES EMPLOYEES RECOGNITION
CAPITAL IN SUBSTAN- EQUITY AVAILABLE STOCK AND
COMMON EXCESS OF TIALLY SECURITIES, FOR SALE OWNERSHIP RETENTION TREASURY
STOCK PAR VALUE RESTRICTED NET NET PLAN TRUST STOCK TOTAL
------- ----------- ----------- ----------- ----------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31,
1993 $17,250 $18,975,913 $33,218,514 $(3,267) $ -- $(545,531) $(55,369) $(2,072,737) $49,534,773
Net income for the year
ended December 31,
1994 -- -- 7,178,074 -- -- -- -- -- 7,178,074
Reduction in debt of
Employee Stock Owner-
ship Plan -- -- -- -- -- 198,375 -- -- 198,375
Stock split 17,250 (17,250) -- -- -- -- -- -- --
Sales of treasury
Stock -- 87,874 -- -- -- -- -- 108,538 196,412
Decrease in unrealized
loss on marketable
securities, net -- -- -- 3,267 -- -- -- -- 3,267
(Increase) in unrealized
loss on securities
available for sale,
net of taxes -- -- -- -- (196,756) -- -- -- (196,756)
Amortization of cost of
stock contributed to
the Management
Recognition and Reten-
tion Trust -- -- -- -- -- -- 34,515 -- 34,515
Cash dividends -- -- (1,577,118) -- -- -- -- -- (1,577,118)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance -- December 31,
1994 34,500 19,046,537 38,819,470) -- (196,756) (347,156) (20,854) (1,964,199) 55,371,542
Net income for the
year ended
December 31, 1995 -- -- 5,627,798 -- -- -- -- -- 5,627,798
Reduction in debt of
Employees Stock
Ownership Plan -- -- -- -- -- 198,375 -- -- 198,375
Sale of treasury stock -- (139,769) (442,713) -- -- -- -- 1,303,864 721,382
Decrease in unrealized
loss on securities
available for sale,
net of taxes -- -- -- -- 155,602 -- -- -- 155,602
Amortization of cost of
stock contributed to
the Management
Recognition and Reten-
tion Trust -- -- -- -- -- -- 20,854 -- 20,854
Cash dividends -- -- (2,720,124) -- -- -- -- -- (2,720,124)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance -- December 31,
1995 34,500 18,906,768 41,284,431 -- (41,154) (148,781) -- (660,335) 59,375,429
Net income for the year
ended December 31,
1996 -- -- 2,964,868 -- -- -- -- -- 2,964,868
Reduction in debt of
Employees Stock Owner-
ship Plan -- -- -- -- -- 148,781 -- -- 148,781
Purchase of treasury
stock -- -- -- -- -- -- -- (6,179,188) (6,179,188)
Sale of treasury stock -- -- (331,960) -- -- -- -- 659,933 327,973
(Increase) in unrealized
loss on securities
available for sale,
net of taxes -- -- -- -- (155,781) -- -- -- (155,781)
Cash dividends -- -- (2,973,121) -- -- -- -- -- (2,973,121)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance -- December 31,
1996 $34,500 $18,906,768 $40,944,218 $ -- $(196,935) $ -- $ -- $(6,179,590) $53,508,961
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1997
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,178,074 $ 5,627,798 $ 2,964,868
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation of premises and equipment and investment in real estate 319,577 313,669 324,807
Amortization of deferred fees, premiums and discounts, net (435,266) (248,824) (217,913)
Provision for loan losses 494,659 411,301 644,466
Provision for loss on foreclosed real estate 145,349 142,000 166,003
(Recovery of) credit card losses (239,256) -- --
(Gain) on sale of securities available for sale (34,625) -- --
(Gain) on sale of foreclosed real estate (122,549) (24,888) (1,810)
Deferred income taxes 389,722 205,290 131,066
Decrease in interest receivable 232,715 200,186 277,213
Decrease (increase) in other assets (75,763) 159,109 (1,259,706)
Amortization of intangibles 121,300 121,300 121,300
Amortization of cost of stock contributed to Management Recognition
and Retention Trust 34,515 20,854 --
Reduction in debt of Employee Stock Ownership Plan 198,375 198,375 148,781
(Decrease) increase in other liabilities (303,548) (37,471) 73,532
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,903,279 7,088,699 3,376,227
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 1,482,625 -- --
Proceeds of maturities and calls of and repayments on securities available
for sale 7,171,160 8,305,558 8,827,985
Purchases of securities available for sale -- (2,000,000) (3,049,198)
Proceeds from maturities of investment securities held to maturity -- -- 99,000
Purchases of investment securities held to maturity -- (1,998,750) --
Principal repayments on mortgage-backed securities held to maturity 24,493,475 14,260,873 12,504,961
Purchases of mortgage-backed securities held to maturity (26,277,076) (8,030,921) (12,679,914)
Proceeds from sales of student loans -- 764,745 770,672
Purchase of mortgage loans (627,000) (62,000) (108,500)
Net (increase) decrease in loans receivable 7,074,219 2,835,707 8,729,960
Proceeds from sales of foreclosed real estate 366,316 616,297 401,761
Capitalized costs on foreclosed real estate -- (237,993) --
Additions to premises and equipment (286,538) (725,107) (224,655)
Additions to investment real estate -- -- (6,900)
Redemption (purchase) of Federal Home Loan Bank of New York stock 15,200 (48,000) 93,200
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (736,057) 13,680,409 15,358,372
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net (decrease) increase in deposits $ (21,643,800) $ (7,008,887) $ 1,844,656
Advances from Federal Home Loan Bank of New York 17,000,000 3,000,000 7,000,000
Repayment of advances from Federal Home Loan Bank of New York (10,000,000) (13,000,000) (11,000,000)
Repayment of other borrowings (198,375) (212,301) (166,761)
(Decrease) in advance
payments by borrowers for taxes and insurance (534,427) (135,201) (34,111)
Cash dividends paid (1,577,118) (2,375,124) (3,318,121)
Purchase of treasury stock -- -- (6,179,188)
Proceeds from sales of treasury stock 196,412 721,382 327,973
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (16,757,308) (19,010,131) (11,485,552)
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (9,590,086) 1,758,977 7,249,047
Cash and cash equivalents - beginning 21,724,718 12,134,632 13,893,609
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - ending $ 12,134,362 $ 13,893,609 $ 21,142,656
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Supplemental information:
(Decrease) in unrealized loss on marketable equity securities, net $ (3,267) $ -- $ --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Tranfer to securities available for sale from:
Marketable equity securities $ 1,455,020 $ -- $ --
Investment securities 16,088,172 3,996,434 --
Mortgage-backed securities 10,914,920 11,050,443 --
- --------------------------------------------------------------------------------------------------------------------
$ 28,458,112 $ 15,046,877 $ --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dividend payable $ -- $ 345,000 $ (345,000)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on securities
available for sale, net:
Application of Statement of
Financial Accounting Standards No. 115 $ 291,931 $ -- $ --
Subsequent change (488,687) 155,602 (155,781)
- --------------------------------------------------------------------------------------------------------------------
$ (196,756) $ 155,602 $ (155,781)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Transfer from loans receivable to foreclosed real estate $ 1,438,557 $ 1,189,576 $ 2,175,779
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Loans to facilitate sales of foreclosed real estate $ 762,500 $ 345,000 $ 1,077,800
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Mortgage loan incurred in connection with purchase of premises $ -- $ 325,000 $ --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Income taxes $ 3,387,647 $ 2,705,465 $ 1,941,053
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Interest on deposits and borrowings $ 10,627,478 $ 11,434,737 $ 11,421,978
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the Corporation
and its wholly owned subsidiary, Pamrapo Savings Bank, S.L.A., (the "Savings
Bank") and the Savings Bank's wholly owned subsidiary, Pamrapo Service Corp.,
Inc. (the "Service Corp."). The Corporation's business is conducted principally
through the Savings Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
consolidated statements of financial condition and revenues and expenses for the
periods then ended. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
changes in the near-term relate to the determination of the allowance for loan
losses, the valuation of foreclosed real estate, the assessment of prepayment
risks associated with mortgage-backed securities and the determination of the
amount of deferred tax assets which are more likely than not to be realized.
Management believes that the allowance for loan losses is adequate, foreclosed
real estate is appropriately valued, prepayment risks associated with mortgage-
backed securities are properly recognized and all deferred tax assets are more
likely than not to be recognized. While management uses available information
to recognize losses on loans and foreclosed real estate, future additions to the
allowance for loan losses or further writedowns of foreclosed real estate may be
necessary based on changes in economic conditions in the market area.
Additionally, assessments of prepayment risks related to mortgage-backed
securities are based upon current market conditions, which are subject to
frequent change. Finally, the determination of the amount of deferred tax
assets more likely than not to be realized is dependent on projections of future
earnings, which are subject to frequent change.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Savings Bank's allowance for loan
losses and foreclosed real estate valuations. Such agencies may require the
Savings Bank to recognize additions to the allowance for loan losses or
additional writedowns on foreclosed real estate based on their judgments about
information available to them at the time of their examination.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and amounts due from depository
institutions, federal funds sold and interest-bearing deposits in other banks
having original maturities of three months or less. Generally, federal funds
sold are sold for one-day periods.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Pursuant to Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("Statement") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," investments in debt securities that the
enterprise has the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and reported at amortized cost. Debt
and equity securities that are bought and held principally for the purpose of
selling them in the
16
<PAGE>
near term are classified as trading securities and reported at fair value, with
unrealized holding gains and losses included in earnings. Debt and equity
securities not classified as trading securities nor as held-to-maturity
securities are classified as available for sale securities and reported at fair
value, with unrealized holding gains or losses, net of deferred income taxes,
reported in a separate component of stockholders' equity.
The initial application of Statement No. 115, effective January 1, 1994,
resulted in the reclassification of securities totalling $28,458,000 to the
available for sale category and the recognition of an unrealized gain, net of
deferred income taxes, of $292,000 as a component of stockholders' equity.
As permitted by the FASB's "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities," the Savings
Bank reassessed the classification of its held-to-maturity portfolios. As a
result of such reassessment, the Savings Bank transferred securities with a book
value of $15,047,000 and a fair value of $14,837,000, from held-to-maturity to
available for sale during the year ended December 31, 1995. In connection with
such transfer, an unrecognized loss, net of deferred income taxes, of $134,000
was recognized and classified as a separate component of stockholders' equity.
Premiums and discounts on all securities are amortized/accreted using the
interest method. Interest and dividend income on securities, which includes
amortization of premiums and accretion of discounts, is recognized in the
consolidated financial statements when earned. The adjusted cost basis of an
identified security sold or called is used for determining security gains and
losses recognized in the consolidated statements of income.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan origination fees and discounts.
The Savings Bank defers loan origination fees and certain direct loan
origination costs and accretes such amounts as an adjustment of yield over the
contractual lives of the related loans. Discounts on loans purchased are
recognized as income by use of a method which approximates the level-yield
method over the terms of the respective loans.
Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's evaluation. An allowance
is established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments is probable, in which case the
loan is returned to an accrual status.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level considered adequate to
absorb future loan losses. Management of the Savings Bank, in determining the
allowance for loan losses, considers the risks inherent in its loan portfolio
and changes in the nature and volume of its loan activities, along with the
general economic and real estate market conditions.
The Savings Bank utilizes a two tier approach: (1) identification of problem
loans and the establishment of specific loss allowances on such loans; and (2)
establishment of general valuation allowances on the remainder of its loan
portfolio. The Savings Bank maintains a loan review system which allows for a
periodic review of its loan portfolio and the early identification of potential
problem loans. Such system takes into consideration, among other things,
delinquency status, size of loans, type of collateral and financial condition of
the borrowers. Specific loan loss allowances are established for identified
loans based on a review of such information and/or appraisals of the underlying
collateral. General loan loss allowances are based upon a combination of
factors including, but not limited to, actual loan loss experience, composition
of loan portfolio, current economic conditions and management's judgment.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
Although management believes that adequate specific and general loan loss
allowances are established, actual losses are dependent upon future events and,
as such, further additions to the allowance for loan losses may be necessary.
Effective January 1, 1995, the Savings Bank adopted FASB Statements No. 114,
"Accounting by Creditors for Impairment of a Loan," and No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures." The
provisions of these statements are applicable to all loans, uncollateralized as
well as collateralized, except large groups of smaller-balance homogeneous loans
that are collectively evaluated for impairment and loans that are measured at
fair value or at the lower of cost or fair value. Loans classified as impaired
are to be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. A loan evaluated for impairment is deemed to be
impaired when based on current information and events, it is probable that the
Savings Bank will be unable to collect all amounts due according to the
contractual terms of the loan agreement. All loans identified as impaired are
evaluated independently. The Savings Bank does not aggregate such loans for
evaluation purposes.
Payments received on impaired loans are applied first to accrued interest
receivable and then to principal.
FORECLOSED REAL ESTATE AND INVESTMENT IN REAL ESTATE
Real estate acquired by foreclosure or deed in lieu of foreclosure is initially
recorded at the lower of cost or estimated fair value at date of acquisition and
subsequently carried at the lower of such initially recorded amount or estimated
fair value less estimated costs to sell. Costs incurred in developing or
preparing properties for sale are capitalized. Expenses of holding properties
and income from operating properties are recorded in operations as incurred or
earned. Gains and losses from sales of such properties are recognized as
incurred.
Real estate held for investment is carried at cost less accumulated
depreciation. Income and expense of operating the property is recorded
in operations.
PREMISES AND EQUIPMENT
Premises and equipment are comprised of land, at cost, and buildings, building
improvements and furnishings and equipment, at cost, less accumulated
depreciation. Significant renewals and betterments are charged to the property
and equipment account. Maintenance and repairs are expensed in the year
incurred. Rental income is netted against occupancy expense.
INCOME TAXES
The Corporation, Savings Bank and Service Corp. file a consolidated federal
income tax return. Income taxes are allocated to the Corporation, Savings Bank
and Service Corp. based on their respective income or loss included in the
consolidated income tax return. Separate state income tax returns are filed by
the Corporation, Savings Bank and Service Corp.
Federal and state income taxes have been provided on the basis of reported
income. The amounts reflected on the Corporation's and subsidiaries' tax
returns differ from these provisions due principally to temporary differences in
the reporting of certain items for financial reporting and income tax reporting
purposes.
INTEREST-RATE RISK
The Savings Bank is principally engaged in the business of attracting deposits
from the general public and using these deposits, together with borrowings and
other funds, to invest in securities, make loans secured by real estate and, to
a lesser extent, make consumer loans. The potential for interest-rate risk
exists as a result of the
18
<PAGE>
generally shorter duration of the Savings Bank's interest-sensitive liabilities
compared to the generally longer duration of its interest-sensitive assets. In a
rising interest rate environment, liabilities will reprice faster than assets,
thereby reducing net interest income. For this reason, management regularly
monitors the maturity structure of the Savings Bank's assets and liabilities in
order to measure its level of interest-rate risk and to plan for future
volatility.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Savings Bank in
estimating the fair value of its financial instruments:
Cash and cash equivalents and interest receivable: The carrying amounts reported
in the consolidated financial statements for cash and cash equivalents and
interest receivable approximate their fair values.
Securities: The fair value of securities, as well as commitments to purchase
securities, is determined by reference to quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Loans receivable: For certain homogeneous categories of loans, such as
residential mortgages, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics. For other types of loans, fair value is estimated by
discounting the future cash flows, using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities, of such loans.
Deposits: The carrying amounts reported in the consolidated financial
statements for non-interest-bearing demand, NOW, Money Market, savings and club
accounts approximates their fair values. For fixed-maturity certificates of
deposit, fair value is estimated using the rates currently offered for deposits
of similar remaining maturities.
Advances from Federal Home Loan Bank of New York and other borrowed money: Fair
value is estimated using rates currently offered for liabilities of similar
remaining maturities, or when available, quoted market prices.
Commitments to extend credit: The fair value of commitments is estimated using
the fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
EXCESS OF COST OVER ASSETS ACQUIRED
The cost in excess of the fair value of net assets (goodwill) acquired through
the acquisition of certain assets and assumption of certain liabilities of
branch offices is being amortized to expense over a ten year period by use of
the straight-line method.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of common
shares actually outstanding plus shares that would be outstanding assuming the
exercise of dilutive stock options, all of which are considered to be common
stock equivalents. The number of common shares that would be issued from the
exercise of stock options has been reduced by the number of common shares that
could have been purchased from the proceeds at the average market price of the
Corporation's common stock.
RECLASSIFICATION
Certain amounts for prior periods have been reclassified to conform to the
current period's presentation.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
2. SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------
GROSS UNREALIZED
AMORTIZED CARRYING
VALUE GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due in one year or less $ 6,024,869 $ 39,645 $ 36,374 $ 6,028,140
Due after one year 5,995,366 112,938 - 6,108,304
- ----------------------------------------------------------------------------------------------------
12,020,235 152,583 36,374 12,136,444
Mortgage-backed securities 16,465,113 24,558 263,401 16,226,270
Equity security 7,020 57,330 - 64,350
- ----------------------------------------------------------------------------------------------------
$28,492,368 $ 234,471 $ 299,775 $28,427,064
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
GROSS UNREALIZED
AMORTIZED CARRYING
VALUE GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due in one year or less $ 4,002,062 $ 7,572 $ 4,014 $ 4,005,620
Due after one year through five years 2,998,369 18,521 - 3,016,890
Due after ten years 1,000,000 - - 1,000,000
- ----------------------------------------------------------------------------------------------------
8,000,431 26,093 4,014 8,022,510
Mortgage-backed securities 13,488,179 30,764 449,255 13,069,688
Mutual funds 1,049,198 - - 1,049,198
Equity security 7,020 83,777 - 90,797
- ----------------------------------------------------------------------------------------------------
$22,544,828 $ 140,634 $ 453,269 $22,232,193
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of securities available for sale during the year ended
December 31, 1994 totalled $1,482,625. Gross gains of $34,625 were realized on
those sales. There were no sales of securities available for sale during the
years ended December 31, 1995 and 1996.
3. INVESTMENT SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------
GROSS UNREALIZED
CARRYING ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificate of deposit:
Due within one year $ 99,000 $- $- $ 99,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales of securities held to maturity during the years ended
December 31, 1994, 1995 and 1996.
20
<PAGE>
4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------
CARRYING GROSS UNREALIZED ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation $77,543,282 $1,130,300 $ 310,790 $78,362,792
Federal National Mortgage Association 18,163,943 154,141 203,429 18,114,655
Government National Mortgage Association 857,358 - 5,316 852,042
- ------------------------------------------------------------------------------------------------------------------
$96,564,583 $1,284,441 $ 519,535 $97,329,489
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
CARRYING GROSS UNREALIZED ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation $76,678,673 $ 579,720 $ 886,400 $76,371,993
Federal National Mortgage Association 19,335,458 73,911 377,430 19,031,939
Government National Mortgage Association 712,414 - 17,061 695,353
- ------------------------------------------------------------------------------------------------------------------
$96,726,545 $ 653,631 $1,280,891 $96,099,285
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales of mortgage-backed securities held to maturity during the
years ended December 31, 1994, 1995 and 1996.
5. LOANS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- -------------------------------------------------------------
- -------------------------------------------------------------
<S> <C> <C>
Real estate mortgage:
One-to-four family $125,988,169 $118,524,480
Multi-family 33,657,539 34,051,393
Commercial 22,519,058 21,604,331
FHA insured and
VA guaranteed 1,957,781 1,520,105
- -------------------------------------------------------------
184,122,547 175,700,309
- -------------------------------------------------------------
Real estate construction 2,859,082 1,590,500
- -------------------------------------------------------------
Land 725,276 395,276
- -------------------------------------------------------------
Consumer:
Passbook or certificate 441,229 391,074
Home improvement 501,153 445,890
Equity and second mortgage 31,486,803 30,683,482
Student education 1,690,583 1,350,655
Automobile 1,074,174 1,106,921
Personal 1,188,123 1,157,891
- -------------------------------------------------------------
36,382,065 35,135,913
- -------------------------------------------------------------
Total 224,088,970 212,821,998
- -------------------------------------------------------------
Less:
Loans in process 851,500 465,700
Allowance for loan losses 2,725,000 2,800,000
Deferred loan fees
and discounts 2,372,157 2,150,905
- -------------------------------------------------------------
5,948,657 5,416,605
- -------------------------------------------------------------
$218,140,313 $207,405,393
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
At December 31, 1994, 1995 and 1996, loans serviced by the Savings Bank for the
benefit of others totalled approximately $9,032,000, $7,593,000 and $6,240,000,
respectively. At December 31, 1994, 1995 and 1996, nonaccrual loans for which
interest has been discontinued totalled approximately $9,225,000, $7,624,000 and
$6,928,000, respectively. During the years ended December 31, 1994, 1995 and
1996, the Savings Bank recognized interest income of approximately $451,000,
$260,000 and $172,000, respectively, on these loans. Interest income that would
have been recorded, had the loans been on the accrual status, would have
amounted to approximately $934,000, $745,000 and $665,000 for the years ended
December 31, 1994, 1995 and 1996, respectively. The Savings Bank is not
committed to lend additional funds to the borrowers whose loans have been placed
on nonaccrual status.
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning $4,000,000 $ 3,650,000 $2,725,000
Provisions charged
to operations 494,659 411,301 644,466
Recoveries credited
to allowance 66,039 5,174 68,906
Loan losses charged
to allowance (910,698) (1,341,475) (638,372)
- -------------------------------------------------------------------------
Balance, ending $3,650,000 $ 2,725,000 $2,800,000
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows:
DECEMBER 31, 1995 1996
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<S> <C> <C>
Recorded investment in impaired loans:
With recorded allowances $ 1,679,109 $2,363,504
Without recorded allowances 5,895,521 4,569,944
- -----------------------------------------------------------------------------
Total impaired loans 7,574,630 6,933,448
Related allowance for loan losses 520,109 839,504
- -----------------------------------------------------------------------------
Net impaired loans $ 7,054,521 $6,093,944
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
The activity with respect to loans to directors, officers and associates of such
persons, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- -------------------------------------------------------------------
- -------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning $ 3,037,599 $ 3,347,813 $ 2,939,661
Loans originated 774,500 65,000 1,034,065
Collection of principal (604,716) (135,622) (631,865)
Persons newly
associated 648,074 - -
Persons no longer
associated (507,644) (337,530) -
- -------------------------------------------------------------------
Balance, ending $ 3,347,813 $ 2,939,661 $ 3,341,861
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
6. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- ----------------------------------------------------------------
- ----------------------------------------------------------------
<S> <C> <C>
Land $ 929,768 $ 987,649
- ----------------------------------------------------------------
Buildings and improvements 3,239,428 3,248,967
Less accumulated depreciation 1,093,123 1,201,684
- ----------------------------------------------------------------
2,146,305 2,047,283
- ----------------------------------------------------------------
Furnishings and equipment 3,752,519 3,909,753
Less accumulated depreciation 3,111,807 3,313,857
- ----------------------------------------------------------------
640,712 595,896
- ----------------------------------------------------------------
$ 3,716,785 $3,630,828
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
totalled approximately $304,000, $300,000 and $311,000, respectively.
Depreciation charges are computed on the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
- ------------------------------------------------------
- ------------------------------------------------------
<S> <C>
Buildings and improvements 10 to 50 years
Furnishings and equipment 3 to 10 years
- ------------------------------------------------------
- ------------------------------------------------------
</TABLE>
7. INTEREST RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<S> <C> <C>
Loans, net of allowance for
uncollected interest of
approximately $204,000
and $263,000, respectively $ 1,966,020 $ 1,728,159
Mortgage-backed securities 785,485 747,692
Investments and other
interest-earning assets 202,751 201,192
- ------------------------------------------------------------
$ 2,954,256 $ 2,677,043
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
8. DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1995 1996
-------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT PERCENT RATE AMOUNT PERCENT
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand 0.00% $ 9,789,138 3.28 0.00% $ 8,319,593 2.77
NOW 2.50% 17,968,941 6.01 2.50% 17,387,150 5.78
Money Market 2.69% 22,772,677 7.62 2.98% 22,151,982 7.36
Savings and club 2.74% 113,071,625 37.83 2.74% 116,711,907 38.80
Certificates of deposit 5.03% 135,298,383 45.26 5.02% 136,214,788 45.29
- -------------------------------------------------------------------------------------------------------------------
3.67% $ 298,900,764 100.00 3.69% $ 300,785,420 100.00
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) DECEMBER 31,
----------------------------
MATURITY PERIOD 1995 1996
- --------------------------------------------------------
- --------------------------------------------------------
<S> <C> <C>
One year or less $ 109,721 $ 112,663
After one to three years 21,311 18,850
After three years 4,266 4,702
- --------------------------------------------------------
$ 135,298 $ 136,215
- --------------------------------------------------------
- --------------------------------------------------------
</TABLE>
Certificates of deposit of $100,000 or more by the time remaining until maturity
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) DECEMBER 31,
-----------------------------
MATURITY PERIOD 1995 1996
- ---------------------------------------------------------
- ---------------------------------------------------------
<S> <C> <C>
Three months or less $ 5,655 $ 5,237
After three through six months 5,533 5,753
After six through twelve
months 3,360 5,807
After twelve months 4,541 3,237
- ---------------------------------------------------------
$ 19,089 $ 20,034
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
22
<PAGE>
A summary of interest on deposits follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Demand $ 1,198,423 $ 1,076,669 $ 1,078,983
Savings and club 3,835,214 3,316,174 3,166,105
Certificates of deposit 4,996,572 6,357,405 6,939,953
- -----------------------------------------------------------------------------------------
10,030,209 10,750,248 11,185,041
- -----------------------------------------------------------------------------------------
Less penalties for early
withdrawal of
certificates of deposit (21,057) (16,596) (10,346)
- -----------------------------------------------------------------------------------------
$ 10,009,152 $ 10,733,652 $ 11,174,695
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
9. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1995 1996
-------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
DECEMBER 31, RATE AMOUNT RATE AMOUNT
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 6.55% $ 7,000,000 - % $ -
1999 - % - 6.47% 3,000,000
2001 5.10% 243,100 5.10% 243,100
2003 4.62% 340,000 4.62% 340,000
- -----------------------------------------------------------------------------------------------------------
6.42% $ 7,583,100 6.20% $ 3,583,100
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995 and 1996, the advances were secured by pledges of the
Savings Bank's investment in the capital stock of the Federal Home Loan Bank of
New York totalling $3,072,600 and $2,979,400, respectively, and a blanket
assignment of the Savings Bank's unpledged qualifying mortgage loans, mortgage-
backed securities and securities portfolios.
10. OTHER BORROWED MONEY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1995 1996
-------------------------------------------------------------
INTEREST INTEREST
RATE AMOUNT RATE AMOUNT
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee Stock
Ownership
Plan debt 6.80% $148,781 - % $ -
Mortgage loan 8.00% 311,074 8.00% 293,094
- -----------------------------------------------------------------------------------------------------------
7.61% $459,855 8.00% $293,094
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Employee Stock Ownership Plan debt bore an interest rate equal to 80% of the
lender's prime rate, required equal quarterly principal installments over a
seven year period and matured during 1996. The mortgage loan is payable in 144
equal monthly installments of $3,518 through February 1, 2007 and is secured by
premises with a carrying value of $395,000 and $405,000 at December 31, 1995 and
1996, respectively.
11. STOCK REPURCHASE PROGRAM
During the year ended December 31, 1996, the Corporation repurchased 294,000
shares of its own common stock, at prices ranging from $18.75 to $23.00 per
common share, at a total cost of $6,179,188 under stock repurchase programs
approved by the Corporation's Board of Directors.
12. REGULATORY CAPITAL
For the purpose of granting to eligible account holders a priority in the event
of future liquidation, the Savings Bank, at the time of conversion, established
a special account in an amount equal to its total retained earnings of $18.4
million at June 30, 1989. In the event of a future liquidation of the converted
Savings Bank (and only in such event), an eligible account holder who continues
to maintain his deposit account shall be entitled to receive a distribution from
the special account. The total amount of the special account is decreased (but
never increased) in an amount proportionately corresponding to decreases in the
deposit account balances of eligible account holders as of each subsequent year
end. After conversion, no dividends may be paid to stockholders if such
dividends would reduce the retained earnings of the converted Savings Bank below
the amount required by the special account.
The Savings Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material adverse effect on the Savings Bank. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Savings Bank must
meet specific capital guidelines that involve quantitative measures of the
Savings Bank's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Savings Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
The Office of Thrift Supervision ("OTS") has prescribed capital requirements
which include three separate measurements of capital adequacy: a leverage-ratio
capital standard ("Core"), a tangible capital
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
standard and a risk-based capital standard (collectively known as the "Capital
Rule"). The Capital Rule requires each savings institution to maintain tangible
capital equal to at least 1.5% of its tangible assets and core capital equal to
at least 3.0 % of its adjusted total assets. The Capital Rule further requires
each savings institution to maintain total capital equal to at least 8.0% of its
risk-weighted assets.
The following table sets forth the capital position of the Savings Bank as
calculated as of December 31, 1996:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital as calculated under GAAP $46,954 13.01 $46,954 13.01 $46,954 26.10
Deduct investment in nonincludable
subsidiary and goodwill (1,711) (0.47) (1,711) (0.47) (1,711) (0.95)
Add: Unrealized loss on securities
available for sale 197 0.05 197 0.05 197 0.11
Add qualifying general loan loss
allowance, as limited by regulation - - - - 1,960 1.09
- ----------------------------------------------------------------------------------------------------------
Capital, as calculated 45,440 12.59 45,440 12.59 47,400 26.35
Capital, as required 5,412 1.50 10,824 3.00 14,389 8.00
- ----------------------------------------------------------------------------------------------------------
Excess $40,028 11.09 $34,616 9.59 $33,011 18.35
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
imposes increased requirements on the operations of financial institutions and
mandated the development of regulations designed to empower regulators to take
prompt corrective action with respect to institutions that fall below certain
capital standards. FDICIA stipulates that an institution with less than 4% core
capital is deemed to be undercapitalized. Quantitative measures established by
FDICIA to ensure capital adequacy require the Savings Bank to maintain minimum
amounts and ratios of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1996, that the Savings
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1995, the most recent notification from the OTS, the Savings
Bank was categorized as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Savings
Bank must maintain minimum total, risk-based and Tier I leverage ratios of 10%,
6% and 5%, respectively. There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.
13. BENEFIT PLANS
PENSION PLAN
The Savings Bank has a non-contributory defined benefit pension plan covering
all eligible employees. The benefits are based on years of service and
employees' compensation. The Savings Bank's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. The Plan's assets consist primarily of mutual funds and bank
deposits.
The following tables set forth the plan's funded status and components of net
periodic pension cost:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligation including vested
benefits of $2,007,656 (1995)
and $2,315,961 (1996) $ 2,093,489 $ 2,364,277
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Projected benefit obligation $(2,854,159) $(3,132,480)
Plan assets at fair value 2,254,688 2,535,533
- ----------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (599,471) (596,947)
Unrecognized net loss 476,763 477,948
Unrecognized transition
obligation as of January 1, 1990,
being amortized over 7.7 years 87,478 36,391
- ----------------------------------------------------------------------------
Accrued pension cost $ (35,230) $ (82,608)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic pension cost included the
following components:
Service cost $ 133,870 $ 155,522 $ 173,312
Interest cost 167,172 195,253 208,321
Actual return on plan assets (25,051) (295,446) (116,162)
Net amortization and deferral (44,520) 231,160 6,504
- ------------------------------------------------------------------------------------------
Net periodic pension cost $ 231,471 $ 286,489 $ 271,975
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assumptions used in the accounting for the plan are as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.50% 7.50% 7.50%
Rate of increase in
compensation 4.50% 4.50% 4.50%
Long-term rate of
return on plan assets 7.50% 7.50% 7.50%
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
SAVINGS AND iNVESTMENT PLAN (THE "PLAN")
The Savings Bank sponsors a Plan pursuant to Section 401(k) of the Internal
Revenue Code, for all eligible employees. Employees may elect to save up to 10%
of their compensation of which the Savings Bank will match 50% of the employee's
contribution. The Plan expense amounted to approximately, $85,000, $92,000 and
$109,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
MANAGEMENT RECOGNITION AND RETENTION PLAN AND TRUST ("MRP")
In connection with the stock conversion, the Savings Bank established the MRP in
a manner to encourage key employees to remain with the Savings Bank. During the
year ended December 31, 1990, the Savings Bank contributed funds to the MRP to
subscribe for 45,000 shares of common stock at market prices prevailing at the
time of purchase. Amounts contributed were reflected in the consolidated
statements of financial condition as a reduction of stockholders' equity and
were amortized over a five year period ending December 31, 1995.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
The Corporation adopted a tax qualified ESOP for all eligible employees. The
ESOP purchased 120,750 shares (241,500 shares after two-for-one stock split
adjustment) of the Corporation's common stock at the time of conversion. The
funds used to purchase the shares were borrowed from a third party lender (see
Note 10). The Corporation, at its discretion, will contribute to the ESOP
sufficient funds, as may be necessary, to pay interest and principal on the
loan. At December 31, 1995 and 1996, 208,866 and 241,500 shares, respectively,
of the Corporation's common stock were available for allocation to employees.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP")
The Savings Bank has an unfunded non-qualified deferred retirement plan for
certain employees. A participant who retires at age 65 (the "Normal Retirement
Age") is entitled to an annual retirement benefit equal to 75% of the
participant's compensation reduced by the participant's retirement plan annual
benefits. Participants retiring before the Normal Retirement Age receive the
same benefits reduced by a percentage based on years of service to the Savings
Bank and the number of years prior to the Normal Retirement Age that participant
retires. The SERP expense amounted to approximately $35,000, $35,000 and
$76,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
14. STOCK OPTION PLAN
In connection with the Savings Bank's conversion from mutual to stock form in
November 1989, the Board of Directors adopted a stock option plan which granted
options to directors, officers and certain other employees, exercisable over a
period not to exceed ten years. Following is a summary of transactions:
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
- ----------------------------------------------------------
- ----------------------------------------------------------
<S> <C> <C> <C>
Balance - December 31, 1993 222,102 $5.75 $6.375
Granted - -
Exercised 34,050 5.75 6.375
Cancelled - -
- ----------------------------------------------------------
Balance - December 31, 1994 188,052 5.75 6.375
Granted - -
Exercised 125,262 5.75 6.375
Cancelled - -
- ----------------------------------------------------------
Balance - December 31, 1995 62,790 5.75 6.375
Granted - -
Exercised 56,930 5.75 6.375
Cancelled - -
- ----------------------------------------------------------
Balance - December 31, 1996 5,860 $5.75 $6.375
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
15. INCOME TAXES
The Savings Bank qualifies as a savings institution under the provisions of the
Internal Revenue Code and was therefore, prior to January 1, 1996, permitted to
deduct from taxable income an allowance for bad debts based upon eight percent
of taxable income before such deduction, less certain adjustments. Retained
earnings at December 31, 1996, include approximately $6,900,000 of such bad
debt, which, in accordance with FASB Statement No. 109, "Accounting for Income
Taxes," is considered a permanent difference between the book and income tax
basis of loans receivable, and for which income taxes have not been provided.
If such amount is used for purposes other than for bad debt losses, including
distributions in liquidation, it will be subject to income tax at the then
current rate.
Refundable income taxes of approximately $130,000 and $1,026,000 at December 31,
1995 and 1996, respectively, are reflected in the consolidated statements of
financial condition under the caption "Other Assets." Income taxes payable of
approximately $11,000 at December 31, 1995 are reflected in the consolidated
statements of financial condition under the caption "Other Liabilities."
The tax effects of existing temporary differences which give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Allowance for loan losses $ 625,961 $ 595,875
Deferred loan fees 754,328 635,947
Depreciation 41,318 36,375
Reserve for uncollected interest 73,140 94,398
Unrealized loss on securities
available for sale 24,150 115,700
Other 17,133 18,219
- ------------------------------------------------------------------------
1,536,030 1,496,514
Deferred tax liabilities - -
- ------------------------------------------------------------------------
Net deferred tax assets $1,536,030 $1,496,514
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
The components of income taxes are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current $3,446,681 $2,797,930 $1,027,417
Deferred 389,722 205,290 131,066
- ------------------------------------------------------------------------
$3,836,403 $3,003,220 $1,158,483
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax $3,744,922 $2,934,516 $1,401,939
Increases (reductions)
in income taxes resulting from:
Exercise of non-statutory
stock options (71,464) (66,060) (315,680)
New Jersey savings
institution tax, net of
federal income tax effect 228,331 173,043 83,714
Other items, net (65,386) (38,279) (11,490)
- --------------------------------------------------------------------------
Effective income tax $3,836,403 $3,003,220 $1,158,483
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
16. LEGISLATIVE MATTERS
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAIF") member institutions, including the Savings Bank, to recapitalize the
SAIF and spread the obligation for payment of Financial Corporation ("FICO")
bonds across all SAIF and Bank Insurance Fund ("BIF") members. The special
assessment levied amounted to 65.7 basis points on SAIF assessable deposits held
as of March 31, 1995. The special assessment was recognized in the third
quarter of 1996 and is tax deductible. The Savings Bank took a charge of
$2,023,000 as a result of the special assessment. This legislation will
eliminate the substantial disparity between the amount that BIF and SAIF members
had been paying for deposit insurance premiums.
26
<PAGE>
Beginning on January 1, 1997, the FDIC has estimated that, in addition to normal
deposit insurance premiums, BIF members will pay a portion of the FICO payment
equal to 1.3 basis points on BIF-insured deposits compared to 6.4 basis points
by SAIF members on SAIF-insured deposits. All institutions will pay a pro-rata
share of the FICO payment on the earlier of January 1, 2000 or the date upon
which the last savings association ceases to exist. The legislation also
requires BIF and SAIF to be merged by January 1, 1999 provided that subsequent
legislation is adopted to eliminate the saving association charter and no
savings associations remain as of that time.
The FDIC has recently lowered SAIF assessments to a range comparable to that of
BIF members, although SAIF members must also make the FICO payments described
above. Management cannot predict the precise level of FDIC insurance
assessments on an ongoing basis or whether the BIF and SAIF will eventually be
merged.
The Deposit Insurance Funds Act provides that the BIF and SAIF will merge on
January 1, 1999 if there are no more savings associations as of that date. That
legislation also requires that the Department of Treasury submit a report to
Congress by March 31, 1997 that makes recommendations regarding a common
financial institutions charter, including whether the separate charters for
thrifts and banks should be abolished. Various proposals to eliminate the
federal thrift charter, create a uniform financial institutions charter and
abolish the OTS have been introduced in Congress. The bills would require
federal savings institutions to convert to a national bank or some type of state
charter by a specified date (January, 1998 in one bill, June 30, 1998 in the
other) or they would automatically become national banks. Converted federal
thrifts would generally be required to conform their activities to those
permitted for the charter selected and divestiture of nonconforming assets would
be required over a two year period, subject to two possible one year extensions.
State chartered thrifts would become subject to the same federal regulation as
applies to state commercial banks. Holding companies for savings institutions
would become subject to the same regulation as holding companies that control
commercial banks, with a limited grandfather provision for unitary savings and
loan holding company activities. The Savings Bank is unable to predict whether
such legislation would be enacted, the extent to which the legislation would
restrict or disrupt its operations or whether the BIF and SAIF funds will
eventually merge.
17. COMMITMENTS
The Savings Bank is party to financial instruments with off-balance sheet risk
in the normal course of business primarily to meet the financing needs of its
customers. These financial instruments include commitments to originate loans
and purchase securities. The commitments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the
consolidated statement of financial condition. The Savings Bank's exposure to
credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit is represented by the contractual
notational amount of those instruments. The Savings Bank uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
Commitments to originate loans are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since commitments may expire without being drawn
upon, the
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
total commitment amounts do not necessarily represent future cash requirements.
The Savings Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Savings
Bank, upon extension of credit is based on management's credit evaluation of the
counterparty. Collateral held varies but primarily includes residential real
estate and income-producing commercial properties.
Commitments to purchase securities are contracts for delayed delivery of
securities in which the seller agrees to make delivery at a specified future
date of a specified instrument, at a specified price or yield. Risks arise from
the possible inability of counterparties to meet the terms of their contracts
and from movements in securities values and interest rates
The Savings Bank had loan commitments outstanding as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- --------------------------------------------------
- --------------------------------------------------
<S> <C> <C>
To originate loans $5,413,000 $3,499,000
- --------------------------------------------------
- --------------------------------------------------
</TABLE>
At December 31, 1996, all outstanding commitments to originate loans are at
fixed interest rates which range from 6.75% to 9.25%. All commitments are due
to expire within ninety days.
At December 31, 1996, the Savings Bank had a commitment to purchase a mortgage-
backed security for $1,011,000. This security carries a fixed interest rate of
7.00% and matures on January 1, 2012.
Rental expenses related to the occupancy of premises totalled $87,000, $60,000
and $70,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
At December 31, 1996, minimum non-cancellable obligations under lease agreements
with original terms of more than one year are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
- ---------------------------
- ---------------------------
<S> <C>
1997 $ 70,000
1998 70,000
1999 70,000
2000 70,000
2001 70,000
Thereafter 537,000
- ---------------------------
$887,000
- ---------------------------
- ---------------------------
</TABLE>
18. CONTINGENCIES
On February 15, 1994, Bank Polska Kasa Opieki, S.A. ("Pekao") filed an action
against the Savings Bank and Chemical Bank ("Chemical") in the United States
District Court for the District of New Jersey. The suit arises out of a $2
million check drawn by Pekao, certified by Chemical, and accepted for deposit at
the Savings Bank. In accepting the check for deposit, the Savings Bank relied
both upon representations made by a local attorney, Donald J. Meliado, Esq.
("Meliado"), and upon Chemical's certification of the check. Pekao alleges that
the endorsement on the check was fraudulent and resulted in its losing $2
million, plus interest and costs, and that the losses are the responsibility of
Chemical and the Savings Bank.
Chemical filed a cross-claim against the Savings Bank on or about May 5, 1994.
On May 11, 1994, the Savings Bank filed an Answer to the Complaint as well as a
counterclaim against Pekao, cross-claim against Chemical and Third-Party
Complaint against Meliado that deny that the Savings Bank is responsible for any
of the losses sustained by Pekao. In the counterclaim, the Savings Bank alleges
that Pekao's own conduct resulted in the loss and requests that Pekao indemnify
the Savings Bank for any losses sustained by the Savings Bank in the suit.
Against Chemical, the cross-claim alleges that Chemical is responsible to the
Savings Bank for any losses sustained as a result of the certification. The
Third-Party Complaint alleges that the Savings Bank relied upon Meliado's
representations concerning the check and requests indemnification and
contribution to the Savings Bank for any losses.
On December 11, 1995, the Court granted the Savings Bank's motion for partial
summary judgment dismissing Pekao's claims against the Savings Bank. On the
same date, the Court also denied Meliado's motion for summary judgment against
the Savings Bank. The Savings Bank's cross-claim
28
<PAGE>
against Chemical was dismissed by the Court on February 2, 1995. As a result of
these rulings, the only claims remaining are (i) Pekao's direct claims against
Chemical; (ii) Chemical's cross-claim against the Savings Bank for
indemnification and counsel fees; and (iii) the Savings Bank's claim for
indemnification against Meliado.
Pretrial discovery is ongoing. The Savings Bank is contesting liability, which
at this point could only arise if Pekao succeeds on its claims against Chemical.
In that connection, Chemical has substantial defenses which, if successful,
would result in a judgment in its favor dismissing Pekao's claim against it.
The Savings Bank has also made a demand upon its insurance carrier for
reimbursement of any losses, including all counsel fees, ultimately sustained by
the Savings Bank. The insurance carrier has preliminarily denied coverage, but
has indicated a willingness to settle. There is currently pending before the
Court cross-motions for summary judgment both by Chemical and by Pekao. It is
anticipated that the motions will be argued in late March 1997. In the interim,
all parties are exploring settlement as to the litigation. In addition, the
Savings Bank is also exploring settlement of the insurance coverage issues.
Although the Savings Bank believes it will ultimately obtain a favorable
resolution both as to the litigation and the insurance coverage issue, both the
outcome of the litigation and the Savings Bank's demand for insurance coverage
cannot be predicted at this time.
The Savings Bank is also a party to litigation which arises primarily in the
ordinary course of business. In the opinion of management, the ultimate
disposition of such litigation should not have a material effect on the
consolidated financial position of the Savings Bank or the Corporation.
19. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair value of the Corporation's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1996
--------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 13,894 $ 13,894 $ 21,143 $ 21,143
Securities available for sale 28,427 28,427 22,232 22,232
Investment securities held to maturity 99 99 - -
Mortgage-backed securities held to maturity 96,565 97,329 96,727 96,099
Loans receivable 218,140 223,488 207,405 212,285
Interest receivable 2,954 2,954 2,677 2,677
FINANCIAL LIABILITIES
Deposits $298,901 $299,613 $300,785 $301,550
Advances and other borrowed money 8,043 8,027 3,876 3,881
COMMITMENTS
To originate loans 5,413 5,413 3,499 3,499
To purchase mortgage-backed securities - - 1,011 1,011
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. Further, the foregoing estimates may not reflect the actual
amount that could be realized if all or substantially all of the financial
instruments were offered for sale.
In addition, the fair value estimates were based on existing on-and-off balance
sheet financial instruments without attempting to value anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets and liabilities include mortgage servicing rights,
premises and equipment and advances from borrowers for taxes and insurance. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.
20. PARENT CORPORATION FINANCIAL INFORMATION
The following condensed financial statements of the Corporation should be read
in conjunction with the Notes to Consolidated Financial Statements.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,166,462 $ 3,007,318
Investment in subsidiary 52,445,992 46,953,894
Loan receivable 6,000,000 3,000,000
Refundable income taxes 116,831 525,050
Other assets 53,195 84,844
- -------------------------------------------------------------------------
Total assets $59,782,480 $53,571,106
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Liabilities and stockholders' equity
- -------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------
Dividend payable $ 345,000 $ -
Other liabilities 62,051 62,145
- -------------------------------------------------------------------------
Total liabilities 407,051 62,145
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Stockholders' equity
Common stock 34,500 34,500
Paid-in-capital in excess of par value 18,906,768 18,906,768
Retained earnings -
substantially restricted 41,243,277 40,747,283
Debt of Employee Stock
Ownership Plan (148,781) -
Treasury stock, at cost (660,335) (6,179,590)
- -------------------------------------------------------------------------
Total stockholders' equity 59,375,429 53,508,961
- -------------------------------------------------------------------------
Total liabilities and stockholders' equity $59,782,480 $53,571,106
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiary $ 6,000,000 $ - $ 8,400,000
Interest income 5,441 5,578 305,752
- -------------------------------------------------------------------------
Total income 6,005,441 5,578 8,705,752
Expenses 232,306 368,249 663,855
- -------------------------------------------------------------------------
5,773,135 (362,671) 8,041,897
Equity in undistributed earnings
of subsidiary 1,259,211 5,875,821 (5,485,098)
- -------------------------------------------------------------------------
Income before income
taxes (benefit) 7,032,346 5,513,150 2,556,799
Income taxes (benefit) (145,728) (114,648) (408,069)
- -------------------------------------------------------------------------
Net income $ 7,178,074 $ 5,627,798 $ 2,964,868
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
30
<PAGE>
SATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,178,074 $ 5,627,798 $ 2,964,868
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in undistributed earnings of subsidiary (1,259,211) (5,875,821) 5,485,098
(Increase) decrease in refundable income taxes 111,440 31,808 (408,219)
(Increase) in other assets (19,778) (33,417) (31,649)
Increase in other liabilities 13,168 14,083 94
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 6,023,693 (235,549) 8,010,192
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
(Increase) decrease in loans receivable - (6,000,000) 3,000,000
- ---------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities - (6,000,000) 3,000,000
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends paid (1,577,118) (2,375,124) (3,318,121)
Purchase of treasury stock - - (6,179,188)
Sale of treasury stock 196,412 721,382 327,973
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,380,706) (1,653,742) (9,169,336)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,642,987 (7,889,291) 1,840,856
Cash and cash equivalents - beginning 4,412,766 9,055,753 1,166,462
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - ending $ 9,055,753 $ 1,166,462 $ 3,007,318
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA) FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1995 QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 7,422 $ 7,349 $ 7,430 $ 7,370
Interest expense 2,780 2,869 2,892 2,915
- --------------------------------------------------------------------------------------------------------
Net interest income 4,642 4,480 4,538 4,455
Provision for loan losses 100 100 100 111
Non-interest income 186 159 153 237
Non-interest expenses 2,372 2,438 2,350 2,648
Income taxes 814 731 781 677
- --------------------------------------------------------------------------------------------------------
Net income $ 1,542 $ 1,370 $ 1,460 $ 1,256
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Net income per common share and common stock
equivalents $ 0.46 $ 0.40 $ 0.42 $ 0.37
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Dividends per common share $ 0.175 $ 0.175 $ 0.175 $ 0.275
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(IN tHOUSANDS, EXCEPT FOR PER SHARE DATA) FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1995 QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 7,175 $ 6,990 $ 6,997 $ 6,873
Interest expense 2,903 2,816 2,819 2,843
- --------------------------------------------------------------------------------------------------------
Net interest income 4,272 4,174 4,178 4,030
Provision for loan losses 150 150 150 194
Non-interest income 159 157 148 186
Non-interest expenses 2,865 2,551 4,755 2,365
Income taxes 212 588 (206) 565
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,204 $ 1,042 $ (373) $ 1,092
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Net income (loss) per common share and common
stock equivalents $ 0.35 $ 0.32 $ (0.11) $ 0.34
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Dividends per common share $ 0.225 $ 0.225 $ 0.225 $ 0.225
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PAMRAPO BANCORP, INC.
We have audited the consolidated statements of financial condition of Pamrapo
Bancorp, Inc. (the "Corporation") and Subsidiaries as of December 31, 1995 and
1996 and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the above mentioned consolidated financial statements present
fairly, in all material respects, the financial position of Pamrapo Bancorp,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Radics & Co., LLC
February 7, 1997
Pine Brook, New Jersey
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL CONDITION AND OTHER DATA OF THE CORPORATION
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
(DOLLARS IN THOUSANDS) 1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total amount of:
Assets $ 399,761 $ 394,167 $384,085 $371,365 $362,910
Loans receivable 215,887 215,396 222,472 218,140 207,405
Securities available for sale -- -- 19,471 28,427 22,232
Mortgage-backed securities 120,394 123,213 114,032 96,565 96,727
Investment securities 18,834(1) 19,635(1) 2,096(1) 99 --
Deposits 332,235 327,553 305,910 298,901 300,785
Advances and other borrowed money 12,987 11,129 17,930 8,043 3,876
Stockholders' equity 44,651 49,535 55,372 59,375 53,509
<CAPTION>
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 33,619 $ 32,070 $ 30,466 $ 29,571 $ 28,035
Interest expense 16,764 11,967 10,626 11,456 11,381
- ---------------------------------------------------------------------------------------------------------------
Net interest income 16,855 20,103 19,840 18,115 16,654
Provision for loan losses 1,933 1,224 495 411 644
Non-interest income 768 749 785 735 649
Non-interest expenses 9,098 9,485 9,116 9,808 12,536
Income taxes 2,368 3,496 3,836 3,003 1,158
- ---------------------------------------------------------------------------------------------------------------
Net income $ 4,224 $ 6,647 $ 7,178 $ 5,628 $ 2,965
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Net income per share(2) $ 1.26 $ 1.98 $ 2.12 $ 1.65 $ 0.90
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Dividends per share (2) $ .200 $ .311 $ .485 $ .800 $ .900
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Dividend payout ratio 15.57% 15.12% 21.97% 48.33% 100.28%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Return on average assets 1.06% 1.69% 1.82% 1.49% 0.81%
Return on average equity 9.93 14.22 13.43 9.71 5.27
Average equity/average assets 10.72 11.87 13.55 15.40 15.33
Interest rate spread 4.07 5.00 4.86 4.51 4.23
Net yield on average interest-earning assets 4.49 5.39 5.30 5.10 4.81
Non-interest expenses to average assets 2.29 2.41 2.31 2.61 3.41
Equity/total assets 11.17 12.57 14.42 15.99 14.74
Capital ratios:
Tangible 10.15 10.98 11.56 13.69 12.59
Core 10.15 10.98 11.56 13.69 12.59
Risk-based 23.08 24.41 24.59 28.53 26.35
Non-perfoming loans to total assets 3.47 3.63 3.34 2.93 2.89
Non-performing loans to loans recievable 6.42 6.62 5.77 4.98 5.06
Non-performing assets to total assets 3.76 3.83 3.63 3.32 3.44
Allowance for loan losses to non-performing loans 22.38 28.04 28.45 25.09 26.69
Average interest-earning assets/average
interest-bearing liabilities 1.09x 1.12x 1.16x 1.18x 1.18x
Net interest income after provision for
loan losses to non-interest expense 1.64x 1.99x 2.12x 1.81x 1.28x
(1) Includes marketable equity securities
(2) Net income and dividends per share have retroactively
been adjusted to reflect a two-to-one stock split paid in
the form of a stock dividend on the Corporation's common
stock on May 12, 1994.
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
STOCKHOLDER INFORMATION
MARKET FOR COMMON STOCK AND RELATED MATTERS
Pamrapo Bancorp, Inc.'s common stock is presently quoted on the National
Association of Securities Dealers Automated Quotation's National Market System
under the symbol "PBCI." At February 28, 1997, 3,155,964 shares of the
Corporation's outstanding common stock were held by approximately 2,100 persons
or entities.
The following table sets forth the high and low closing sales prices per common
shares for the periods indicated. Such prices do not necessarily reflect retail
markups, markdowns or commissions.
<TABLE>
<CAPTION>
CLOSING PRICES
QUARTER ENDED HIGH LOW
- ------------------------------------------------------
- ------------------------------------------------------
<S> <C> <C>
March 31, 1995 $22.25 $15.75
June 30, 1995 24.75 20.25
September 30, 1995 26.25 22.25
December 31, 1995 24.25 20.25
March 31, 1996 23.00 20.50
June 30, 1996 21.00 18.25
September 30, 1996 20.00 18.25
December 31, 1996 20.00 18.88
- ------------------------------------------------------
- ------------------------------------------------------
Dividends were paid as follows:
- ------------------------------------------------------
- ------------------------------------------------------
March, 1995 $ .175
June, 1995 .175
September, 1995 .175
December, 1995(1) .175
March, 1996 .225
June, 1996 .225
September, 1996 .225
December, 1996 .225
- ------------------------------------------------------
- ------------------------------------------------------
</TABLE>
(1) Does not include $.100 special cash dividend declared on
December 19, 1995 payable on January 19, 1996.
Future dividend policy will be determined by the Board of Directors after giving
consideration to the Corporation's financial condition, results of operations,
tax status, industry standards, economic conditions and other factors. Dividends
will also depend upon dividend payments by the Bank to the Corporation, which is
its primary source of income. The Board may also consider the payment of stock
dividends from time to time, in addition to, or in lieu of cash dividends.
Under federal regulations, the Bank may not declare or pay a cash dividend on
any of its common stock if the effect thereof would cause the Bank's regulatory
capital to be reduced below the amount required for the liquidation account or
the regulatory capital requirements imposed by the Office of Thrift Supervision
("OTS"). The Bank must provide at least 30 days advance notice to the OTS before
declaring a dividend.
MARKET MAKERS
The following companies were making a market in the Corporation's common stock
at December 31, 1996:
Herzog, Heine, Geduld, Inc.
Prudential Securities, Inc.
Ryan Beck & Co. Inc.
Sandler O'Neill & Partners
35
<PAGE>
EXHIBIT 23
CONSENT OF AUDITORS
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference into the Registration
Statement on Form S-8 of Pamrapo Bancorp, Inc. (the "Company") of our report
dated February 7, 1997, included in the 1996 Annual Report to stockholders of
the Company, which is incorporated by reference in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
/s/ Radics & Co., LLC
---------------------
Radics & Co., LLC
March 26, 1997
Pine Brook, New Jersey
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,042,656
<INT-BEARING-DEPOSITS> 9,000,000
<FED-FUNDS-SOLD> 100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,232,193
<INVESTMENTS-CARRYING> 96,726,545
<INVESTMENTS-MARKET> 96,099,285
<LOANS> 210,205,393
<ALLOWANCE> 2,800,000
<TOTAL-ASSETS> 362,910,478
<DEPOSITS> 300,785,420
<SHORT-TERM> 3,876,194
<LIABILITIES-OTHER> 4,739,903
<LONG-TERM> 0
0
0
<COMMON> 34,500
<OTHER-SE> 53,474,461
<TOTAL-LIABILITIES-AND-EQUITY> 362,910,478
<INTEREST-LOAN> 19,191,106
<INTEREST-INVEST> 8,229,172
<INTEREST-OTHER> 614,239
<INTEREST-TOTAL> 28,034,517
<INTEREST-DEPOSIT> 11,174,695
<INTEREST-EXPENSE> 11,380,632
<INTEREST-INCOME-NET> 16,653,885
<LOAN-LOSSES> 644,466
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,535,873
<INCOME-PRETAX> 4,123,351
<INCOME-PRE-EXTRAORDINARY> 4,123,351
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,964,868
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
<YIELD-ACTUAL> 8.10
<LOANS-NON> 6,927,000
<LOANS-PAST> 3,565,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,450,737
<ALLOWANCE-OPEN> 2,725,000
<CHARGE-OFFS> 638,372
<RECOVERIES> 68,906
<ALLOWANCE-CLOSE> 2,800,000
<ALLOWANCE-DOMESTIC> 840,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,960,000
</TABLE>
