<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, 1997
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 $61,403,293 and is based upon the last sales price as quoted on
The Nasdaq Stock Market for March 12, 1998.
The Registrant had 2,842,924 shares outstanding as of March 12, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER
31, 1997 ARE INCORPORATED BY REFERENCE INTO PARTS I AND II OF THIS FORM 10-K.
PORTIONS OF THE PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS
ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.
<PAGE>
INDEX
PART I PAGE
----
Item 1. Business 1
Item 2. Properties.................................................. 38
Item 3. Legal Proceedings........................................... 40
Item 4. Submission of Matters to a Vote of Security Holders......... 40
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................. 40
Item 6. Selected Financial Data..................................... 40
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 40
Item 8. Financial Statements and Supplementary Data................. 40
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 40
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 41
Item 11. Executive Compensation...................................... 41
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................................... 41
Item 13. Certain Relationships and Related Transactions.............. 41
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K................................... 42
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 1887 as 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, 1997, the Bank had total assets of
$376.4 million, deposits of $310.6 million and stockholders' equity of $45.4
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 nine retail banking offices, six of which are located in
Bayonne, New Jersey, one in Hoboken, New Jersey, one in Fort Lee, New Jersey and
one in Brick, 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, 1997, the Bank's total gross loans outstanding amounted to $216.1 million,
of which $155.5 million consisted of loans secured by one- to four-family
residential properties, $2.6 million consisted of construction and land loans,
and $54.2 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 $1.1 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,
--------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
---------------- --------------- --------------- --------------- ---------------
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:
Permanent:
Fixed-rate..................... $174,984 81.24% $179,492 80.68% $175,034 80.24% $168,727 81.35% $168,225 79.67%
Adjustable rate................ 8,703 4.04 7,823 3.52 7,131 3.27 5,453 2.63 2.99
Construction(1).................. 5,530 2.57 3,572 1.60 3,584 1.64 1,986 .96 2,638 1.25
Guaranteed by VA or
insured by FHA................. 3,037 1.41 2,404 1.08 1,958 .90 1,520 .73 1,086 .51
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans.............. $192,254 89.26 $193,291 86.88 $187,707 86.05 $177,686 85.67 $178,265 84.42
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
CONSUMER LOANS:
Passbook or certificate.......... 537 .25 481 .22 441 .20 391 .19 431 .20
Home improvement................. 539 .25 535 .24 501 .23 446 .22 440 .21
Equity and second mortgages...... 26,286 12.20 31,622 14.21 31,487 14.43 30,683 14.79 33,587 15.91
Education........................ 1,377 .64 1,820 .82 1,691 .78 1,351 .65 753 .36
Automobile....................... 848 .39 920 .41 1,074 .49 1,107 .53 1,210 .57
Personal......................... 1,267 .59 1,302 .59 1,188 .55 1,158 .56 1,445 .68
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans.............. 30,854 14.32 36,680 16.49 36,382 16.68 35,136 16.94 37,866 17.93
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans....................... 223,108 103.58 229,971 103.37 224,089 102.73 212,822 102.61 216,131 102.35
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Less:
Allowance for loan losses........ 4,000 1.86 3,650 1.64 2,725 1.25 2,800 1.35 2,475 1.17
Loans in process................. 976 .45 1,162 .52 852 .39 466 .22 571 .27
Deferred loan fees and discounts. 2,736 1.27 2,687 1.21 2,372 1.09 2,151 1.04 1,929 .91
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total............................. 7,712 3.58 7,499 3.37 5,949 2.73 5,417 2.61 4,975 2.35
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total net loans................... $215,396 100.00% $222,472 100.00% $218,140 100.00% $207,405 100.00% $211,156 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
MORTGAGE-BACKED SECURITIES:
GNMA (2)......................... $ 510 .41% $ 950 .79% $ 849 .75% $ 707 .65% $ 7,978 5.97%
FHLMC (3)(5)..................... 102,221 82.96 95,972 79.54 89,234 79.12 86,023 78.34 97,093 72.63
FNMA (4)(5)...................... 19,390 15.74 22,769 18.87 22,066 19.56 22,736 20.71 27,960 20.91
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage-backed securities.. 122,121 99.11 119,691 99.20 112,149 99.43 109,466 99.70 133,031 99.51
ADD/LESS:
Premiums(discounts), net(5)...... 1,092 .89 1,070 .89 881 .78 749 .68 790 .59
Unrealized loss on securities
available for sale............. -- -- (105) (.09) (239) (.21) (419) (.38) (135) (.10)
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Net mortgage-backed securities.... $123,213 100.00% $120,656 100.00% $112,791 100.00% $109,796 100.00% $133,686 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</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
$16,053,000 and a net premium of $412,000 for 1995, a principal balance of
$13,145,000 and a net premium of $344,000 for 1996, and a principal balance
of $7,498,000 and a net premium of $214,000 for 1997.
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
--------------------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------- -------- ------ --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family.......... $159,934 71.37% $151,175 71.04% $155,457 71.93%
Multi-family................. 33,658 15.02 34,051 16.00 32,873 15.21
Commercial real estate....... 22,519 10.05 21,604 10.15 21,324 9.86
Construction and land........ 3,584 1.60 1,985 .93 2,638 1.22
Consumer-secured and
unsecured.................... 4,394 1.96 4,007 1.88 3,839 1.78
----- ---- ----- ---- ----- ----
Total gross loans.......... $224,089 100.00% $212,822 100.00% $216,131 100.00%
======== ====== ======== ====== ======== ======
</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,
-------------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Mortgage Loans (gross):
At beginning of period ................................... $193,291 $187,707 $177,686
-------- -------- --------
Mortgage loans originated:
One- to four-family residential ........................ 7,082 10,462 20,250
Multi-family residential ............................... 4,950 4,654 6,393
Commercial ............................................. 4,474 1,477 1,035
Construction(1) ........................................ 642 1,810 2,976
-------- -------- --------
Total mortgage loans originated ...................... 17,148 18,403 30,654
-------- -------- --------
Mortgage loans purchased ................................. 62 109 392
-------- -------- --------
Transfer to REO .......................................... 1,190 2,176 1,419
Charge offs .............................................. 976 398 853
Repayments ............................................... 20,628 25,959 28,195
-------- -------- --------
Total mortgage repayments and other reductions ....... 22,794 28,533 30,467
-------- -------- --------
At end of period ......................................... $187,707 $177,686 $178,265
======== ======== ========
Consumer Loans (gross):
At beginning of period ................................... $ 36,681 $ 36,382 $ 35,136
Consumer loans originated ................................ 8,050 8,102 12,202
Consumer loans sold ...................................... 765 771 685
Charge-offs .............................................. 365 240 75
Repayments ............................................... 7,219 8,337 8,712
-------- -------- --------
At end of period ......................................... $ 36,382 $ 35,136 $ 37,866
======== ======== ========
Mortgage-backed securities (gross):
At beginning of period ................................... $119,691 $112,149 $109,466
Mortgage-backed securities purchased ..................... 8,023 12,699 48,959
Mortgage-backed securities sold .......................... -- -- 7,521
Repayments ............................................... 15,565 15,382 17,873
-------- -------- --------
At end of period ......................................... $112,149 $109,466 $133,031
======== ======== ========
</TABLE>
- ---------------------
(1) Includes acquisition and development and land loans.
5
<PAGE>
Loan Maturity. The following table sets forth the maturity of the
Bank's gross loan portfolio at December 31, 1997. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on mortgage loans totaled $20.6 million, $26.0 million and
$28.1 million for the years ended December 31, 1995, 1996 and 1997,
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........................... $ 130 $ 219 $ 2,133 $ 399 $ 2,881
---------- ---------- ---------- ---------- ----------
After 1 year:
1 to 3 years............................ 1,344 311 100 1,199 2,954
3 to 5 years............................ 7,764 2,999 -- 685 11,448
5 to 10 years........................... 24,019 15,890 278 473 40,660
10 to 20 years.......................... 79,780 32,944 127 1,083 113,934
Over 20 years........................... 42,420 1,834 -- -- 44,254
------- ------ ----- ----- -------
Total due after 1 year.................. 155,327 53,978 505 3,440 213,250
------- ------ ----- ----- -------
Total amounts due.......................... $ 155,457 $ 54,197 $ 2,638 $ 3,839 216,131
========== ========== ========== ========== =======
Less:
Allowance for loan losses............... 2,475
Loans in process........................ 571
Deferred loan fees and discounts........ 1,929
-------
4,975
Total........................ $211,156
========
</TABLE>
- -----------------------------------
(1) Includes equity and second mortgages.
(2) Includes acquisition and development and land loans.
The following table sets forth at December 31, 1997, the dollar amount
of all mortgage and consumer loans, excluding construction loans, due after
December 31, 1998, which have fixed interest rates or adjustable interest rates:
<TABLE>
<CAPTION>
Due after December 31, 1998
------------------------------- Total Due
Floating or After One
Fixed Rates Adjustable Rates Year
----------- ---------------- ---------
(In thousands)
<S> <C> <C> <C>
One- to four-family residential (1)...... $151,246 $4,081 $155,327
Construction loans....................... 505 -- 505
Multi-family and commercial real estate.. 52,747 1,231 53,978
Consumer-secured and unsecured loans..... 3,440 -- 3,440
-------- ------ --------
Totals.............................. $207,938 $5,312 $213,250
======== ====== ========
</TABLE>
- ---------------
(1) Includes equity and second mortgages.
6
<PAGE>
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, 1997, 95.0% of gross
mortgage loans were fixed-rate loans and 5.0% 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, 1997, $188.4
million or 87.2% 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 $155.5 million were
one- to four-family and $32.9 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, 1997, the
interest rate for one- to four-family residential fixed-rate mortgages offered
by the Bank was 6.375% on 15-year loans and 6.625% on 25-year loans. An
origination fee of 2.5% is usually charged.
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 2.0% 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, 1997, $32.9
million or 15.2% 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. 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.
7
<PAGE>
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.
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.
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, 1997, the Bank's
acquisition, development and construction loans varied in size from $15,000 to
$600,000, net of loans in process, and represented 1.2% of total gross loans.
Commercial Real Estate Lending. Loans secured by commercial real estate
totaled $21.3 million, or 9.9% of the Bank's total gross loan portfolio, at
December 31, 1997. 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
8
<PAGE>
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
collectibility 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 educational loans. At December 31,
1997, the balance of such loans was $37.9 million, or 17.5% of the Bank's total
gross loan portfolio. $33.6 million, or 88.7% of total consumer loans are
represented by equity loans and second mortgages, up from $30.7 million at
December 31, 1996.
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 $500,000, with the stipulation that loans approved in excess
of $350,000 must be reported at the next Board of Directors meeting. The Bank's
Vice President and Loan Officer has the authority to approve consumer and equity
loans of up to $150,000.
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, 1997 the Bank was servicing $4.9 million of loans for
others. There were no new loans sold in 1997 that 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
9
<PAGE>
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 $1.9
million in deferred origination fees and discounts at December 31, 1997.
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,
---------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
One- to four-family residential real estate
loans:
Non-accrual loans.................................... $ 4,430 $ 5,122 $ 5,099 $ 4,532 $ 3,254
Accruing loans 90 days overdue....................... 4,136 2,928 2,326 2,993 1,645
------- ------- ------- ------- -------
Total.............................................. 8,566 8,050 7,425 7,525 4,899
------- ------- ------- ------- -------
Multi-family residential and commercial
real estate loans:
Non-accrual loans.................................... 2,472 2,905 2,014 1,881 1,280
Accruing loans 90 days overdue....................... 1,208 642 890 542 255
------- ------- ------- ------- -------
Total.............................................. 3,680 3,547 2,904 2,423 1,535
------- ------- ------- ------- -------
Construction loans:(1)
Non-accrual loans.................................... 1,331 686 237 237 185
Accruing loans 90 days overdue....................... 13 -- -- -- --
------- ------- ------- ------- -------
Total.............................................. 1,344 686 237 237 185
------- ------- ------- ------- -------
Consumer loans:
Non-accrual loans.................................... 567 512 274 277 323
Accruing loans 90 days overdue....................... 108 33 23 30 7
------- ------- ------- ------- -------
Total.............................................. 675 545 297 307 330
------- ------- ------- ------- -------
Total non-performing loans:
Non-accrual loans.................................... 8,800 9,225 7,624 6,927 5,042
Accruing loans 90 days overdue....................... 5,465 3,603 3,239 3,565 1,907
------- ------- ------- ------- -------
Total.............................................. $14,265 $12,828 $10,863 $10,492 $ 6,949
======= ======= ======= ======= =======
Total foreclosed real estate, net of
related reserves................................. $ 831 $ 1,118 $ 1,467 $ 1,996 $1,354
======= ======= ======= ======= =======
Total non-performing loans and
foreclosed real estate to total assets........... 3.83% 3.63% 3.32% 3.44% 2.20%
==== ==== ==== ==== ====
</TABLE>
- --------------------
(1) Includes acquisition and development loans.
At December 31, 1995, 1996, and 1997 nonaccrual loans for which
interest has been discontinued totaled approximately $7.6 million, $6.9 million,
and $5.0 million, respectively. During the years ended December 31, 1995, 1996
and 1997, the Bank recognized interest income of approximately $260,000,
$172,000, and $144,000, respectively, on these loans. Interest income that would
have been recorded, had the loans been on the accrual status, would have
amounted to approximately $745,000, $665,000, and $491,000 for the years ended
December 31, 1995, 1996 and 1997, 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, 1995, 1996 and 1997, respectively,
delinquencies in the Bank's portfolio were as follows:
<TABLE>
<CAPTION>
At December 31, 1995 At December 31, 1996 At December 31, 1997
------------------------------------- ------------------------------------- ------------------------------------
60 - 89 Days 90 Days or more 60 - 89 Days 90 Days or more 60 - 89 Days 90 Days or more
------------------ ------------------ ------------------ ------------------ ------------------ -----------------
Number Principal Number Principal Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans Loans of Loans Loans of Loans
------ ---------- ------ ---------- ------ ----------- ------ ----------- ------ ----------- ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Delinquent loans.. 56 $2,286 153 $10,863 52 $3,660 $10,492 42 $2,162 105 $6,949
As a percent of
total gross
loans........... 1.02% 4.85% 1.72% 4.93% 1.00% 3.22%
</TABLE>
12
<PAGE>
As of December 31, 1997, the Bank had 105 loans which were 90 days or
more past due totaling $6.9 million. The average balance of such loans was
approximately $66,000. 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; 4 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 $10.5 million at December 31, 1996 to $6.9 million at December
31, 1997. The total of such loans in the lower risk one- to four-family
residential category decreased to $4.9 million or 70.5% of non-performing loans
90 days or more delinquent at December 31, 1997, when compared with $7.5
million, or 71.7% at December 31, 1996. Non-performing multi-family residential,
commercial real estate and construction loans, loans normally having greater
elements of risk, decreased from $2.7 million at December 31, 1996, to $1.7
million at December 31, 1997, which represents a decrease of 37.0%. The decrease
in non-performing loans can be attributed to the Bank's continued 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, has
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 collectibility 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 $8.1 million of its assets as
substandard and approximately $619,000 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, the
13
<PAGE>
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, 1997, the
allowance for loan losses totaled $2.5 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
collectibility 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, 1995, 1996 and 1997, gross
charge-offs totaled $1.3 million, $638,000, and $928,000, 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,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.......... $3,100 $4,000 $3,650 $2,725 $2,800
Provision for loan losses............... 1,224 495 411 644 586
Charge-offs:.....................
Real estate mortgage loans......... 290 879 1,008 404 853
Consumer loans..................... 35 32 333 234 75
Recoveries......................... 1 66 5 69 17
----- ----- ----- ----- -----
Net charge-offs......................... 324 845 1,336 569 911
----- ----- ----- ----- -----
Balance at end of period................ $4,000 $3,650 $2,725 $2,800 $2,475
====== ====== ====== ====== ======
Ratio of net charge offs during
the period to average loans
receivable during the period......... .15% .38% .61% .27% .44%
Ratio of allowance for loan
losses to total outstanding
loans (gross) at end of period....... 1.79% 1.59% 1.22% 1.32% 1.14%
Ratio of allowance for loan losses
to non-performing loans.............. 28.04% 28.45% 25.09% 26.69% 35.62%
</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.
At December 31,
----------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
Amount Amount Amount Amount Amount
------ ------ ------ ------ ------
(Dollars in thousands)
Real estate mortgage loans (1).. $3,400 $3,050 $2,325 $2,450 $2,075
Consumer loans.................. 600 600 400 350 400
------ ------ ------ ------ ------
Total allowance.............. $4,000 $3,650 $2,725 $2,800 $2,475
====== ====== ====== ====== ======
- --------------------
(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 GNMA, FNMA or FHLMC and have coupon rates as of December 31, 1997
ranging from 5.375% to 10.00%. At December 31, 1997 the unamortized principal
balance of mortgage-backed securities, both held to maturity and available for
sale, totaled $133.0 million or 35.3% of total assets. The carrying value of
such securities amounted to $112.8 million, $109.8 million and $133.7 million at
December 31, 1995, 1996 and 1997, respectively, and the fair market value of
such securities totaled approximately $133.6 million, $109.2 million, and $135.4
million at December 31, 1995, 1996 and 1997, 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, 1997.
<TABLE>
<CAPTION>
Contractual Maturities Due in Year(s) Ended
December 31,
----------------------------------------------------------------------------------
1999- 2001- 2003- 2008- 2018 and
1998 2000 2002 2007 2017 Thereafter Total
------ ------ ------ ------ ------ ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities:
Held to maturity....... $-- $-- $560 $8,208 $105,699 $11,066 $125,533
Available for sale..... 42 12 -- -- 318 7,126 7,498
--- --- ---- ------ -------- ------- --------
Total................ $42 $12 $560 $8,208 $106,017 $18,192 $133,031
=== === ==== ====== ======== ======= ========
</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 $10.0 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 1997 was 6.61%, which exceeded the minimum level of
4.0% 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,
------------------------------------------------------------------
1995 1996 1997
------------------- ------------------- -----------------
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) available
for sale........................... $12,020 $12,136 $8,000 $8,023 $2,999 $3,018
Mutual Funds available for sale....... -- -- 1,049 1,049 1,114 1,119
Equity securities available for
sale............................... 7 64 7 91 7 136
FHLB-NY stock......................... 3,073 3,073 2,979 2,979 2,979 2,979
Net unrealized (loss) gain on
available for sale securities...... 173 -- 107 -- 153 --
------- ------- ------- ------- ------ ------
Total investment securities........ $15,273 $15,273 $12,142 $12,142 $7,252 $7,252
======= ======= ======= ======= ====== ======
Other interest-earning assets:
Overnight deposits.................... $ 4,500 $ 4,500 $ 9,000 $ 9,000 $2,900 $2,900
Certificates of deposit............... 99 99 -- -- -- --
Federal funds sold.................... 100 100 100 100 -- --
------- ------- ------- ------- ------ ------
Total other interest-earning
assets............................. $ 4,699 $ 4,699 $ 9,100 $ 9,100 $2,900 $2,900
======= ======= ======= ======= ====== ======
Total investment portfolio......... $19,972 $19,972 $21,242 $21,242 $10,152 $10,152
======= ======= ======= ======= ======= =======
</TABLE>
As of December 31, 1997, the Bank's investment securities issued by the
U.S. Government agencies have a carrying value of $3.0 million, a weighted
average yield of 6.82% and maturities of $2 million within 5 years and $1
million after 10 years.
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 $4.2 million, at
December 31, 1997, as compared to $5.3 million at December 31, 1996. The Bank
relies primarily on customer service and long-standing relationships with
customers to attract and retain deposits. The $6.7 million or 2.2% increase in
total deposits from $300.8 million at December 31, 1996 to $307.5 million at
December 31, 1997 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,
--------------------------------------------------------------------------------------------
1995 1996 1997
----------------------------- ---------------------------- -----------------------------
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.......... $113,072 37.83% 2.74% $111,706 38.80% 2.75% $109,476 35.61% 2.75%
0.00% demand........................ 9,789 3.27 0.00 11,869 2.76 0.00 14,856 4.83 0.00
NOW................................. 17,748 5.94 2.50 18,676 5.72 2.50 19,679 6.40 2.00
Super NOW........................... 221 .07 2.50 179 .06 2.50 238 .07 2.00
Money market demand................. 22,773 7.62 2.69 22,140 7.37 2.87 22,214 7.23 2.75
-------- ------ -------- ------ -------- ------
Total passbook, club, NOW, and
money market accounts.... 163,603 54.73 2.54 164,570 54.71 2.54 166,463 54.14 2.42
-------- ------ -------- ------ -------- ------
Certificate accounts:
91-day money market.............. 979 .33 4.34 1,297 .43 4.51 979 .32 4.81
26-week money market............. 56,296 18.83 4.83 36,161 12.02 4.69 30,395 9.88 4.77
12- to 30-month money market..... 33,769 11.30 5.16 55,071 18.31 5.04 70,406 22.90 5.22
30- to 48-month money market..... 7,849 2.63 5.44 8,551 2.84 5.65 4,133 1.34 5.53
IRA and KEOGH.................... 30,272 10.13 4.91 28,829 9.59 4.92 29,482 9.59 4.90
Negotiated rate.................. 6,133 2.05 6.08 6,306 2.10 6.00 5,614 1.83 6.02
-------- ------ -------- ------ -------- ------
Total certificates............. 135,298 45.27 5.03 136,215 45.29 5.02 141,009 45.86 5.09
-------- ------ -------- ------ -------- ------
Total deposits................. $298,901 100.00% 3.67% $300,785 100.00% 3.68% 307,472 100.00% 3.65%
======== ====== ==== ======== ====== ==== ======= ====== ====
</TABLE>
19
<PAGE>
The following table sets forth the deposit activity of the Bank for the
periods indicated:
Year Ended December 31,
---------------------------------
1995 1996 1997
--------- -------- --------
(In thousands)
Deposits (less than) withdrawals........... $(17,759) $(9,291) $(4,375)
Interest credited.......................... 10,750 11,175 11,062
--------- -------- --------
Net (decrease) increase in deposits....... $ (7,009) $ 1,884 $ 6,687
========= ======== ========
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, 1997.
<TABLE>
<CAPTION>
At December 31, 1997,
At December 31, Maturing in
--------------------------- ---------------------------------------------
One Year Two Three Greater than
1995 1996 1997 or Less Years Years Three Years
---- ---- ---- --------- ----- ----- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate Accounts:
2.99% or less........... $ 613 $ 60 $ 209 $ 209 $ -- $ -- $ --
3.00% to 4.99%.......... 71,416 82,499 61,740 56,220 3,084 1,671 765
5.00% to 5.99%.......... 41,615 45,518 61,059 54,081 3,214 2,254 1,510
6.00% to 6.99%.......... 20,186 7,302 13,411 7,132 3,670 1,959 650
7.00% to 7.99%.......... 1,308 815 4,566 235 2,226 2,105 --
8.00% to 8.99%.......... 141 6 7 7 -- -- --
9.00% to 9.99%.......... 19 15 17 17 -- -- --
-------- -------- -------- -------- ------- ------ ------
Total.............. $135,298 $136,215 $141,009 $117,901 $12,194 $7,989 $2,925
======== ======== ======== ======== ======= ====== ======
</TABLE>
20
<PAGE>
At December 31, 1997, the Bank had outstanding $26.4 million in
certificate accounts in amounts of $100,000 or more maturing as follows:
Amount
--------------
(In thousands)
Three months or less............................. $ 7,160
Over three through six months.................... 8,096
Over six through 12 months....................... 6,611
Over 12 months................................... 4,551
-------
Total....................................... $26,418
=======
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 a blanket assignment of the Bank=s unpledged
qualifying mortgage loans, mortgage-backed securities and investment 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,
1997, outstanding advances from the FHLB-NY amounted to $13.6 million.
The following table sets forth certain information regarding FHLB-NY
advances at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------
1995 1996 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Fixed-rate advances from the FHLB-NY:
6.45% due 1996......................................... $3,000 $ -- $ --
6.63% due 1996......................................... 4,000 -- --
6.47% due 1999......................................... -- 3,000 3,000
6.27% due 2000......................................... -- -- 5,000
5.10% due 2001......................................... 243 243 243
6.51% due 2002......................................... -- -- 5,000
4.62% due 2003......................................... 340 340 340
------ ------ -------
Total advances from the FHLB-NY................... $7,583 $3,583 $13,583
====== ====== =======
</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,
1997 amounted to $274,000.
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 and Insurance (the
"Commissioner") to invest an amount equal to 3% of its assets in subsidiary
service corporations. As of December 31, 1997, Pamrapo had $1.3 million, or .4%,
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,
1997, approximately 97.5% 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,
-----------------------------------------------------------------------------------------
1995 1996 1997
---------------------------- -------------------------- -----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------- -------- ------ -------- -------- ----- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1).......................... $220,001 $20,445 9.29% $213,122 $19,191 9.00% $205,594 $18,700 9.10%
Mortgage-backed securities........ 115,803 7,696 6.65 108,500 7,324 6.75 127,004 8,572 6.75%
Investments....................... 11,195 779 6.96 11,725 906 7.73 6,541 508 7.77%
Other interest-earning assets..... 8,332 651 7.81 12,599 614 4.87 11,079 616 5.56%
------- ------- -------- ------- -------- -------
Total interest-earning assets.. 355,331 29,571 8.32 $345,946 28,035 8.10 $350,218 $28,396 8.11%
-------- ------- -------- ------- -------- -------
Non-interest-earning assets........... 21,167 21,301 19,018
-------- -------- --------
Total assets(1)................ $376,498 $367,247 $369,236
======== ======== ========
Interest-bearing liabilities:
Passbook and club account......... 120,209 3,316 2.76 112,489 3,166 2.81 $108,105 $3,078 2.85%
NOW and money market accounts..... 37,645 1,076 2.86 41,289 1,079 2.61 41,603 994 2.39%
Certificates of deposits.......... 131,520 6,341 4.82 137,193 6,930 5.05 139,242 6,990 5.02%
Advances and other borrowings..... 11,679 723 6.19 3,369 206 6.11 11,743 800 6.81%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities.................. 301,053 11,456 3.81 294,340 11,381 3.87 $300,693 $11,862 3.94%
-------- ------- -------- ------- -------- -------
Non-interest-bearing liabilities:
Non-interest-bearing demand $ 13,114 11,004 $13,046
accounts........................
Other............................. 4,366 5,606 6,461
-------- -------- --------
Total non-interest-bearing
demand liabilities.............. 17,480 16,610 19,507
-------- -------- --------
Total liabilities.............. 318,533 310,950 320,200
Stockholders' equity.................. 57,965 56,297 49,036
-------- -------- --------
Total liabilities and
stockholders' equity......... $376,498 $367,247 $369,236
======== ======== ========
Net interest income/interest rate
spread.............................. $18,115 4.51% $16,654 4.23% $16,534 4.17%
======= ==== ======= ==== ======= ====
Net interest-earning assets/net yield
on interest-earning assets.......... $ 54,278 5.10% $ 51,606 4.81% $ 49,525 4.72%
======== ==== ======== ==== ========
Ratio of average interest-earning
assets to average interest-bearing
liabilities........................... 1.18x 1.17x 1.16x
===== =====
</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, 1997, 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 $109.5 million at
December 31, 1997, 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 $22.2 million at December 31, 1997, 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 non-interest bearing demand, NOW and
Super NOW accounts which totaled $34.8 million at December 31, 1997, 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........................................ $2,881 $2,954 $11,448 $40,660 $113,934 $44,254 $216,131
Mortgage-backed securities(1)................ 42 12 560 8,208 106,017 18,192 133,031
Investments(1)(2)............................ 1,121 1,999 -- -- 1,000 -- 4,120
Other interest-earning assets(3)............. 5,879 -- -- -- -- -- 5,879
----- ----- ------ ------ ------- ------ -------
Total interest-earning assets.............. 9,923 4,965 12,008 48,868 220,951 62,446 359,161
----- ----- ------ ------ ------- ------ -------
Interest-bearing Liabilities:
NOW and Super NOW accounts(4)................ 12,866 11,777 3,151 4,231 2,321 427 34,773
Money market accounts........................ 17,549 2,444 1,164 892 161 4 22,214
Passbook and club accounts................... 18,611 28,268 18,429 23,391 16,177 4,600 109,476
Certificate accounts......................... 117,901 20,183 2,277 648 -- -- 141,009
Advances and other borrowings................ -- 8,243 5,340 -- 274 -- 13,857
------- ------ ------ ------ ------ ----- -------
Total interest-bearing liabilities......... 166,927 70,915 30,361 29,162 18,933 5,031 321,329
------- ------ ------ ------ ------ ----- -------
Interest sensitivity gap per period............. $(157,004) $(65,950) $(18,353) $19,706 $202,018 $57,415 $37,882
========= ======== ======== ======= ======== ======= =======
Cumulative interest sensitivity gap............. $(157,004) $(222,954) $(241,307) $(221,601) $(19,583) $37,382
========= ========= ========= ========= ======== =======
Cumulative gap as a percent of total assets..... (41.68)% (59.18)% (64.06)% (58.82)% (5.20)% 9.92%
======== ======== ======== ======== ====== ====
Cumulative interest-sensitive assets as
a percent of interest-sensitive liabilities.. 5.94% 6.26% 10.03% 25.48% 93.81% 111.77%
===== ===== ====== ====== ====== =======
</TABLE>
(1) Includes available for sale securities.
(2) Includes marketable equity securities which have no stated maturity.
(3) Includes FHLB-NY stock.
(4) Includes 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,
----------------------------------------------------------------------------------
1996 v. 1995 1997 v. 1996
----------------------------------------------------------------------------------
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 ................................ $ (627) $ (627) $(1,254) $ (698) $ 207 $ (491)
Mortgage-backed securities ........... (487) 115 (372) 1,248 -- 1,248
Investments .......................... 38 89 127 (403) 5 (398)
Other interest-earning assets ........ 261 (298) (37) (79) 81 2
------- ------- ------- ------- ------- -------
Total interest income ............. (815) (721) (1,536) 68 293 361
------- ------- ------- ------- ------- -------
Interest expense:
Passbook and club accounts .......... (210) 60 (150) (130) 42 (88)
NOW and money market accounts ........ 100 (97) 3 9 (94) (85)
Certificates of deposit .............. 279 310 589 102 (42) 60
Advances and other borrowings ........ (509) (8) (517) 567 27 594
------- ------- ------- ------- ------- -------
Total interest expense ............ (340) 265 (75) 548 (67) 481
------- ------- ------- ------- ------- -------
Net change in net interest income ........ $ (475) $ (986) $(1,461) $ (480) $ 360 $ (120)
======= ======= ======= ======= ======= =======
</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
Office of Thrift Supervision ("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) of the Bank
28
<PAGE>
Holding Company Act ("BHC Act"), subject to the prior approval of the OTS, and
certain activities authorized by OTS regulation, and no multiple savings and
loan holding company may acquire more than 5% the voting stock of a company
engaged in impermissible activities.
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 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
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 as principal that are 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 at least 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, 1997, the
Bank met each of its capital requirements and it is anticipated that the Bank
will not be subject to the interest rate risk component.
<TABLE>
<CAPTION>
The following table presents the Bank's capital position at December 31, 1997.
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------
Actual Amount Required Amount Excess Amount Actual Percent Required Percent
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tangible......... $43,777 $5,627 $38,150 11.67% 1.50%
- ---------------------------------------------------------------------------------------------------
Core (Leverage).. $43,777 $11,254 $32,523 11.67% 3.00%
- ---------------------------------------------------------------------------------------------------
Risk-based....... $45,633 $14,513 $31,120 25.15% 8.00%
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
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. 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. On September 30, 1996, the President signed into law the
Deposit Insurance Funds Act (the "Funds Act") which, among other things, imposed
a special one-time assessment on SAIF member institutions, including the Bank,
to recapitalize the SAIF. The SAIF was undercapitalized due primarily to a
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. 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
September 30, 1996 and was 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 Bank Insurance Fund ("BIF") members. The BIF is the
fund which primarily insures commercial bank deposits. Beginning on January 1,
1997, BIF deposits were assessed for a FICO payment of approximately 1.3 basis
points, while SAIF deposits pay approximately 6.4 basis points.
31
<PAGE>
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 voted to effectively lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members. SAIF members will also continue to make the 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 1997 was 6.4 basis points and the
premium paid for this period was $193,000. 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. Various proposals to eliminate the federal thrift charter,
create a uniform financial institutions charter and abolish the OTS have been
introduced in Congress. Some bills would require federal savings institutions to
convert to a national bank or some type of state charter by a specified date
under some bills, or they would automatically become national banks. Under some
proposals, 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. A more recent
bill passed by the House Banking Committee would allow savings institutions to
continue to exercise activities being conducted when they convert to a bank
regardless of whether a national bank could engage in the activity. Holding
companies for savings institutions would become subject to the same regulation
as holding companies that control commercial banks, with some limited
grandfathering, including savings and loan holding company activities. The
grandfathering would be lost under certain circumstances such as a change in
control of the Company. The Bank is unable to predict whether such legislation
would be enacted or the extent to which the legislation would restrict or
disrupt its operations.
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
32
<PAGE>
include certain financial instruments and bullion. At December 31, 1997, the
Bank's limit on loans to one borrower was $6.8 million. At December 31, 1997,
the Bank's largest aggregate outstanding balance of loans to one borrower was
$3.3 million.
QTL Test. The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings and loan association either must qualify as a
"domestic building and loan association" as defined in the Internal Revenue
Code or 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, 1997, the Bank maintained 89.7% of its portfolio assets in
qualified thrift investments and, therefore, met the QTL test. Recent
legislation has expanded the extent to which education loans, credit card loans
and small business loans may be considered "qualified thrift investments."
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 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, 1997, 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 was 5% for fiscal 1997, but
33
<PAGE>
is subject to change 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. In 1997, OTS regulations also required each savings institution to
maintain an average daily balance of short-term liquid assets of at least 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 OTS has recently lowered the liquidity requirement
from 5% to 4% and eliminated the 1% short term liquid asset requirement. The
Bank's liquidity ratio for December 1997 was 6.61%, 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, 1997 totaled $90,000.
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 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
34
<PAGE>
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.
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 required for most of 1997 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 was 3%; and for accounts aggregating greater than $49.3
million, the reserve requirement was $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) were exempted from the reserve requirements. The Bank maintained
compliance with the foregoing requirements. For 1998, the Federal Reserve Board
has decreased from $49.3 to $47.8 million the amount of transaction accounts
subject to the 3% reserve requirement and to increase the amount of exempt
35
<PAGE>
reservable balances from $4.4 million to $4.7 million. 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.
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 Company. The Bank has not been audited by the IRS in the past eight
years. For its 1997 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
36
<PAGE>
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, if any, over the
balance of such reserves as of December 31, 1987. As a result of such recapture,
the Bank incurred an additional tax payment of approximately $150,000 which is
being 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 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 Banks 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 levied a 65.7 basis
point fee on every $100 of assessable 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.
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
37
<PAGE>
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, 1997, the Bank had 81 full-time employees and 57
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 nine branch offices and one
administrative office. Three offices have drive-up facilities. The Bank has
automatic teller machines at eight of its nine branch facilities. The following
table sets forth information relating to each of the Bank's offices as of
December 31, 1997. The total net book value of the Bank's premises and equipment
at December 31, 1997 was $3.5 million.
38
<PAGE>
Year Net
Location Office Opened Book Value
- ------------------------------------------- -------------------- ------------
(In thousands)
Executive Office
591 Avenue C
Bayonne, New Jersey..................... 1985 $ 607
Branch Offices
611 Avenue C
Bayonne, New Jersey..................... 1984 796
155 Broadway
Bayonne, New Jersey..................... 1973 149
175 Broadway
Bayonne, New Jersey..................... 1985 -- (1)
861 Broadway
Bayonne, New Jersey..................... 1962 180
987 Broadway
Bayonne, New Jersey..................... 1977 301
1475 Bergen Boulevard
Fort Lee, New Jersey.................... 1990 -- (2)
544 Broadway
Bayonne, New Jersey..................... 1995 -- (2)
1930 Route 88
Brick, New Jersey....................... 1996 405 (2)
595-597 Avenue C
Bayonne, New Jersey..................... (3) 415
------
Net book value of properties............ 2,853
Furnishings and equipment............... 629
------
Total premises and equipment.......... $3,482
======
- --------------------
(1) The net book value of the property is included in investment in real
estate.
(2) Leased Property.
(3) To be renovated.
39
<PAGE>
Item 3. Legal Proceedings.
- --------------------------
The Bank is 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 1997 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 1997 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
1997 Annual Report to Stockholders on pages 4 through 10 and is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data.
- ----------------------------------------------------
The Consolidated Statements of Financial Condition, 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 1997 Annual Report to
Stockholders on pages 11 through 32 and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
--------------------
Not Applicable.
40
<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 29, 1998 at
pages 4 through 16.
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 29, 1998 at pages 8 through 16, 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 29, 1998 at
pages 3 through 7.
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 29, 1998 at page 16.
41
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-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 1997 Annual
Report to Stockholders.
PAGE
----
Consolidated Statements of Financial Condition as of
December 31, 1996 and 1997..................................... 11
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1996 and 1997............................... 12
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1996 and 1997........... 13
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1996 and 1997...................... 14-15
Notes to Consolidated Financial Statements........................... 16-31
Independent Auditors' Report............................................ 32
The remaining information appearing in the 1997 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.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
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.*
42
<PAGE>
10.7 Management Recognition and Retention Plan and Trust.*
10.8 Incentive Stock Option Plan.*
10.9 Stock Option Plan for Outside Directors.*
10.10 Outside Directors' Consultation and Retirement Plan.*
10.11 Board of Directors' Compensation and Trust Agreement.*
10.12 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 1997 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).
- ----------------
* 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.
43
<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 24, 1998
--------------
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.
Name Title Date
---- ----- ----
/s/ William J. Campbell President, Chief Executive March 24, 1998
- --------------------------- --------------
William J. Campbell Officer and Director
/s/ Gary J. Thomas Treasurer/Chief Financial March 24, 1998
- --------------------------- --------------
Gary J. Thomas Officer (Principal Financial
and Accounting Officer)
/s/ Daniel J. Massarelli Chairman of the Board and March 24, 1998
- --------------------------- --------------
Daniel J. Massarelli Director
/s/ John A. Morecraft Vice Chairman of the Board March 24, 1998
- --------------------------- --------------
John A. Morecraft and Director
/s/ James J. Kennedy Director March 24, 1998
- --------------------------- --------------
James J. Kennedy
/s/ Jaime Portela Director March 24, 1998
- --------------------------- --------------
Dr. Jaime Portela
/s/ Francis J. O'Donnell Director March 24, 1998
- --------------------------- --------------
Francis J. O'Donnell
<PAGE>
Exhibit 11
Computation of Earnings Per Share
<PAGE>
Exhibit No. 11 Statement re Computation of Earnings Per Share
Year Ended
December 31, 1997
-----------------
Income available to common stockholders $5,071,203
==========
Weighted average shares outstanding 2,920,417
==========
Basic earnings per share $ 1.74
==========
Income for diluted earnings per share $5,071,203
==========
Total weighted average common shares and
equivalents outstanding for diluted
computation 2,920,417
==========
Diluted earnings per share $ 1.74
==========
<PAGE>
Exhibit 13
1997 Annual Report to Stockholders
<PAGE>
PAMRAPO BANCORP, INC.
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 loses, non-interest income, non-interest
expenses and income taxes.
Financial Condition
The Company's consolidated assets at December 31, 1997 totaled $376.7 million,
which represents an increase of $13.8 million or 3.80% when compared to $362.9
million at December 31, 1996.
Securities available for sale decreased $10.4 million or 46.85% to $11.8 million
at December 31, 1997 when compared with $22.2 million at December 31, 1996. The
decrease during the year ended December 31, 1997, resulted primarily from
proceeds from maturities and calls of and repayments on securities available for
sale amounting to $6.7 million along with sales of securities available for sale
of $4.0 million which offset the decrease in unrealized loss on securities
available for sale of $207,000 and purchases of securities available for sale of
$65,000.
Mortgage-backed securities held to maturity increased $29.4 million or 30.40% to
$126.1 million at December 31, 1997 when compared with $96.7 million at December
31, 1996. The increase during the year ended December 31, 1997 resulted from
purchases of mortgage-backed securities of $49.3 million which were sufficient
to offset principal repayments of $16.2 million and sales of $3.5 million.
During the year ended December 31, 1997, certain mortgage-backed securities held
to maturity which had principal outstanding of less than 15.0% of the original
face amount were sold.
<PAGE>
1.
PAMRAPO BANCORP, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition (Cont'd.)
Net loans amounted to $211.2 million and $207.4 million at December 31, 1997 and
1996, respectively, which represents an increase of $3.8 million or 1.83%.
During the year ended December 31, 1997, loan originations exceeded loan
principal repayments by $4.0 million. During the year ended December 31, 1997,
the Bank transferred mortgage loans totalling $1.4 million to foreclosed real
estate. Additionally, the Bank provided $586,000 as a provision for loan losses
during the year ended December 31, 1997. At December 31, 1997 and 1996, loans
delinquent ninety days or more totalled $6.9 million or 3.27% of loans
receivable and $10.5 million or 5.06% of loans receivable, respectively.
Foreclosed real estate amounted to $1.4 million and $2.0 million at December 31,
1997 and 1996, respectively. At December 31, 1997, foreclosed real estate
consisted of nineteen properties, of which fifteen were residential, three were
land and one was a commercial property. During the year ended December 31, 1997,
twenty-four properties with a combined book value of $2.0 million were sold and
another six properties with a combined book value of $340,000 remain under
contract for sale. 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. At December 31, 1997 and 1996, non-performing
assets totalled $8.3 million or 2.20% of total assets and $12.5 million or 3.44%
of total assets, respectively.
Total deposits at December 31, 1997 increased $6.7 million or 2.23% to $307.5
million compared to $300.8 million at December 31, 1996.
Advances from the Federal Home Loan Bank of New York ("FHLB-NY") totalled $13.6
million and $3.6 million at December 31, 1997 and 1996, respectively. The
increase of $10.0 million during the year ended December 31, 1997, resulted from
short-term advances from the FHLB-NY, which were used for general corporate
purposes.
Stockholders' equity amounted to $48.5 million and $53.5 million at December 31,
1997 and 1996, respectively. During the years ended December 31, 1997 and 1996,
net income of $5.1 million and $3.0 million, respectively, was recorded and cash
dividends of $2.9 million and $3.3 million, respectively, were paid on the
Company's common stock. During the years ended December 31, 1997 and 1996, the
Company repurchased 318,900 shares and 294,000 shares, respectively, of its
common stock at prices ranging from $19.50 to $23.50 per share totalling $7.4
million and $6.2 million, respectively, under a stock repurchase program and
reissued 5,860 shares and 56,930 shares, respectively, of its common stock from
treasury stock for $34,000 and $328,000, respectively, as a result of the
exercise of stock options by directors, officers and employees.
Results of Operations for the Years Ended December 31, 1997 and 1996
NET INCOME
Net income increased by $2.1 million, or 70.00%, to $5.1 million during the year
ended December 31, 1997 compared with $3.0 million for the year ended December
31, 1996. The increase in net income during the 1997 period was primarily due to
a decrease in federal insurance premium of $2.5 million. The 1996 results
include a charge of $2.0 million to recapitalize the Savings Association
Insurance Fund
<PAGE>
(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
2.
PAMRAPO BANCORP, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Years Ended December 31, 1997 and 1996 (Cont'd.)
NET INCOME (Cont'd.)
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 increases in total
interest income of $400,000 and in non-interest income of $1.0 million, along
with decreases in provision for loan losses of $59,000 and non-interest expenses
of $721,000, excluding the aforementioned special assessment, which more than
offset increases in total interest expense of $481,000 and income taxes of $1.6
million.
INTEREST INCOME
Interest income on loans during the year ended December 31, 1997 decreased by
$492,000 or 2.56%, to $18.7 million when compared to $19.2 million during 1996.
During the years ended December 31, 1997 and 1996, the yield earned on the loan
portfolio was 9.10% and 9.00%, respectively. The average balance of loans
outstanding, during the years ended December 31, 1997 and 1996, totalled $205.6
million and $213.1 million, respectively.
Interest on mortgage-backed securities increased $1.3 million or 17.81%, during
the year ended December 31, 1997 to $8.6 million compared to $7.3 million for
1996. During the year ended December 31, 1997, the average balance of
mortgage-backed securities outstanding increased $18.5 million or 17.05% to
$127.0 million when compared to $108.5 million for 1996. The yield earned on the
mortgage-backed securities portfolio remained the same at 6.75% during 1997 and
1996. The increase in the average balance of mortgage-backed securities during
1997 resulted primarily from purchases of mortgage-backed securities which more
than offset principal repayments.
Interest earned on investment securities decreased by $398,000, or 43.93%, to
$508,000 for the year ended December 31, 1997, when compared to $906,000 for
1996. The decrease resulted from a decrease of $5.2 million or 44.21%, in the
average balance of the investment securities portfolio, which more than offset
an increase of four basis points in the yield earned on the investment
securities portfolio from 7.73% in 1996 to 7.77% in 1997.
Interest on other interest-earning assets amounted to $616,000 and $614,000
during the years ended December 31, 1997 and 1996, respectively. During the
years ended December 31, yield earned on other interest-earning assets increased
from 4.87% in 1996 to 5.56% in 1997, which more than offset a decrease of $1.5
million, or 12.06%, in the average balance of other interest-earning assets
outstanding.
INTEREST EXPENSE
Interest on deposits decreased $113,000, or 1.01%, to $11.1 million during the
year ended December 31, 1997 compared to $11.2 million for 1996. The decrease
during 1997 was attributable to a decrease of two basis points in the Bank's
average cost of interest-bearing deposits to 3.83% for 1997 from 3.84% for 1996,
along with a decrease of $2.0 million or .69%, in the average balance of
interest-bearing deposits outstanding.
<PAGE>
Interest on advances and other borrowed money increased $594,000, or 288.35%, to
$800,000 during the year ended December 31, 1997 compared to $206,000 for 1996.
The increase during 1997 was attributable to an increase of $8.4 million in the
average balance of advances and other borrowings outstanding, along with an
increase of 70 basis points in the Bank's cost of borrowings to 6.81% for 1997
from by 6.11% for 1996.
3.
PAMRAPO BANCORP, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Years Ended December 31, 1997 and 1996 (Cont'd.)
NET INTEREST INCOME
Net interest income for the year ended December 31, 1997, decreased $120,000, or
.72%, from $16.7 million for 1996 to $16.5 million for 1997. The Bank's net
interest rate spread decreased from 4.23% in 1996 to 4.17% in 1997 and its
interest rate margin decreased from 4.81% in 1996 to 4.72% in 1997. These
decreases primarily resulted from a seven basis point increase in the cost of
average interest-bearing liabilities from 3.87% in 1996 to 3.94% in 1997, which
was sufficient to offset a one basis point increase in the yield on
interest-earning assets to 8.11% in 1997 from 8.10% in 1996.
PROVISION FOR LOAN LOSSES
During the years ended December 31, 1997 and 1996, the Bank provided $586,000
and $644,000, respectively, for loan losses. At December 31, 1997 and 1996, the
Bank's loan portfolio included loans totalling $6.9 million and $10.5 million,
respectively, which were delinquent ninety days or more. The Bank maintains an
allowance for loan losses based on management's valuation 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 $2.5 million at December 31, 1997,
representing 1.15% of total loans and 35.62% of loans delinquent ninety days or
more compared to an allowance of $2.8 million at December 31, 1996, representing
1.32% of total loan and 26.69% of loans delinquent ninety days or more. During
the years ended December 31, 1997 and 1996, the Bank charged off loans
aggregating $928,000 and $638,000, 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 increased by $1.0 million or 157.54% to $1.7 million during
the year ended December 31, 1997 as compared to $650,000 for 1996. The increase
in non-interest income during 1997 resulted primarily from increases in fees and
service charges of $409,000, gain on sales of mortgage-backed securities of
$112,000, gain on sale of fixed assets of $247,000 and miscellaneous income of
$257,000. The increase during the 1997 period in the fees and service charges
resulted from a revised service fee schedule on various depository services.
During the year ended December 31, 1997, the proceeds from sales of
mortgage-backed securities totalled $7.6 million at a net gain of $112,000.
During the year ended December 31, 1997, the Bank sold its office building in
Hoboken, New Jersey for $815,000 at a gain of $247,000. During the 1997 period,
the increase in miscellaneous income resulted primarily from commissions earned
on the sales of annuities and mutual funds by Pamrapo Financial Center, a
subsidiary of the Bank.
NON-INTEREST EXPENSES
<PAGE>
Non-interest expenses decreased $2.7 million, or 21.89%, to $9.8 million during
the year ended December 31, 1997 compared to $12.5 million for 1996. On
September 30, 1996, legislation was enacted which, among other things, imposed a
one-time special assessment on SAIF member institutions, including the Bank. The
special assessment levied amounted to 65.7 basis points on SAIF assessable
deposits held as of March 31, 1995. The Bank, during the 1996 period, took a
charge of $2.0 million as a
4.
PAMRAPO BANCORP, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Years Ended December 31, 1997 and 1996 (Cont'd.)
NON-INTEREST EXPENSES (Cont'd.)
result of such assessment. Non-interest expenses, excluding the above-mentioned
one-time SAIF assessment of $2.0 million, decreased $721,000 or 6.86% to $9.8
million during the year ended December 31, 1997 compared to $10.5 million for
the year ended December 31, 1996. Salaries and employee benefits, legal
expenses, federal insurance premium and loss on foreclosed real estate decreased
$188,000, $387,000, $455,000 and $90,000, respectively, during the year ended
December 31, 1997, which were partially offset by increases in occupancy,
equipment, advertising, miscellaneous expenses by $82,000, $91,000, $75,000, and
$152,000, 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 totalled $2.8 million and $1.2 million during the years ended
December 31, 1997 and 1996, respectively. The increase in 1997 resulted
primarily from an increase in pre-tax income of $3.7 million from 1996 and a
reduction, during the 1996 period, 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, 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 resulted
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 in 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,
<PAGE>
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, totalled $213.1 million and $220.0 million,
respectively.
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 million 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 ten basis points from 6.65% in
1995 to 6.75% 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.
5.
PAMRAPO BANCORP, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Years Ended December 31, 1996 and 1995 (Cont'd.)
INTEREST INCOME (Cont'd.)
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 included U.S.
Government and agencies 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-earning 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.
<PAGE>
These decreases primarily resulted from a six basis points increase in the cost
of average interest-bearing liabilities from 3.81% in 1995 to 3.87% in 1996,
along with a 22 basis points decrease in the yield on interest-earning assist 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 totalling $10.5 million and $10.9 million,
respectively, which were delinquent ninety days or more.
6.
PAMRAPO BANCORP, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Years Ended December 31, 1996 and 1995 (Cont'd.)
PROVISION FOR LOAN LOSSES (Cont'd.)
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 $2.8 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.
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 expenses, 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 totalled $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
<PAGE>
$4.5 million from 1995 and a reduction of income tax expense of $250,000
resulting from the exercise of non-statutory stock options.
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 flows and loan
and mortgage-backed securities prepayments are greatly influenced by market
interest rates, economic conditions and competition.
7.
PAMRAPO BANCORP, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Cont'd.)
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 4.00%. The Bank's liquidity averaged 6.61% during
December 1997. 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, 1997 and 1996 amounted to $2.9 million
and $9.1 million, respectively.
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:
<PAGE>
Year Ended December 31
----------------------
1996 1997
-------- --------
(In Thousands)
Cash and cash equivalents - beginning $13,894 $21,143
-------- --------
Operating activities:
Net income 2,965 5,071
Adjustments to reconcile net income
to net cash provided by operating activities 411 1,547
-------- --------
Net cash provided by operating activities 3,376 6,618
Net cash provided by (used in) investing activities 15,358 (22,106)
Net cash (used in) provided by financing activities (11,485) 7,652
-------- --------
Net increase (decrease) in cash and cash equivalents 7,249 (7,836)
Cash and cash equivalents - ending $21,143 $13,707
======== ========
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 sources of financing activities during the 1997 period resulted from
purchase of 318,900 shares of the Company's common stock for treasury for $7.4
million, offset by a net increase in advances from the FHLB-NY of $10.0 million.
8.
PAMRAPO BANCORP, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Cont'd.)
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, 1997
and 1996, advances from the FHLB-NY amounted to $13.6 million and $3.6 million,
respectively.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At December 31, 1997, the Bank has outstanding
commitments to originate mortgage loans of $9.7 million. Certificates of deposit
scheduled to mature in one year or less, at December 31, 1997, totalled $117.9
million. Management believes that, based upon historical experience, a
significant portion of such deposits will remain with the Bank.
At December 31, 1997, the Bank exceeded each of the three OTS capital
requirements. The Bank's tangible, core and risk-based capital ratios were
11.67%, 11.67% and 25.15%, respectively. The Bank qualifies as
"well-capitalized" under the prompt corrective action regulations of the OTS.
<PAGE>
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
using "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, send
invoices, 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 adverse impact on the operations of the Bank.
The Bank has initiated formal communications with all of 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 Issue. 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 would 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.
9.
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.
<PAGE>
10.
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditors Report Thereon)
December 31, 1997
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditors Report Thereon)
------------------------------------------
INDEX
-----
Page
------
Management Responsibility Statement 1
Independent Auditors Report 2
Consolidated Statements of Financial Condition as of
December 31, 1996 and 1997 3-4
Consolidated Statements of Income for Each of the Years in the
Three-Year Period Ended December 31, 1997 5
Consolidated Statements of Changes in Stockholders Equity for Each of
the Years in the Three-Year Period Ended December 31, 1997 6
Consolidated Statements of Cash Flows for Each of the Years in the
Three-Year Period Ended December 31, 1997 7-8
Notes to Consolidated Financial Statements 9-32
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.
<PAGE>
INDEPENDENT AUDITORS REPORT
---------------------------
To The Board of Directors and Stockholders
Pamrapo Bancorp, Inc.
We have audited the consolidated statements of financial condition of Pamrapo
Bancorp, Inc. (the "Corporation") and Subsidiaries as of December 31, 1996 and
1997 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, 1997. 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, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
February 6, 1998
2
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------------
Assets Note(s) 1996 1997
- ------ -------------- -------------- --------------
<S> <C> <C> <C>
Cash and amounts due from depository institutions $ 12,042,656 $ 10,406,794
Interest-bearing deposits in other banks 9,000,000 2,900,000
Federal funds sold 100,000 -
-------------- --------------
Total cash and cash equivalents 1 and 16 21,142,656 13,306,794
Securities available for sale 1, 2, 8 and 16 22,232,193 11,849,202
Mortgage-backed securities held to maturity 1, 3, 8 and 16 96,726,545 126,108,914
Loans receivable 1, 4, 8 and 16 207,405,393 211,156,095
Foreclosed real estate 1 1,995,801 1,354,347
Investment in real estate 1 300,080 285,310
Premises and equipment 1, 5 and 9 3,630,828 3,482,178
Federal Home Loan Bank of New York stock 8 2,979,400 2,979,400
Interest receivable 1, 6 and 16 2,677,043 2,495,200
Deferred tax asset 1 and 13 1,496,514 1,369,891
Excess of cost over assets acquired 1 424,550 303,250
Other assets 13 1,899,475 2,023,581
-------------- --------------
Total assets $ 362,910,478 $ 376,714,162
============== ==============
</TABLE>
See notes to consolidated financial statements. 3
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
December 31,
------------------------------
Liabilities and stockholders' equity Note(s) 1996 1997
- ------------------------------------ ----------- ------------- -------------
<S> <C> <C> <C>
Liabilities
- -----------
Deposits 7 and 16 $ 300,785,420 $ 307,472,000
Advances from Federal Home Loan Bank of New York 8 and 16 3,583,100 13,583,100
Other borrowed money 9 and 16 293,094 273,623
Advance payments by borrowers for taxes and insurance 1,598,104 2,837,836
Other liabilities 13 3,141,799 4,014,488
------------- -------------
Total liabilities 309,401,517 328,181,047
------------- -------------
Commitments and contingencies 15 and 16 - -
Stockholders' equity 1, 10, 11, 12
- -------------------- and 13
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 (1996 and 1997); shares
outstanding 3,155,964 (1996) and 2,842,924 (1997) 34,500 34,500
Paid-in capital in excess of par value 18,906,768 18,906,768
Retained earnings - substantially restricted 40,944,218 43,007,228
Unrealized (loss) gain on securities available for sale, net (196,935) 10,553
Treasury stock, at cost;
294,036 shares (1996) and 607,076 shares (1997) (6,179,590) (13,425,934)
------------- -------------
Total stockholders' equity 53,508,961 48,533,115
------------- -------------
Total liabilities and stockholders' equity $ 362,910,478 $ 376,714,162
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
Note(s) 1995 1996 1997
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans 1 $ 20,445,023 $ 19,191,106 $ 18,699,348
Mortgage-backed securities 1 7,695,969 7,323,334 8,572,270
Investments 1 778,920 905,838 507,895
Other interest-earning assets 651,434 614,239 616,023
------------ ------------ ------------
Total interest income 29,571,346 28,034,517 28,395,536
------------ ------------ ------------
Interest expense:
Deposits 7 10,733,652 11,174,695 11,062,108
Advances and other borrowed money 722,556 205,937 799,585
------------ ------------ ------------
Total interest expense 11,456,208 11,380,632 11,861,693
------------ ------------ ------------
Net interest income 18,115,138 16,653,885 16,533,843
Provision for loan losses 1 and 4 411,301 644,466 585,555
------------ ------------ ------------
Net interest income after provision for loan losses 11,703,837 16,009,419 15,948,288
------------ ------------ ------------
Non-interest income:
Fees and service charges 457,319 431,924 841,389
Gain on sale of mortgage-backed securities 2 and 3 -- -- 111,583
Gain on sale of fixed assets -- -- 246,652
Miscellaneous 277,262 217,881 474,674
------------ ------------ ------------
Total non-interest income 734,581 649,805 1,674,298
------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 12 4,861,549 5,082,192 4,893,655
Net occupancy expense of premises 673,809 778,225 859,895
Equipment 773,991 775,360 866,005
Advertising 164,073 114,580 189,779
Lega 450,483 516,292 128,607
Federal insurance premium 14 718,276 2,684,879 207,389
Loss on foreclosed real estate 1 203,399 283,187 193,368
Amortization of intangibles 1 121,300 121,300 121,300
Miscellaneous 1,840,520 2,179,858 2,332,215
------------ ------------ ------------
Total non-interest expenses 9,807,400 12,535,873 9,792,213
------------ ------------ ------------
Income before income taxes 8,631,018 4,123,351 7,830,373
Income taxes 1 and 13 3,003,220 1,158,483 2,759,170
------------ ------------ ------------
Net income $ 5,627,798 $ 2,964,868 $ 5,071,203
============ ============ ============
Basic earnings per common share 1 $ 1.67 $ 0.90 $ 1.74
============ ============ ============
Diluted earnings per common stock 1 $ 1.65 $ 0.90 $ 1.74
============ ============ ============
Dividends per common share 1 $ 0.80 $ 0.90 $ 1.00
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
5.
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized Debt of
Paid-in Retained (loss) gain Employee
Capital in Earnings - on Securities Stock
Common Excess of Substantially Available Ownership
Stock Par Value Restricted For Sale, Net Plan
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1994 $ 34,500 $ 19,046,537 $ 38,819,470 $ (196,756) $ (347,156)
Net income for the year ended December 31, 1995 -- -- 5,627,798 -- --
Reduction in debt of Employee Stock Ownership Plan -- -- -- -- 198,375
Sale of treasury stock -- (139,769) (442,713) -- --
Decrease in unrealized loss
on securities available for sale, net of taxes -- -- -- 155,602 --
Amortization of cost of stock contributed to the
Management Recognition and Retention Trust -- -- -- -- --
Cash dividends -- -- (2,720,124) -- --
-------------- -------------- -------------- -------------- --------------
Balance- December 31, 1995 34,500 18,906,768 41,284,431 (41,154) (148,781)
Net income for the year ended December 31, 1996 -- -- 2,964,868 -- --
Reduction in debt of Employee Stock Ownership Plan -- -- 148,781
Purchase of treasury stock -- -- -- -- --
Sale of treasury stock -- -- (331,960) -- --
(Increase) in unrealized loss
on securities available for sale, net of taxes -- -- -- (155,781) --
Cash dividends -- -- (2,973,121) -- --
-------------- -------------- -------------- -------------- --------------
Balance - December 31, 1996 34,500 18,906,768 40,944,218 (196,935) --
Net income for the year ended December 31, 1997 -- -- 5,071,203 -- --
Purchase of treasury stock -- -- -- --
Sale of treasury stock -- -- (88,470) -- --
Decrease in unrealized loss
on securities available for sale, net of taxes -- -- 207,488 --
Cash dividends -- -- (2,919,723) -- --
-------------- -------------- -------------- -------------- --------------
Balance - December 31, 1997 $ 34,500 $ 18,906,768 $ 43,007,228 $ 10,553 $ --
============== ============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
6.
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,627,798 $ 2,964,868 $ 5,071,203
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment and
investment in real estate 313,669 324,807 350,147
Amortization of deferred fees, premiums and discounts, (248,824) (217,913) (185,294)
Provision for loan losses 411,301 644,466 585,555
Provision for losses on foreclosed real estate 142,000 166,003 144,747
(Gain) loss on sale of foreclosed real estate (24,888) 1,810 (46,433)
Gain on sale of fixed assets -- (246.652)
Gain on sale of mortgage-backed securities available for -- -- (5,519
Gain on sale of mortgage-backed securities held to maturity -- -- (106,064)
Deferred income taxes 205,290 131,066 5,023
Decrease in interest receivable 200,186 277,213 181,843
Decrease (increase) in other assets 159,109 (1,259,706) (124,106)
Amortization of intangibles 121,300 121,300 121,300
Amortization of cost of stock contributed to
Management Recognition and Retention Trust 20,854 -- --
Reduction in debt of Employee Stock Ownership Plan 198,375 148,781 --
(Decrease) increase in other liabilities (37,471) 73,532 872,689
------------ ------------ ------------
Net cash provided by operating activities 7,088,699 3,376,227 6,618,439
------------ ------------ ------------
Cash flows from investing activities:
Proceeds of maturities and calls of and
repayments on securities available for sale 8,305,558 8,827,985 6,718,879
Purchases of securities available for sale (2,000,000) (3,049,198) (65,220)
Proceeds from sale of securities
available for sale -- -- 3,992,226
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 14,260,873 12,504,961 16,228,312
Purchases of mortgage-backed securities held to (8,030,921) (12,679,914) (49,297,672)
Proceeds from sale of mortgage-backed securities
held to maturity -- -- 3,640,635
Proceeds from sale of student loans 764,745 770,672 685,386
Purchase of mortgage loans (62,000) (108,500) (391,550)
Net change in loans receivable 2,835,707 8,729,960 (3,976,415)
Proceeds from sale of foreclosed real estate 616,297 401,761 798,889
Capitalized costs on foreclosed real estate (237,993) -- --
Additions to premises and equipment (725,107) (224,655) (755,387)
Proceeds from sale of fixed assets -- -- 315,312
Additions to investment in real estate -- (6,900) --
(Purchase) redemption of Federal Home Loan Bank of
New York stock (48,000) 93,200 --
------------ ------------ ------------
Net cash provided by (used in) investing activities $ 13,680,409 $ 15,358,372 $(22,106,605)
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements. 7
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1996 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net (decrease) increase in deposits $ (7,008,887) $ 1,884,65X $ 6,686,580
Advances from Federal Home Loan Bank of New York 3,000,000 7,000,00X 14,000,000
Repayment of advances from Federal Home Loan Bank (13,000,000) (11,000,00X) (4,000,000)
of New York
Repayment of other borrowings (212,301) (166,76X) (19,471)
(Decrease) increase in advance payments by borrowers for (135,201) (34,11X) 1,239,732
taxes and insurance
Cash dividends paid (2,375,124) (3,318,12X) (2,919,723)
Purchase of treasury stock -- (6,179,18X) (7,369,153)
Proceeds from sales of treasury stock 721,382 327,97X 34,339
--------------- ------------- ---------------
Net cash (used in) provided by financing activities (19,010,131) (11,485,55X) 7,652,304
--------------- ------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,758,977 7,249,04X (7,835,862)
Cash and cash equivalents - beginning 12,134,632 13,893,60X 21,142,656
--------------- ------------- ---------------
Cash and cash equivalents - ending $ 13,893,609 $ 21,142,65X $ 13,306,794
=============== ============= ===============
Supplemental information
Transfer to securities available for sale from:
Investment securities $ 3,996,434 $ -- $ --
Mortgage-backed securities 11,050,443 -- --
--------------- ------------- ---------------
$ 15,046,877 $ -- $ --
=============== ============= ===============
Dividend payable $ 345,000 $ (345,00X) $ --
=============== ============= ===============
Change in unrealized gain (loss) on securities available
for sale, net $ 155,602 $ (155,781) $ 207,488
=============== ============= ===============
Transfer from loans receivable to foreclosed real estate $ 1,189,576 $ 2,175,77X $ 1,419,449
=============== ============= ===============
Loans to facilitate sales of foreclosed real estate $ 345,000 $ 1,077,80X $ 1,163,700
=============== ============= ===============
Mortgage loan in connection with sale of building $ -- $ -- $ 500,000
=============== ============= ===============
Cash paid during the period for:
Income taxes, net of refunds $ 2,705,465 $ 1,941,05X $ 2,034,382
=============== ============= ===============
Interest on deposits and borrowings $ 11,434,737 $ 11,421,97X $ 11,781,550
=============== ============= ===============
</TABLE>
See notes to consolidated financial statements. 8
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
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 statement of financial condition and
revenues and expenses for the period 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
-----------------------------------------
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 near
term are classified as trading
9
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
Investment and mortgage-backed securities (Cont'd.)
-----------------------------------------
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.
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 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.
10
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
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.
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.
11
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
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 are recorded in
operations.
Premises and equipment
----------------------
Premises and equipment are comprised of land, at cost, and buildings,
building improvements, leaseholds and furnishings and equipment, at cost,
less accumulated depreciation and amortization. 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.
Deferred income tax expense or benefit is determined by recognizing
deferred tax assets and liabilities for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period that includes the enactment date. The
realization of deferred tax assets is assessed and a valuation allowance
provided, when necessary, for that portion of the asset which is not likely
to be realized. Management believes, based upon current facts, that it is
more likely than not that there will be sufficient taxable income in future
years to realize the deferred tax assets.
12
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
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, to 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 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.
13
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
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
---------------------------
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share".
Statement No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") for entities with publicity
held common stock, or potential common stock. This statement simplifies the
standard for computing EPS previously found in Accounting Principles Board
Opinion No. 15. It replaces the presentation of primary EPS with basic EPS
and the presentation of fully diluted EPS with diluted EPS. Basic EPS is
computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issued common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Statement No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods, and requires the
restatement of all prior-period EPS data presented.
Impact of recent accounting standards
-------------------------------------
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 requires that all items that are components of
"comprehensive income" be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Comprehensive income is defined as the "change in equity [net assets] of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners". Companies will be required to (a) classify items
of other comprehensive income by their nature in the financial statements
and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. Statement No. 130 is
effective for fiscal years beginning after December 15, 1997 and requires
reclassification of prior periods presented. As the requirements of
Statement No. 130 are disclosure-related, its implementation will have no
impact on the Corporation's consolidated financial condition or results of
operation.
In June 1997, the FASB issued Statement No. 131, "Disclosure about Segments
of an Enterprise and Related Information". Statement No. 131 requires that
enterprises report certain financial and descriptive information about
operating segments in complete sets of financial statements of the company
and its condensed financial statements of interim periods issued to
shareholders. It also requires that a company report certain information
about their products and services, geographic areas in which they operate
and their major customers. Statement No. 131 is effective for fiscal years
beginning after December 15, 1997 and requires interim periods to be
presented in the second year of application. As the requirements of
Statement No. 131 are disclosure-related, its implementation will have no
impact on the Corporation's financial condition or results of operations.
14
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
Reclassification
- ----------------
Certain amounts for prior periods have been reclassified to conform to the
current period's presentation.
2. SECURITIES AVAILABLE FOR SALE
- --------------------------------
<TABLE>
<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
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
============ ========= ========== ============
<CAPTION>
December 31, 1997
-------------------------------------------------
Gross Unrealized
Amortized ---------------------- Carrying
Value Gains Losses Value
------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due after one year through five years $ 1,999,000 $ 16,620 $ - $ 2,015,620
After ten years 1,000,000 1,920 - 1,001,920
------------ --------- ---------- ------------
2,999,000 18,540 - 3,017,540
Mortgage-backed securities 7,712,311 18,925 153,928 7,577,308
Mutual funds 1,114,418 4,289 - 1,118,707
Equity security 7,020 128,627 - 135,647
------------ --------- ---------- ------------
$ 11,832,749 $ 170,381 $ 153,928 $ 11,849,202
============ ========= ========== ============
</TABLE>
There were no sales of securities available for sale during the years ended
December 31, 1995 and 1996. Proceeds from the sales of securities available for
sale during the year ended December 31, 1997 totalled $3,992,226. Gross gains of
$32,399 and gross losses of $26,880 were realized on those sales.
15
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
- ----------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------
Gross Unrealized
Carrying ------------------------- 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
============= ========== ========== =============
<CAPTION>
December 31, 1997
----------------------------------------------------------
Gross Unrealized
Carrying ------------------------- Estimated
Value Gains Losses Fair Value
------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation $ 91,984,480 $1,184,211 $ 91,719 $ 93,076,972
Federal National Mortgage Association 25,991,878 511,087 32,940 26,470,025
Government National Mortgage Association 8,132,556 98,617 1,378 8,229,795
------------- ---------- ---------- -------------
$ 126,108,914 $1,793,915 $ 126,037 $ 127,776,792
============= ========== ========== =============
</TABLE>
There were no sales of mortgage-backed securities during the years ended
December 31, 1995 and 1996. During the year ended December 31, 1997, proceeds
from the sales of mortgage-backed securities held to maturity totalled
$3,640,635 and resulted in gross gains and losses of $115,069 and $9,005,
respectively. The securities sold had an outstanding principal balance of less
than fifteen percent of their original principal balances and, as provided for
in Statement No. 115, were permitted to be sold out of the held to maturity
portfolio.
16
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. LOANS RECEIVABLE
- -------------------
December 31,
-----------------------------
1996 1997
-------------- --------------
Real estate mortgage:
One-to-four family $ 118,524,480 $ 120,344,198
Multi-family 34,051,393 32,872,720
Commercial 21,604,331 21,323,826
FHA insured and VA guaranteed 1,520,105 1,085,808
-------------- --------------
175,700,309 175,626,552
-------------- --------------
Real estate construction 1,590,500 2,031,948
-------------- --------------
Land 395,276 605,862
-------------- --------------
Consumer:
Passbook or certificate 391,074 431,303
Home improvement 445,890 440,314
Equity and second mortgage 30,683,482 33,586,539
Student education 1,350,655 752,973
Automobile 1,106,921 1,210,292
Personal 1,157,891 1,444,871
-------------- --------------
35,135,913 37,866,292
-------------- --------------
Total 212,821,998 216,130,654
-------------- --------------
Less: Loans in process 465,700 570,700
Allowance for loan losses 2,800,000 2,475,000
Deferred loan fee and discounts 2,150,905 1,928,859
-------------- --------------
5,416,605 4,974,559
-------------- --------------
$ 207,405,393 $ 211,156,095
============== ==============
At December 31, 1995, 1996 and 1997, loans serviced by the Savings Bank for the
benefit of others totalled approximately $7,593,000, $6,240,000 and $4,943,000,
respectively.
At December 31, 1995, 1996, and 1997, nonaccrual loans for which interest has
been discontinued totalled approximately $7,624,000, $6,928,000 and $5,041,000
respectively. During the years ended December 31, 1995, 1996 and 1997, the
Savings Bank recognized interest income of approximately $260,000, $172,000 and
$144,000, respectively, on these loans. Interest income that would have been
recorded, had the loans been on the accrual status, would have amounted to
approximately $745,000, $665,000 and $491,000 for the years ended December 31,
1995, 1996 and 1997 respectively. The Savings Bank is not committed to lend
additional funds to the borrowers whose loans have been placed on nonaccrual
status.
17
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. LOANS RECEIVABLE (Cont'd.)
- ---------------------
The following is an analysis of the allowance for loan losses:
Year Ended December 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
Balance, beginning $ 3,650,000 $ 2,725,000 $ 2,800,000
Provisions charged to operations 411,301 644,466 585,555
Recoveries credited to allowance 5,174 68,906 17,144
Loan losses charged to allowance (1,341,475) (638,372) (927,699)
----------- ----------- -----------
Balance, ending $ 2,725,000 $ 2,800,000 $ 2,475,000
=========== =========== ===========
Impaired loans and related amounts recorded in the allowance for loan losses
are summarized as follows:
December 31,
-----------------------------
1996 1997
------------- -------------
Recorded investment in impaired loans:
With recorded allowances $ 2,363,504 $ 1,490,362
Without recorded allowances 4,569,944 3,361,451
------------- -------------
Total impaired loans 6,933,448 4,851,813
------------- -------------
Related allowance for loan losses 839,504 616,349
------------- -------------
Net impaired loans $ 6,093,944 $ 4,235,464
============= =============
The activity with respect to loans to directors, officers and associates of such
persons, is as follows:
Year Ended December 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
Balance, beginning $ 3,347,813 $ 2,939,661 $ 3,341,861
Loans originated 65,000 1,034,065 522,580
Collection of principal (135,622) (631,865) (743,232)
Persons no longer associated (337,530) -- --
----------- ----------- -----------
Balance, ending $ 2,939,661 $ 3,341,861 $ 3,121,209
=========== =========== ===========
18
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES: TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
5. PREMISES AND EQUIPMENT
- ---------------------------
December 31,
----------------------------
1996 1997
----------- -----------
Land $ 987,649 $ 701,625
----------- -----------
Buildings and improvements 3,248,967 2,988,834
Less accumulated depreciation 1,201,684 1,242,349
----------- -----------
2,047,283 1,746,485
----------- -----------
Leasehold improvements -- 413,741
Less accumulated amortization -- (8,382)
----------- -----------
-- 405,359
----------- -----------
Furnishings and equipment 3,909,753 4,100,874
Less accumulated depreciation 3,313,857 3,472,165
----------- -----------
595,896 628,709
----------- -----------
$ 3,630,828 $ 3,482,178
=========== ===========
Depreciation expense for the years ended December 31, 1995, 1996 and 1997
totalled approximately $300,000, $311,000 and $350,000, respectively.
Depreciation charges are computed on the straight-line method over the following
estimated useful lives:
Buildings and improvements 10 to 50 years
Leasehold improvements 20 years
Furnishings and equipment 3 to 10 years
6. INTEREST RECEIVABLE
- -------------------------
December 31,
-------------------------
1996 1997
----------- -----------
Loans, net of allowance for uncollected
interest of approximately $263,000 and
$ 280,000, respectively $1,728,159 $1,580,275
Mortgage-backed securities 747,692 829,217
Investments and other interest-earning assets 201,192 85,708
----------- -----------
$2,677,043 $2,495,200
=========== ===========
19
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
7. DEPOSITS
-------------
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1996 1997
-------------------------------------------------------------------------------
Weighted Weighted
Average Average
Rate Amount Percent Rate Amount Percent
---------- ------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Demand:
Non-interest-bearing 0.00% $ 11,868,794 3.94 0.00% $ 14,855,660 4.83
NOW 2.50% 18,855,061 6.27 2.00% 19,917,411 6.48
------------- ----------- ------------- ----------
30,723,855 10.21 34,773,071 11.31
Money Market 2.87% 22,140,456 7.36 2.75% 22,213,618 7.22
Savings and club 2.75% 111,706,195 37.14 2.75% 109,475,872 35.61
Certificates of deposit 5.03% 136,214,914 45.29 5.10% 141,009,439 45.86
------------- ----------- ------------- ----------
3.68% $ 300,785,420 100.00 3.65% $ 307,472,000 100.00
============= =========== ============= ==========
</TABLE>
The scheduled maturities of certificates of deposit are as follows:
December 31,
------------------------
Maturity Period 1996 1997
- ---------------------- ---------- ----------
(In Thousands)
One year or less $ 112,663 $ 117,901
After one to three years 18,850 20,183
After three years 4,702 2,925
---------- ----------
$ 136,215 $ 141,009
========== ==========
Certificates of deposit of $100,000 or more by the time remaining until maturity
are as follows:
Maturity Period December 31,
- ---------------------- --------------------------
1996 1997
---------- ----------
(In Thousands)
Three months or less $ 5,237 $ 7,160
After three through six months 5,753 8,096
After six through twelve months 5,807 6,611
After twelve months 3,237 4,551
---------- ----------
$ 20,034 $ 26,418
========== ==========
20
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DEPOSITS (Cont'd.)
- ------------
A summary of interest on deposits follows:
<TABLE>
<CAPTION>
Year Ended December 31 ,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Demand $ 1,076,669 $ 1,078,983 $ 993,986
Savings and club 3,316,174 3,166,105 3,077,839
Certificates of deposit 6,357,405 6,939,953 7,002,181
------------ ------------ ------------
10,750,248 11,185,041 11,074,006
Less penalties for early withdrawal
of certificates of deposit (16,596) (10,346) (11,898)
------------ ------------ ------------
$ 10,733,652 $ 11,174,695 $ 11,062,108
============ ============ ============
</TABLE>
8. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK
- -----------------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1996 1997
---------------------------- ----------------------------
Weighted Weighted
Average Average
Interest Interest
December 31, Rate Amount Rate Amount
- ----------- -------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
1999 6.47% $ 3,000,000 6.47% $ 3,000,000
2000 - - 6.27% 5,000,000
2001 5.10% 243,100 5.10% 243,100
2002 - - 6.51% 5,000,000
2003 4.52% 340,000 4.62% 340,000
------------- ---------------
6.20% $ 3,583,100 6.34% $ 13,583,100
============= ===============
</TABLE>
At December 31, 1996 and 1997, 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 $2,979,400 and a blanket assignment of the Savings Bank's
unpledged qualifying mortgage loans, mortgage-backed securities and securities
portfolios.
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
9. OTHER BORROWED MONEY
- -------------------------
December 31,
---------------------------------------------
1996 1997
--------------------- -----------------------
Interest Interest
Rate Amount Rate Amount
--------- ----------- ---------- -----------
Mortgage loan 8.00 $ 293,094 8.00% $ 273,623
=========== ===========
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 $405,000
and $399,000 at December 31, 1996 and 1997, respectively.
10. STOCK REPURCHASE PROGRAM
- ------------------------------
During the years ended December 31, 1996 and 1997, the Corporation repurchased
294,000 and 318,900 shares, respectively, of its own common stock, at prices
ranging from $18.75 to $23.50 per common share, at a total cost of $6,179,188
and $7,369,153, respectively, under stock repurchase programs approved by the
Corporation's Board of Directors.
11. 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 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 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.
22
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
11. REGULATORY CAPITAL Cont'd.)
- ----------------------
The following table sets forth the capital position of the Savings Bank as
calculated as of December 31, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
------------------- ------------------- --------------------
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Capital as calculated under GAAP $ 45,395 12.10 $ 45,395 12.1 $ 45,395 25.02
Deduct investment in nonincludable
subsidiary and goodwill (1,608) (.43) (1,608) (.4) (1,608) (.89)
Deduct: Unrealized gain on securities
available for sale (10) -- (10) -- (10) --
Add qualifying general loan loss allowance,
as limited by regulation -- -- -- -- 1,856 1.02
-------- ------ -------- ------ -------- ------
Capital, as calculated 43,777 11.67 43,777 11.6 45.633 25.15
Capital, as required 5,627 1.50 11,254 3.0 14,513 8.00
-------- ------ -------- ------ -------- ------
Excess $ 38,150 10.17 $ 32,523 8.6 $ 31,120 17.15
======== ====== ======== ====== ======== ======
</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, 1997, that the Savings
Bank meets all capital adequacy requirements to which it is subject.
As of June 9, 1997, 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.
12. 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.
23
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BENEFIT PLANS (Cont'd)
- -------------------
The following tables set forth the plan's funded status and components of net
periodic pension cost:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation including vested
benefits of $2,3l5,961 (1996) and $2,522,509 (1997) $ 2,364,277 $ 2,581,863
=========== ===========
Projected benefit obligation $(3,034,030) $(3,275,432)
Plan assets at fair value 2,535,533 3,120,434
----------- -----------
Projected benefit obligation in excess of plan assets (498,497) (154,998)
Unrecognized net loss 435,857 129,314
Unrecognized transaction obligation 36,391 --
----------- -----------
Accrued pension cost $ (26,249) $ (25,684)
=========== ===========
<CAPTION>
Year Ended December 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net periodic pension cost included the following components:
Service cost $ 155,522 $ 165,174 $ 175,878
Interest cost 195,253 202,020 225,244
Actual return on plan assets (295,446) (116,162) (201,209)
Net amortization and deferral 231,160 (8,606) 36,391
--------- --------- ---------
Net periodic pension cost $ 286,489 $ 242,426 $ 236,304
========= ========= =========
</TABLE>
Assumptions used in the accounting for the plan are as follows:
Year Ended December 31,
-----------------------
1995 1996 1997
----- ----- -----
Discount rate 7.50% 7.50% 7.50%
Rate of increase in compensation 4.50% 4.00% 4.00%
Long-term rate of return on plan assets 7.50% 8.00% 8.00%
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, $92,000, $109,000 and
$103,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
24
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BENEFIT PLANS (Cont'd.)
- -------------------
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 his compensation reduced by his 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, $76,000 and $174,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
Stock option plan
-----------------
The following table summarizes the transactions in the stock option
plan:
Number Price
of Shares Per Share
--------- --------------
Balance - December 31, 1994 188,052 $5.75 - $6.375
Exercised 125,262 5.75 - 6.375
---------
Balance - December 31, 1995 62,790 5.75 - 6.375
Exercised 56,930 5.75 - 6.375
---------
Balance - December 31, 1996 5,860 5.75 - 6.375
Exercised 5,860 5.75 - 6.375
---------
Balance - December 31, 1997 --
=========
25
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
13. 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, 1997, 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 $1,026,000 and $323,000 at December
31, 1996 and 1997, 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:
December 31,
-----------------------
Deferred tax assets 1996 1997
- ------------------- ---------- ----------
Allowance for loan losses $ 595,875 $ 638,125
Deferred loan fees 635,947 512,087
Depreciation 36,375 13,631
Reserve for uncollected interest 94,398 100,634
Benefit plans 17,278 110,670
Unrealized loss on securities available for sale 115,700 --
Other 941 644
---------- ----------
1,496,514 1,375,791
Deferred tax liabilities
- ------------------------
Unrealized gain on securities available for sale -- 5,900
---------- ----------
Net deferred tax assets $1,496,514 $1,369,891
========== ==========
The components of income taxes are summarized as follows:
Year Ended December 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
Current $2,797,930 $1,027,417 $2,754,147
Deferred 205,290 131,066 5,023
---------- ---------- ----------
$3,003,220 $1,158,483 $2,759,170
========== ========== ==========
26
<PAGE>
PAMRAPO BANCORP, INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
13. INCOME TAXES (Cont'd.)
- ----------------
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,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal income tax $ 2,934,516 $ 1,401,939 $ 2,662,327
Increases (reductions) in income taxes resulting from:
Non-statutory stock options and other benefit plans (66,060) (315,680) (86,391)
New Jersey savings institution
tax, net of federal income tax effect 173,043 83,714 158,661
Other items, net (38,279) (11,490) 24,573
----------- ----------- -----------
Effective income tax $ 3,003,220 $ 1,158,483 $ 2,759,170
=========== =========== ===========
</TABLE>
14. LEGISLATIVE MATTER
- ----------------------
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAW") 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.
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 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.
27
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
15. COMMITMENTS AND CONTINGENCIES
- ---------------------------------
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
notional 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 contact. 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 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.
The Savings Bank had loan commitments outstanding as follows:
December 31,
---------------------------
1996 1997
----------- -----------
To originate loans $ 3,499,000 $ 9,674,000
=========== ===========
At December 31, 1997, the outstanding commitments to originate loans includes
$9,151,000 of loans at fixed interest rates which range from 6.375% to 10% and
$523,000 of loans with adjustable rates with initial rates that range from
6.125% to 7.00%. All commitments are due to expire within ninety days.
At December 31, 1997, undisbursed funds from approved lines of credit under a
homeowners' equity lending program amounted to approximately $761,000. Unless
they are specifically cancelled by notice from the Savings Bank, these funds
represent firm commitments available to the respective borrowers on demand. The
interest rate charged for any month on funds disbursed under this program is
1.75% above the prime rate.
Rental expenses related to the occupancy of premises totalled $60,000, $70,000
and $98,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
At December 31, 1997, minimum non-cancellable obligations under lease agreements
with original terms of more than one year are as follows:
December Amount
31,
------------ ----------
1998 $ 188,722
1999 189,877
2000 191,077
2001 193,477
Thereafter 1,446,401
----------
$2,209,554
==========
28
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
15. COMMITMENTS AND CONTINGENCIES (Cont'd)
- -----------------------------------
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.
16. FAIR VALUES OF FINANCIAL INSTRUMENTS
- ----------------------------------------
The carrying amounts and fair value of the Corporation's financial instruments
are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1996 1997
--------------------- ----------------------
Carrying Carrying
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
Financial Assets (In Thousands)
----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 21,143 $ 21,143 $ 13,307 $ 13,307
Securities available for sale 22,232 22,232 11,849 11,849
Mortgage-backed securities held to maturity 96,727 96,099 126,109 127,777
Loans receivable 207,405 212,285 211,156 216,349
Interest receivable 2,677 2,677 2,495 2,495
Financial Liabilities
---------------------
Deposits 300,785 301,550 307,472 308,345
Advances and other borrowed money 3,876 3,881 13,857 13,980
Commitments
-----------
To originate loans 3,499 3,499 9,674 9,674
To purchase mortgage-backed securities 1,011 1,011 -- --
</TABLE>
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.
29
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
16. FAIR VALUES OF FINANCIAL INSTRUMENTS (Cont'd.)
- -----------------------------------------
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.
17. 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
---------------------------------
December 31,
---------------------------
Assets 1996 1997
------ ------------ -----------
Cash and cash equivalents $ 3,007,318 $ 2,933,564
Investment in subsidiary 46,953,894 45,394,268
Loan receivable 3,000,000 -
Refundable income taxes 525,050 184,216
Other assets 84,844 108,622
------------ ------------
Total assets $ 53,571,106 $ 48,620,670
============ ============
Liabilities and stockholders' equity
- ------------------------------------
Liabilities
- -----------
Other liabilities $ 62,145 $ 87,555
------------ ------------
Total liabilities 62,145 87,555
------------ ------------
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 40,747,283 43,017,781
restricted
Treasury stock, at cost (6,179,590) (13,425,934)
------------ ------------
Total stockholders' 53,508,961 48,533,115
------------ ------------
Total liabilities and stockholders' equity $ 53,571,106 $ 48,620,670
============ ============
30
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
17. PARENT CORPORATION FINANCIAL INFORMATION (Cont'd.)
- --------------------------------------------
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
Dividends from subsidiary $ -- $ 8,400,000 $ 7,000,000
Interest income 5,578 305,752 65,885
----------- ----------- -----------
Total income 5,578 8,705,752 7,065,885
Expenses 368,249 663,855 411,584
----------- ----------- -----------
(362,671) 8,041,897 6,654,301
Equity in undistributed earnings of subsidiary 5,875,821 (5,485,098) (1,767,114)
----------- ----------- -----------
Income before income taxes (benefit) 5,513,150 2,556,799 4,887,187
Income taxes (benefit) (114,648) (408,069) (184,016)
----------- ----------- -----------
Net income $ 5,627,798 $ 2,964,868 $ 5,071,203
=========== =========== ===========
<CAPTION>
STATEMENTS OF CASH FLOWS
------------------------
Year Ended December 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,627,798 $ 2,964,868 $ 5,071,203
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Equity in undistributed earnings of subsidiary (5,875,821) 5,485,098 1,767,114
Decrease (increase) in refundable income taxes 31,808 (408,219) 340,834
(Increase) in other assets (33,417) (31,649) (23,778)
Increase in other liabilities 14,083 94 25,410
------------ ------------ ------------
Net cash (used in) provided by operating
activities (235,549) 8,010,192 7,180,783
------------ ------------ ------------
Cash flows from investing activities:
(Increase) decrease in loans receivable (6,000,000) 3,000,000 3,000,000
------------ ------------ ------------
Net cash (used in) provided by investing
activities (6,000,000) 3,000,000 3,000,000
------------ ------------ ------------
Cash flows from financing activities:
Cash dividends paid (2,375,124) (3,318,121) (2,9l9,723)
Purchase of treasury stock -- (6,179,188) (7,369,153)
Sale of treasury stock 721,382 327,973 34,339
------------ ------------ ------------
Net cash used in financing activities (1,653,742) (9,169,336) (10,254,537)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (7,889,291) 1,840,856 (73,754)
Cash and cash equivalents - beginning 9,055,753 1,166,462 3,007,318
------------ ------------ ------------
Cash and cash equivalents - ending $ 1,166,462 $ 3,007,318 $ 2,933,564
============ ============ ============
</TABLE>
31
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
Year Ended December 31, 1996 Quarter Quarter Quarter Quarter
- ---------------------------- ---------- ---------- ---------- ----------
(In Thousands, except for per share amounts)
<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
========== ========== ========== ==========
Basic earning per common share $ 0.35 $ 0.32 $ (0.11) $ 0.34
========== ========== ========== ==========
Diluted earnings per common share $ 0.35 $ 0.32 $ (0.11) $ 0.34
========== ========== ========== ==========
Dividends per common share $ 0.225 $ 0.225 $ 0.225 $ 0.225
========== ========== ========== ==========
<CAPTION>
First Second Third Fourth
Year Ended December 31, 1997 Quarter Quarter Quarter Quarter
- ---------------------------- ---------- ---------- ---------- ----------
(In Thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 6,937 $ 7,134 $ 7,134 $ 7,191
Interest expense 2,796 2,976 3,026 3,064
---------- ---------- ---------- ----------
Net interest income 4,141 4,158 4,108 4,127
Provision for loan losses 150 150 150 136
Non-interest income 397 284 373 620
Non-interest expenses 2,313 2,281 2,401 2,797
Income taxes 762 751 665 581
---------- ---------- ---------- ----------
Net income $ 1,313 $ 1,260 $ 1,265 $ 1,233
========== ========== ========== ==========
Basic earning per common share $ 0.42 $ 0.44 $ 0.44 $ 0.44
========== ========== ========== ==========
Diluted earnings per common share $ 0.42 $ 0.44 $ 0.44 $ 0.44
========== ========== ========== ==========
Dividends per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25
========== ========== ========== ==========
</TABLE>
32
<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 6, 1998, included in the 1997 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, 1997.
/s/ Radics & Co., LLC
---------------------------
Radics & Co., LLC
March 30, 1998
- --------------
Pine Brook, New Jersey
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PAMRAPO
BANCORP, INC'S FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS, WHICH ARE
CONTAINED IN THE FORM 10-K FILING OF PAMRAPO BANCORP, INC. FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000854071
<NAME> PAMRAPO BANCORP, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,406,794
<INT-BEARING-DEPOSITS> 2,900,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,849,202
<INVESTMENTS-CARRYING> 126,108,914
<INVESTMENTS-MARKET> 127,776,792
<LOANS> 213,631,095
<ALLOWANCE> 2,475,000
<TOTAL-ASSETS> 376,714,162
<DEPOSITS> 307,472,000
<SHORT-TERM> 13,856,723
<LIABILITIES-OTHER> 6,852,324
<LONG-TERM> 0
0
0
<COMMON> 34,500
<OTHER-SE> 48,498,615
<TOTAL-LIABILITIES-AND-EQUITY> 376,714,162
<INTEREST-LOAN> 18,699,348
<INTEREST-INVEST> 9,080,165
<INTEREST-OTHER> 616,023
<INTEREST-TOTAL> 28,395,536
<INTEREST-DEPOSIT> 11,062,108
<INTEREST-EXPENSE> 11,861,693
<INTEREST-INCOME-NET> 16,533,843
<LOAN-LOSSES> 585,555
<SECURITIES-GAINS> 111,583
<EXPENSE-OTHER> 9,792,213
<INCOME-PRETAX> 7,830,373
<INCOME-PRE-EXTRAORDINARY> 7,830,373
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,071,203
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.74
<YIELD-ACTUAL> 8.11
<LOANS-NON> 5,042,000
<LOANS-PAST> 1,907,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,171,488
<ALLOWANCE-OPEN> 2,800,000
<CHARGE-OFFS> 927,699
<RECOVERIES> 17,144
<ALLOWANCE-CLOSE> 2,475,000
<ALLOWANCE-DOMESTIC> 619,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,856,000
</TABLE>
