<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ________________________________
Commission File Number 0-18014
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PAMRAPO BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-2984813
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
611 Avenue C, Bayonne, New Jersey 07002
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 201-339-4600
including area code
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date July 31, 1998.
-------------
$.01 par value common stock - 2,842,924 shares outstanding
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION Number
----------
Consolidated Statements of Financial Condition
at June 30, 1998 and December 31, 1997 (Unaudited) 1
Consolidated Statements of Income for the
Three Months and Six Months Ended
June 30, 1998 and 1997 (Unaudited) 2
Consolidated Statements of Comprehensive Income
for the Three Months and Six Months Ended
June 30, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997 (Unaudited) 4 - 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 14
Item 3: Quantitative and Qualitative Disclosure About Market Risk 15 - 16
PART II - OTHER INFORMATION 17
SIGNATURES 18
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
- ------ ------------- -------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 24,788,359 $ 10,406,794
Interest-bearing deposits in other banks 6,000,000 2,900,000
------------- -------------
Total cash and cash equivalents 30,788,359 13,306,794
Securities available for sale 10,378,035 11,849,202
Mortgage-backed securities held to maturity; estimated
fair value of $117,324,000 (1998) and $127,777,000 (1997) 115,665,448 126,108,914
Loans receivable 223,404,465 211,156,095
Foreclosed real estate 1,388,430 1,354,347
Investment in real estate 277,924 285,310
Premises and equipment 3,935,379 3,482,178
Federal Home Loan Bank stock, at cost 3,097,200 2,979,400
Interest receivable 2,305,579 2,495,200
Excess of cost over assets acquired 242,600 303,250
Other assets 2,787,284 3,393,472
------------- -------------
Total assets $ 394,270,703 $ 376,714,162
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $ 322,079,961 $ 307,472,000
Advances from Federal Home Loan Bank 13,583,100 13,583,100
Other borrowed money 263,289 273,623
Advance payments by borrowers for taxes and insurance 2,974,277 2,837,836
Other liabilities 6,194,808 4,014,488
------------- -------------
Total liabilities 345,095,435 328,181,047
------------- -------------
Stockholders' equity:
Preferred stock; authorized 3,000,000 shares;
issued and outstanding - none
Common stock; par value $.01; authorized 7,000,000 shares;
3,450,000 shares issued; 2,842,924 shares outstanding 34,500 34,500
Paid-in capital in excess of par value 18,906,768 18,906,768
Retained earnings - substantially restricted 43,609,715 43,007,228
Unrealized gain on securities available for sale, net 50,219 10,553
Treasury stock, at cost; 607,076 shares (13,425,934) (13,425,934)
------------- -------------
Total stockholders' equity 49,175,268 48,533,115
------------- -------------
Total liabilities and stockholders' equity $ 394,270,703 $ 376,714,162
============= =============
</TABLE>
See notes to consolidated financial statements.
- 1 -
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 4,754,454 $ 4,620,845 $ 9,495,858 $ 9,348,763
Mortgage-backed securities 2,089,683 2,213,142 4,320,866 4,061,236
Investments and other interest-earning assets 260,962 300,371 495,337 662,089
----------- ----------- ----------- -----------
Total interest income 7,105,099 7,134,358 14,312,061 14,072,088
----------- ----------- ----------- -----------
Interest expense:
Deposits 2,815,053 2,745,259 5,628,778 5,471,002
Advances and other borrowed money 222,313 230,848 442,427 301,598
----------- ----------- ----------- -----------
Total interest expense 3,037,366 2,976,107 6,071,205 5,772,600
----------- ----------- ----------- -----------
Net interest income 4,067,733 4,158,251 8,240,856 8,299,488
Provision for loan losses 75,000 150,000 150,000 300,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 3,992,733 4,008,251 8,090,856 7,999,488
----------- ----------- ----------- -----------
Non-interest income:
Fees and service charges 215,497 212,312 417,584 397,408
Gain on sale of mortgage-backed securities -- -- -- 111,583
Miscellaneous 87,972 72,072 224,518 172,276
----------- ----------- ----------- -----------
Total non-interest income 303,469 284,384 642,102 681,267
----------- ----------- ----------- -----------
Non-interest expenses:
Salaries and employee benefits 1,369,977 1,182,317 2,769,450 2,372,387
Net occupancy expense of premises 269,067 192,020 505,935 392,598
Equipment 255,820 208,105 498,776 412,087
Advertising 37,078 12,729 69,338 49,366
Loss on foreclosed real estate 50,081 43,941 67,565 87,861
Federal insurance premium 52,736 49,230 100,193 98,090
Amortization of intangibles 30,325 30,325 60,650 60,650
Miscellaneous 606,202 561,920 1,215,517 1,120,847
----------- ----------- ----------- -----------
Total non-interest expenses 2,671,286 2,280,587 5,287,424 4,593,886
----------- ----------- ----------- -----------
Income before income taxes 1,624,916 2,012,048 3,445,534 4,086,869
Income taxes 585,377 751,578 1,251,010 1,513,530
----------- ----------- ----------- -----------
Net income $ 1,039,539 $ 1,260,470 $ 2,194,524 $ 2,573,339
=========== =========== =========== ===========
Basic and diluted earnings per common share $0.36 $0.44 $0.77 $0.86
===== ===== ===== =====
Dividends per common share $0.28 $0.25 $0.56 $0.50
===== ===== ===== =====
Weighted average number of common shares outstanding:
Basis 2,842,924 2,843,913 2,842,924 2,997,911
Diluted 2,842,924 2,843,913 2,842,924 2,999,530
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 1,039,539 $ 1,260,470 $ 2,194,524 $ 2,573,339
----------- ----------- ----------- -----------
Other comprehensive income, net of income taxes:
Unrealized holding gain on securities available for sale 23,752 70,691 39,666 15,696
Less reconciliation adjustment for realized gains -- -- -- (3,477)
----------- ----------- ----------- -----------
Other comprehensive income 23,752 70,691 39,666 12,219
----------- ----------- ----------- -----------
Comprehensive income $ 1,063,291 $ 1,331,161 $ 2,234,190 $ 2,585,558
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,194,524 $ 2,573,339
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation of premises and equipment and investment in real estate 228,249 161,794
Accretion of deferred fees, premiums and discounts, net (98,838) (71,610)
Gain on sale of mortgage-backed securities -- (111,583)
Provision for loan losses 150,000 300,000
Provision for losses on foreclosed real estate 22,000 76,747
(Gain) on sales of foreclosed real estate (18,185) (28,238)
Decrease (increase) in interest receivable 189,621 (22,009)
Decrease in other assets 583,788 816,125
Increase in other liabilities 2,180,320 1,171,764
Amortization of intangibles 60,650 60,650
------------ ------------
Net cash provided by operating activities 5,492,129 4,926,979
------------ ------------
Cash flow from investing activities:
Proceeds from calls and maturities of securities available for sale 1,000,000 2,000,000
Proceeds from sales on securities available for sale -- 3,992,226
Principal repayments on securities available for sale 542,803 940,810
Purchases of securities available for sale (35,509) (32,147)
Proceeds from sales on mortgage-backed securities held to maturity -- 3,640,635
Principal repayments on mortgage-backed securities held to maturity 15,402,224 6,516,232
Purchases of mortgage-backed securities held to maturity (5,033,763) (39,151,759)
Purchases of loans (108,000) (332,550)
Proceeds from sales of student loans 82,612 133,713
Net change in loans receivable (12,512,448) 3,293,359
Proceeds from sales of foreclosed real estate 301,350 294,691
Additions to premises and equipment (674,064) (75,579)
Purchase of Federal Home Loan Bank stock (117,800) --
------------ ------------
Net cash (used in) investing activities (1,152,595) (18,780,369)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 14,607,961 1,564,766
Net increase in advances from Federal Home Loan Bank -- 10,000,000
Net (decrease) increase in other borrowed money (10,334) 740,458
Net increase in payments by borrowers for taxes and insurance 136,441 853,616
Purchase of treasury stock -- (7,369,153)
Proceeds from sale of treasury stock -- 34,339
Cash dividends paid (1,592,037) (1,504,979)
------------ ------------
Net cash provided by financing activities 13,142,031 4,319,047
------------ ------------
Net increase (decrease) in cash and cash equivalents 17,481,565 (9,534,343)
Cash and cash equivalents - beginning 13,306,794 21,142,656
------------ ------------
Cash and cash equivalents - ending $ 30,788,359 $ 11,608,313
============ ============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Supplemental information:
Transfer of loans receivable to foreclosed real estate $ 465,248 $ 449,371
========== ==========
Loans to facilitate sales of foreclosed real estate $ 126,000 $ 623,300
========== ==========
Change in unrealized gain (loss) on securities available for sale $ 39,666 $ 12,219
========== ==========
Cash paid during the period for:
Income taxes, net of refunds $1,134,309 $ 534,382
========== ==========
Interest on deposits and borrowings $6,071,205 $5,772,600
========== ==========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. PRINCIPLES OF CONSOLIDATION
- -------------------------------
The consolidated financial statements include the accounts of Pamrapo Bancorp,
Inc. (the "Corporation") and its wholly owned subsidiaries, Pamrapo Savings
Bank, SLA (the "Bank") and Pamrapo Service Corp, Inc. The Corporation's business
is conducted principally through the Bank. All significant intercompany accounts
and transactions have been eliminated in consolidation.
2. BASIS OF PRESENTATION
- -------------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and regulations S-X and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements have been included.
The results of operations for the three and six months ended June 30, 1998, are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
3. NET INCOME PER COMMON SHARE
- -------------------------------
Basic net income per common share is based on the weighted average number of
common shares actually outstanding. Diluted net income per share is calculated
by adjusting the weighted average number of shares of common stock outstanding
to include the effect of stock options, if dilutive, using the treasury stock
method.
-6-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Changes in Financial Condition
The Corporation's assets at June 30, 1998 totalled $394.3 million, which
represents an increase of $17.6 million or 4.67% as compared with $376.7 million
at December 31, 1997.
Cash and cash equivalents increased $17.2 million to $30.8 million at June 30,
1998 from $13.3 million at December 31, 1997, resulting from the proceeds of a
temporary deposit inflow of $12.0 million on June 30, 1998. Securities available
for sale at June 30, 1998 decreased $1.4 million or 11.86% to $10.4 million when
compared with $11.8. million at December 31, 1997. The decrease during the six
months ended June 30, 1998, resulted primarily from calls of securities
available for sale of $1.0 million and repayments on securities available for
sale of $543,000, sufficient to offset the purchases of securities available for
sale of $36,000.
Mortgage-backed securities held to maturity decreased $10.4 million or 8.25% to
$115.7 million at June 30, 1998 when compared to $126.1 million at December 31,
1997. The decrease during the six months ended June 30, 1998, resulted from
principal repayments of $15.4 million sufficient to offset purchases of $5.0
million.
Net loans amounted to $223.4 million at June 30, 1998 as compared to $211.2
million at December 31, 1997, which represents an increase of $12.2 million or
5.78%. The increase, during the six months ended June 30, 1998, resulted
primarily from loan originations exceeding principal repayments.
Foreclosed real estate totalled $1.388 million and $1.354 million at June 30,
1998 and December 31, 1997, respectively. During the six months ended June 30,
1998, five foreclosed real estate properties with a combined book value of
$414,000 were sold. At June 30, 1998, foreclosed real estate consisted of
eighteen properties, eight of which are under contract for sale.
Total deposits at June 30, 1998 totalled $322.1 million as compared with $307.5
million at December 31, 1997.
Advances from the Federal Home Loan Bank of New York ("FHLB") amounted to $13.6
million at June 30, 1998 and December 31, 1997.
Stockholders' equity totalled $49.2. million and $48.5 million at June 30, 1998
and December 31, 1997, respectively.
Comparison of Operating Results for the Three Months Ended June 30, 1998 and
1997
Net income decreased $220,000 or 17.46% to $1.04 million for the three months
ended June 30, 1998 compared with $1.26 million for the same 1997 period. The
decrease in net income during the 1998 period resulted from a decrease in
interest income along with increases in total interest expense and non-interest
expenses, which were partially offset by an increase in non-interest income and
decreases in provision for loan losses and income taxes.
-7-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Three Months Ended June 30, 1998 and
1997 (Cont'd.)
Interest income on loans increased by $133,000 or 2.88% to $4.754 million during
the three months ended June 30, 1998 when compared with $4.621 million during
the same 1997 period. The increase during the 1998 period resulted from an
increase of $14.5 million in the average balance of loans outstanding sufficient
to offset a thirty-five basis point decrease in the yield earned on the loan
portfolio. Interest on mortgage-backed securities decreased $123,000 or 5.56% to
$2.1 million during the three months ended June 30, 1998 when compared with $2.2
million for the same 1997 period. The decrease during the 1998 period resulted
primarily from a decrease of twenty-three basis points in the yield earned on
the mortgage-backed securities outstanding along with a decrease of $3.0 million
in the average balance of such portfolio outstanding. Interest earned on
investments and other interest-earning assets decreased by $39,000 or 13.00% to
$261,000 during the three months ended June 30, 1998, when compared to $300,000
during the same 1997 period primarily due to a decrease of $1.8 million in the
average balance of such assets outstanding along with a twenty-three basis point
decrease in the yield earned on such portfolio.
Interest expense on deposits increased $70,000 or 2.55% to $2.8 million during
the three months ended June 30, 1998 when compared to $2.7 million during the
same 1997 period. Such increase was primarily attributable to an increase of
$14.1 million in the average balance of interest-bearing deposits sufficient to
offset a nine basis point decrease in the cost of interest-bearing deposits.
Interest expense on advances and other borrowed money decreased by $9,000 or
3.90% to $222,000 during the three months ended June 30, 1998 when compared with
$231,000 during the same 1997 period, primarily due to a forty-two basis point
decrease in the cost of advances and other borrowed money sufficient to offset
an increase of $322,000 in the average balance of advances and other borrowed
money outstanding.
Net interest income decreased $90,000 or 2.16% during the three months ended
June 30, 1998 when compared with the same 1997 period. Such decrease was due to
a decrease in total interest income of $29,000, along with an increase in total
interest expense of $61,000. The Bank's net interest rate spread decreased from
4.10% in 1997 to 3.96% in 1998. The decrease in the interest rate spread
resulted from a decrease of twenty-five basis points in the yield earned on
interest-earning assets which more than offset an eleven basis point decrease in
the cost of interest-bearing liabilities.
During the three months ended June 30, 1998 and 1997, the Bank provided $75,000
and $150,000, respectively, as a provision for loan losses. The allowance for
loan losses is based on management's evaluation of the risk inherent in the
Bank's loan portfolio and gives due consideration to the changes in general
market conditions and in the nature and volume of the Bank's loan activity. The
Bank intends to continue to provide for loan losses based on its periodic review
of the loan portfolio and general market conditions. At June 30, 1998, December
31, 1997 and June 30, 1997, the Bank's non-performing loans, which were
delinquent ninety days or more, totalled $5.2 million or 1.31% of total assets,
$6.9 million or 1.83% of total assets and $8.8 million or 2.37% of total assets,
respectively. At June 30, 1998, $700,000 of non-performing loans were accruing
interest and $4.5 million were on nonaccrual status. During the three months
ended June 30, 1998 and 1997, the Bank transferred $204,000 and $299,000,
respectively, of loans to foreclosed real estate. The non-performing loans
primarily consist of one-to-four family mortgage loans. During the three months
ended June 30, 1998 and 1997, the Bank charged off loans aggregating $177,000
and $249,000, respectively. The allowance for loan losses amounted to $2.3
million at June 30, 1998, representing 1.03% of total loans and 45.13% of loans
delinquent ninety days or more and $2.5 million at December 31, 1997,
representing 1.15% of total loans and 35.64% of loans delinquent ninety days or
more.
- 8 -
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Three Months Ended June 30, 1998 and
1997 (Cont'd.)
Non-interest income increased $19,000 or 6.69% to $303,000 during the three
months ended June 30, 1998 from $284,000 during the same 1997 period. The
increase during the 1998 period resulted from increases in fees and service
charges and miscellaneous income of $3,000 and $16,000, respectively.
Non-interest expenses increased by $390,000 or 17.10% to $2.7 million during the
three months ended June 30, 1998 when compared with $2.3 million during the same
1997 period. Salaries and employee benefits, net occupancy expense, equipment,
advertising, loss on foreclosed real estate, federal insurance premium and
miscellaneous expenses increased $188,000, $77,000, $48,000, $24,000, $6,000,
$4,000 and $44,000, respectively, during the 1998 period when compared with the
same 1997 period. The 1998 non-interest expenses include operating costs of the
two Brick, New Jersey offices opened after June 30, 1997..
Income taxes totalled $585,000 and $752,000 during the three months ended June
30, 1998 and 1997, respectively. The decrease during the 1998 period resulted
from a decrease in pre-tax income.
Comparison of Operating Results for the Six Months Ended June 30, 1998 and 1997
Net income decreased $378,000 or 14.69% to $2.2 million for the six months ended
June 30, 1998 compared with $2.6 million for the same 1997 period. The decrease
in net income during the 1998 period resulted from a decrease in non-interest
income, along with increases in total interest expense and non-interest
expenses, which were partially offset by an increase in interest income and
decreases in provision for loan losses and income taxes.
Interest income on loans increased $147,000 or 1.57% to $9.5 million during the
six months ended June 30, 1998 when compared with $9.3 million during the same
1997 period. The increase during the 1998 period resulted from an increase of
$10.9. million in the average balance of loans outstanding sufficient to offset
a thirty-two basis point decrease in the yield earned on the loan portfolio.
Interest on mortgage-backed securities increased $260,000 or 6.40% to $4.3
million during the six months ended June 30, 1998 when compared with $4.1
million for the same 1997 period. The increase during the 1998 period resulted
from an increase of $8.0 million in the average balance of such portfolio
outstanding sufficient to offset a decrease of two basis points in the yield
earned on the mortgage-backed securities outstanding. Interest earned on
investments and other interest-earning assets decreased by $167,000 or 25.23% to
$495,000 during the six months ended June 30, 1998, when compared to $662,000
during the same 1997 period primarily due to a decrease of $5.9 million in the
average balance of such assets outstanding sufficient to offset an increase of
twenty basis points in the yield earned on such portfolio.
Interest expense on deposits increased $158,000 or 2.89% to $5.6 million during
the six months ended June 30, 1998 when compared to $5.5 million during the same
1997 period. Such increase was primarily attributable to an increase of $8.1
million in the average balance of interest-bearing deposits. The cost of
interest-bearing deposits was unchanged. Interest expense on advances and other
borrowed money increased by $140,000 or 46.36% to $442,000 during the six months
ended June 30, 1998 when compared with $302,000 during the same 1997 period,
primarily due to an increase of $5.2 million in the average balance of advances
and other borrowed money outstanding sufficient to offset a sixty-six basis
point decrease in the cost of advances and other borrowed money.
- 9 -
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Six Months Ended June 30, 1998 and 1997
(Cont'd.)
Net interest income decreased $58,000 or .70% during the six months ended June
30, 1998 when compared with the same 1997 period. Such decrease was due to an
increase in total interest expense of $298,000, sufficient to offset an increase
in total interest income of $240,000. The Bank's net interest rate spread
decreased from 4.19% in 1997 to 4.01% in 1998. The decrease in the interest rate
spread resulted from a decrease of sixteen basis points in the yield earned on
interest-earning assets along with a three basis point increase in the cost of
interest-bearing liabilities.
During the six months ended June 30, 1998 and 1997, the Bank provided $150,000
and $300,000, respectively, as a provision for loan losses. The allowance for
loan losses is based on management's evaluation of the risk inherent in its loan
portfolio and gives due consideration to the changes in general market
conditions and in the nature and volume of the Bank's loan activity. The Bank
intends to continue to provide for loan losses based on its periodic review of
the loan portfolio and general market conditions. At June 30, 1998, December 31,
1997 and June 30, 1997, the Bank's non-performing loans, which were delinquent
ninety days or more, totalled $5.2 million or 1.31% of total assets, $6.9
million or 1.83% of total assets and $8.8 million or 2.37% of total assets,
respectively. At June 30, 1998, $700,000 of non-performing loans were accruing
interest and $4.5 million were on non-accrual status. During the six months
ended June 30, 1998 and 1997, the Bank transferred $465,000 and $449,000,
respectively, of loans to foreclosed real estate. The non-performing loans
primarily consist of one-to-four family mortgage loans. During the six months
ended June 30, 1998 and 1997, the Bank charged off loans aggregating $310,000
and $434,000, respectively. The allowance for loan losses amounted to $2.3
million at June 30, 1998, representing 1.03% of total loans and 45.13% of loans
delinquent ninety days or more and $2.5 million at December 31, 1997,
representing 1.15% of total loans and 35.64% of loans delinquent ninety days or
more.
Non-interest income decreased $39,000 or 5.73% to $642,000 during the six months
ended June 30, 1998 from $681,000 during the same 1997 period. The decrease
resulted from a decrease in gain on sale of mortgage-backed securities of
$112,000 sufficient to offset increases in fees and service charges and
miscellaneous income of $20,000 and $53,000, respectively.
Non-interest expenses increased by $693,000 or 15.08% to $5.3 million during the
six months ended June 30, 1998 when compared with $4.6 million during the same
1997 period. Salaries and employee benefits, net occupancy expense, equipment,
advertising, federal insurance premium and miscellaneous expenses increased
$397,000, $113,000, $87,000, $20,000, $2,000 and $95,000, respectively,
sufficient to offset a decrease of $20,000 in loss on foreclosed real estate,
during the 1998 period when compared with the same 1997 period.
Income taxes totalled $1.3 million and $1.5 million during the six months ended
June 30, 1998 and 1997, respectively. The decrease during the 1998 period
resulted from a decrease in pre-tax income.
- 10 -
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision (the "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 4.0%. The Bank's liquidity averaged 7.68% during the
month of June 1998. The Bank adjusts its liquidity levels in order to meet
funding needs for deposit outflows, payment of real estate taxes from escrow
accounts on mortgage loans, repayment of borrowings, when applicable, and loan
funding commitments. The Bank also adjusts its liquidity level as appropriate to
meet its asset/liability objectives.
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities principal, FHLB advances, maturities of
investment securities and funds provided from operations. While scheduled loan
and mortgage-backed securities amortization and maturing investment securities
are a relatively predictable source of funds, deposit flow and loan and
mortgage-backed securities prepayments are greatly influenced by market interest
rates, economic conditions and competition. The Bank invests its excess funds in
federal funds and overnight deposits with the FHLB, which provides liquidity to
meet lending requirements. Interest-bearing deposits at June 30, 1998 amounted
to $6.0 million.
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:
Six Months Ended June 30,
-------------------------
1998 1997
----------- ----------
(In Thousands)
Cash and cash equivalents - beginning $ 13,307 $ 21,143
-------- --------
Operating activities:
Net income 2,195 2,573
Adjustments to reconcile net income to
net cash provided by operating activities 3,297 2,354
-------- --------
Net cash provided by operating activities 5,492 4,927
Net cash (used in) investing activities (1,153) (18,781)
Net cash provided by financing activities 13,142 4,319
-------- --------
Net increase (decrease) in cash and cash equivalents 17,481 (9,535)
-------- --------
Cash and cash equivalents - ending $ 30,788 $ 11,608
======== ========
- 11-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources (Cont'd.)
Cash was generated by operating activities during the six months ended June 30,
1998. The primary source of cash was net income. Cash dividends paid during the
six months ended June 30, 1998 and 1997 amounted to $1.6 million and $1.5
million, respectively.
The primary sources of investing activity of the Bank are lending and the
purchase of mortgage-backed securities. Net loans amounted to $223.4 million and
$211.2 million at June 30, 1998 and December 31, 1997, respectively. Securities
available for sale totalled $10.4 million and $11.8 million at June 30, 1998 and
December 31, 1997, respectively. Mortgage-backed securities held to maturity
totalled $115.7 million and $126.1 million at June 30, 1998 and December 31,
1997, respectively. In addition to funding new loan production and
mortgage-backed securities purchases through operations and financing
activities, such activities were funded by principal repayments on existing
loans and mortgage-backed securities.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds and interest-bearing deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB which provides an additional source of funds. At June 30, 1998,
advances from the FHLB amounted to $13.6 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At June 30, 1998, the Bank has outstanding commitments
to originate mortgage loans of $10.3 million. Certificates of deposit scheduled
to mature in one year or less at June 30, 1998, totalled $116.9 million.
Management believes that, based upon its experience and the Bank's deposit flow
history, a significant portion of such deposits will remain with the Bank.
Under OTS regulations, three separate measurements of capital adequacy (the
"Capital Rule") are required. The Capital Rule requires each savings institution
to maintain tangible capital equal to at least 1.5% and core capital equal to
4.0% 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.
- 12-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources (Cont'd.)
The following table sets forth the Bank's capital position at June 30, 1998, as
compared to the minimum regulatory capital requirements:
Amount Percent of adjusted assets
---------- --------------------------
(In millions)
Tangible Capital:
Requirement $ 5,890 1.50%
Actual 46,099 11.74
------- -------
Excess $40,209 10.24%
======= =======
Core Capital:
Requirement $15,706 4.00%
Actual 46,099 11.74
------- -------
Excess $30,393 7.74%
======= =======
Risk-based Capital:
Requirement $15,197 8.00
Actual 47,875 25.20%
------- -------
Excess $32,678 17.20%
======= =======
Thrift Rechartering Legislation
The proposed legislation regarding elimination of the thrift charter and related
issues remains pending before Congress. The Bank, whose deposits are insured by
Savings Associations Insurance Fund ("SAIF"), 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 Bank Insurance Fund ("BIF") or SAIF
funds will eventually merge.
- 13-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Supervisory Examination
The Bank's financial statements are periodically examined by the OTS, the
Federal Deposit Insurance Corporation("FDIC") and the New Jersey Department of
Banking and Insurance as part of their regulatory oversight of the thrift
industry. As a result of these examinations, the regulators can direct that the
Bank make adjustments to its financial statements based on their findings.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Bank's
computer programs that would have date sensitive software may recognize a date
during "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions, or engage in
similar normal business activities.
Based on a recent assessment, the Bank has determined that it will be required
to modify or replace portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999. The Bank presently believes
that with modifications to existing software and conversion to new software, the
year 2000 Issue can be mitigated. However, if such modifications and conversions
are not made, or are not completed timely, the Year 2000 Issue may have a
material impact on the operations of the Bank.
The Bank has initiated formal communications with all or its significant
suppliers and vendors to determine the extent to which the Bank is vulnerable to
those third parties failure to remediate their own Year 2000 Issues. The Bank
will utilize both internal and external resources to reprogram, or replace, and
test the software for year 2000 modifications. The Bank expects to complete the
Year 2000 project no later than December 31, 1998. The Bank is in the process of
determining the costs and time associated with the Year 2000 project. The Bank
does not expect that the total cost of the Year 2000 project will have a
material adverse impact on the financial condition or operations of the Bank. To
date, the Bank has not incurred or expensed any material amount related to the
assessment of, and preliminary efforts in connection with, its Year 2000 project
and the development of a remediation plan.
-14-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Management of Interest Rate Risk. The ability to maximize net interest income is
largely dependent upon the achievement of a positive interest rate spread that
can be sustained during fluctuations in prevailing interest rates. Interest rate
sensitivity is a measure of the difference between amounts of interest-earning
assets and interest-bearing liabilities which either reprice or mature within a
given period of time. The difference, or the interest rate repricing "gap",
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities, and is considered negative when the amount
of interest rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would result in a
decrease in net interest income.
Because the Bank's interest-bearing liabilities which mature or reprice within
short periods exceed its interest-earning assets with similar characteristics,
material and prolonged increases in interest rates generally would adversely
affect net interest income, while material and prolonged decreases in interest
rates generally would have a positive effect on net interest income.
The Bank's current investment strategy is to maintain an overall securities
portfolio that provides a source of liquidity and that contributes to the Bank's
overall profitability and asset mix within given quality and maturity
considerations. Securities classified as available for sale provide management
with the flexibility to make adjustments to the portfolio given changes in the
economic or interest rate environment, to fulfill unanticipated liquidity needs,
or to take advantage of alternative investment opportunities.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored by
management through the use of the OTDS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV
is the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. The OTS produces its analysis based upon data submitted on the
Bank's quarterly Thrift Financial Reports. The following table sets forth the
Bank's NPV as of March 31, 1998, the most recent date the Bank's NPV was
calculated by the OTS.
-15-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
NPV as
Percent of Portfolio
Change in Net Portfolio Value Value of Assets
Interest Rates --------------------- ---------------------
In Basis Points Dollar Percent NPV Change
(Rate Shock) Amount Change Change Ratio Basis Points
- --------------- ------ ------ ------- ----- ------------
(Dollars in Thousands)
400 $ 33,949 ($30,562) (47) 9.29% (687)
300 41,823 (22,689) (35) 11.18 (498)
200 49,932 (14,580) (23) 13.04 (312)
100 57,870 (6,642) (10) 14.77 (139)
Static 64,512 -- -- 16.16 --
-100 69,719 5,207 8 17.20 104
-200 72,954 8,443 13 17.80 165
-300 76,301 11,789 18 18.42 226
-400 81,759 17,247 27 19.42 326
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV model
presented assumes that the composition of the Bank's interest sensitive assets
and liabilities existing at the beginning of a period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or repricing of specific assets and liabilities. Accordingly,
although the NPV measurements and net interest income models provide an
indication of the Bank's interest rate risk exposure at a particular point in
time, such measurements are not intended to and do not provide a precise
forecast of the effect of changes in market interest rates on the Bank's net
interest income and will differ from actual results.
-16-
<PAGE>
PAMRAPO BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
Neither the Corporation nor the Bank are involved in any pending legal
proceedings other than routine legal proceedings occurring in the ordinary
course of business, which involve amounts in the aggregate believed by
management to be immaterial to the financial condition of the Corporation
and the Bank.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
This information was reported in the Corporation's Form 10-Q for the
quarter ended March 31, 1998.
ITEM 5. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Pamrapo Bancorp, Inc.*
3.2 By-Laws of Pamrapo Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith).
27.0 Financial data schedule (filed herewith).
* Incorporated herein by reference to Form S-1,
Registration Statement, as amended, filed on August 11,
1989, Registration Number 33-30370.
(b) Reports on Form 8-K
None
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PAMRAPO BANCORP, INC.
Date: August 12, 1998 By: /s/ William J. Campbell
------------------- --------------------------------------
William J. Campbell
President and Chief Executive Officer
Date: August 12, 1998 By: /s/ Gary J. Thomas
------------------- --------------------------------------
Gary J. Thomas
Vice President, Chief Financial Officer
-18-
<PAGE>
Exhibit 11.0
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
-----------------------------------------------
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
Net income $1,039,539 $2,194,524
========== ==========
Weighted average - basic and diluted shares outstanding 2,842,942 2,842,924
========== ==========
Basic and diluted earnings per share $ 0.36 $ 0.77
========== ==========
</TABLE>
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 24,788,359
<INT-BEARING-DEPOSITS> 6,000,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,378,035
<INVESTMENTS-CARRYING> 115,665,448
<INVESTMENTS-MARKET> 117,324,000
<LOANS> 225,730,544
<ALLOWANCE> 2,326,079
<TOTAL-ASSETS> 394,270,703
<DEPOSITS> 322,079,961
<SHORT-TERM> 13,846,389
<LIABILITIES-OTHER> 9,169,085
<LONG-TERM> 0
0
0
<COMMON> 34,500
<OTHER-SE> 49,140,768
<TOTAL-LIABILITIES-AND-EQUITY> 394,270,703
<INTEREST-LOAN> 9,495,858
<INTEREST-INVEST> 4,320,866
<INTEREST-OTHER> 495,337
<INTEREST-TOTAL> 14,312,061
<INTEREST-DEPOSIT> 5,628,778
<INTEREST-EXPENSE> 6,071,205
<INTEREST-INCOME-NET> 8,240,856
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,287,424
<INCOME-PRETAX> 3,445,534
<INCOME-PRE-EXTRAORDINARY> 3,445,534
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,194,524
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 4.50
<LOANS-NON> 4,454,000
<LOANS-PAST> 701,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,054,143
<ALLOWANCE-OPEN> 2,475,000
<CHARGE-OFFS> 310,372
<RECOVERIES> 11,451
<ALLOWANCE-CLOSE> 2,326,079
<ALLOWANCE-DOMESTIC> 550,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,776,079
</TABLE>