<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
-----------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________________________
Commission File Number 0-18014
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PAMRAPO BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-2984813
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
611 Avenue C, Bayonne, New Jersey 07002
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 201-339-4600
including area code
----------------------------------------------
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date April 30, 1998.
--------------
$.01 par value common sock - 2,842,924 shares outstanding
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION Number
------
Item 1: Financial Statements
Consolidated Statements of Financial Condition
at March 31, 1998 and December 31, 1997 (Unaudited) 1
Consolidated Statements of Income for the
Three Months Ended March 31, 1998 and 1997 (Unaudited) 2
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 (Unaudited) 4 - 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 12
Item 3: Quantitative and Qualitative Disclosure About Market Risk 13 - 14
PART II - OTHER INFORMATION 15 - 16
SIGNATURES 17
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
-------------- --------------
ASSETS 1998 1997
- ------ -------------- --------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 9,917,553 $ 10,406,794
Interest-bearing deposits in other banks 10,000,000 2,900,000
-------------- --------------
Total cash and cash equivalents 19,917,553 13,306,794
Securities available for sale 10,641,865 11,849,202
Mortgage-backed securities held to maturity; estimated
fair value of $123,801,000 (1998) and $127,777,000 (1997) 121,400,590 126,108,914
Loans receivable 215,798,004 211,156,095
Foreclosed real estate 1,414,730 1,354,347
Investment in real estate 281,617 285,310
Premises and equipment 3,627,128 3,482,178
Federal Home Loan Bank stock, at cost 3,097,200 2,979,400
Interest receivable 2,400,030 2,495,200
Excess of cost over assets acquired 272,925 303,250
Other assets 2,592,564 3,393,472
-------------- --------------
Total assets $ 381,444,206 $ 376,714,162
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $ 309,105,882 $ 307,472,000
Advances from Federal Home Loan Bank 13,583,100 13,583,100
Other borrowed money 268,507 273,623
Advance payments by borrowers for taxes and insurance 4,464,297 2,837,836
Other liabilities 5,114,425 4,014,488
-------------- --------------
Total liabilities 332,536,211 328,181,047
-------------- --------------
Stockholders' equity:
Preferred stock; authorized 3,000,000 shares;
issued and outstanding - none
Common stock; par value $.01; authorized 7,000,000 shares;
3,450,000 shares issued; 2,842,924 shares outstanding 34,500 34,500
Paid-in capital in excess of par value 18,906,768 18,906,768
Retained earnings - substantially restricted 43,366,194 43,007,228
Unrealized gain on securities available for sale, net 26,467 10,553
Treasury stock, at cost; 607,076 shares (13,425,934) (13,425,934)
-------------- --------------
Total stockholders' equity 48,907,995 48,533,115
-------------- --------------
Total liabilities and stockholders' equity $ 381,444,206 $ 376,714,162
============== ==============
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------
(Unaudited)
Three Months Ended
March 31,
------------------------
1998 1997
---------- ----------
Interest income:
Loans $4,741,404 $4,727,918
Mortgage-backed securities 2,231,183 1,848,094
Investments and other interest-earning assets 234,375 361,718
---------- ----------
Total interest income 7,206,962 6,937,730
---------- ----------
Interest expense:
Deposits 2,813,725 2,725,743
Advances and other borrowed money 220,114 70,750
---------- ----------
Total interest expense 3,033,839 2,796,493
---------- ----------
Net interest income 4,173,123 4,141,237
Provision for loan losses 75,000 150,000
---------- ----------
Net interest income after provision for loan losses 4,098,123 3,991,237
---------- ----------
Non-interest income:
Fees and service charges 202,087 185,096
Gain on sale of mortgage-backed securities -- 111,583
Miscellaneous 136,546 100,204
---------- ----------
Total non-interest income 338,633 396,883
---------- ----------
Non-interest expenses:
Salaries and employee benefits 1,399,473 1,190,070
Net occupancy expense of premises 236,868 200,578
Equipment 242,956 203,982
Advertising 32,260 36,637
Loss on foreclosed real estate 17,484 43,920
Federal insurance premium 47,457 48,860
Amortization of intangibles 30,325 30,325
Miscellaneous 609,315 558,927
---------- ----------
Total non-interest expenses 2,616,138 2,313,299
---------- ----------
Income before income taxes 1,820,618 2,074,821
Income taxes 665,633 761,952
---------- ----------
Net income $1,154,985 $1,312,869
========== ==========
Basic and diluted earnings per common share $ 0.41 $ 0.42
========== ==========
Dividends per common share $ 0.28 $ 0.25
========== ==========
Weighted average number of common shares
and common stock equivalents outstanding:
Basic 2,842,924 3,151,908
Diluted 2,842,924 3,155,146
========== ==========
See notes to consolidated financial statements. -2-
<PAGE>
PAMRAPO BANCCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income $ 1,154,985 $ 1,312,869
----------- -----------
Other comprehensive income, net of income taxes:
Unrealized holdings gain (loss) on
securities available for sale 15,914 (54,995)
Less reconciliation adjustment for realized gains -- (3,477)
----------- -----------
Other comprehensive income 15,914 (58,472)
----------- -----------
Comprehensive income $ 1,170,899 $ 1,254,397
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,154,985 $ 1,312,869
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation of premises and equipment
and investment in real estate 109,124 80,251
Accretion of deferred fees, premiums and discounts, net (47,365) 7,512
Gain on sale of mortgage-backed securities -- (111,583)
Provision for loan losses 75,000 150,000
Provision for losses on foreclosed real estate 12,000 45,342
(Gain) on sales of foreclosed real estate (1,826) (24,771)
Decrease (increase) in interest receivable 95,170 (10,343)
Decrease in other assets 792,008 393,246
Increase in other liabilities 1,099,937 1,501,548
Amortization of intangibles 30,325 30,325
------------ ------------
Net cash provided by operating activities 3,319,358 3,374,396
------------ ------------
Cash flow from investing activities:
Proceeds from calls and maturities of securities available for sale 1,000,000 2,000,000
Proceeds from sales on securities available for sale -- 3,992,226
Principal repayments on securities available for sale 242,139 557,165
Purchases of securities available for sale (19,504) (15,909)
Proceeds from sales of mortgage-backed securities held to maturity -- 3,640,635
Principal repayments on
mortgage-backed securities held to maturity 6,715,467 3,210,894
Purchases of mortgage-backed securities held to maturity (2,042,725) (18,078,028)
Purchases of loans (108,000) --
Proceeds from sales of student loans 57,722 59,102
Net change in loans receivable (4,835,051) 2,210,212
Proceeds from sales of foreclosed real estate 190,326 93,193
Additions to premises and
equipment and investment in real estate (250,381) (9,499)
Purchase of Federal Home Loan Bank stock (117,800) --
------------ ------------
Net cash provided by (used in) investing activities 832,193 (2,340,009)
------------ ------------
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 1,633,882 $ 92,250
Net increase in advances from Federal Home Loan Bank -- 9,000,000
Net (decrease) in other borrowed money (5,116) (4,723)
Net increase in payments by borrowers for taxes and insurance 1,626,461 342,190
Purchase of treasury stock -- (6,976,650)
Proceeds from sale of treasury stock -- 34,339
Cash dividends paid (796,019) (794,249)
------------ ------------
Net cash provided by financing activities 2,459,208 1,693,157
------------ ------------
Net increase in cash and cash equivalents 6,610,759 2,727,544
Cash and cash equivalents - beginning 13,306,794 21,142,656
------------ ------------
Cash and cash equivalents - ending $ 19,917,553 $ 23,870,200
============ ============
Supplemental information:
Transfer of loans receivable to foreclosed real estate $ 260,883 $ 150,644
============ ============
Loans to facilitate sales of foreclosed real estate $ -- $ 314,800
============ ============
Change in unrealized gain (loss) on securities available for sale $ 15,914 $ (58,472)
============ ============
Cash paid during the period for:
Income taxes, net of refunds $ -- $ 16,870
============ ============
Interest on deposits and borrowings $ 3,033,839 $ 2,796,493
============ ============
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. PRINCIPLES OF CONSOLIDATION
- --------------------------------
The consolidated financial statements include the accounts of Pamrapo Bancorp,
Inc. (the "Corporation") and its wholly owned subsidiaries, Pamrapo Savings
Bank, SLA (the "Bank") and Pamrapo Service Corp, Inc. The Corporation's business
is conducted principally through the Bank. All significant intercompany accounts
and transactions have been eliminated in consolidation.
2. BASIS OF PRESENTATION
- --------------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and regulations S-X and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements have been included.
The results of operations for the three months ended March 31, 1998, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
3. NET INCOME PER COMMON SHARE
- --------------------------------
Basic net income per common share is based on the weighted average number of
common shares actually outstanding. Diluted net income per share is calculated
by adjusting the weighted average number of shares of common stock outstanding
to include the effect of stock options if dilutive, using the treasury stock
method.
-6-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Changes in Financial Condition
The Corporation's assets at March 31, 1998 totalled $381.4 million, which
represents an increase of $4.7 million or 1.25% as compared with $376.7 million
at December 31, 1997.
Securities available for sale at March 31, 1998 decreased $1.2 million or 10.17%
to $10.6 million when compared with $11.8 million at December 31, 1997. The
decrease during the three months ended March 31, 1998, resulted primarily from
calls of securities available for sale of $1.0 million and repayments on
securities available for sale of $242,000.
Mortgage-backed securities held to maturity decreased $4.7 million or 3.73% to
$121.4 million at March 31, 1998 when compared to $126.1 million at December 31,
1997. The decrease during three months ended March 31, 1998, resulted from
principal repayments of $6.7 million, sufficient to offset purchases of $2.0
million.
Net loans amounted to $215.8 million at March 31, 1998 as compared to $211.2
million at December 31, 1997, which represents an increase of $4.6 million or
2.18%. The increase, during the three months ended March 31, 1998, resulted
primarily from loan originations exceeding principal repayments.
Foreclosed real estate totalled $1.41 million and $1.35 million at March 31,
1998 and December 31, 1997, respectively. During the three months ended March
31, 1998, two foreclosed real estate properties with a combined book value of
$188,000 were sold. At March 31, 1998, foreclosed real estate consisted of
nineteen properties, seven of which are under contract for sale.
Total deposits at March 31, 1998 totalled $309.1 million as compared with $307.5
million at December 31, 1997.
Advances from the Federal Home Loan Bank ("FHLB") amounted to $13.6 million at
March 31, 1998 and December 31, 1997.
Stockholders' equity totalled $48.9 million and $48.5 million at March 31, 1998
and December 31, 1997, respectively.
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997
Net income decreased $158,000 or 12.03% to $1.155 million for the three months
ended March 31, 1998 compared with $1.313 million for the same 1997 period. The
decrease in net income during the 1998 period resulted from a decrease in
non-interest income, along with increases in total interest expense and
non-interest expenses, which were partially offset by an increase in total
interest income and decreases in provision for loan losses and income taxes.
-7-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997 (Cont'd.)
Interest income on loans increased nominally by $13,000 during the three months
ended March 31, 1998 when compared with the same 1997 period. The increase
during the 1998 period resulted from an increase of $7.3 million in the average
balance of loans outstanding sufficient to offset a twenty-eight basis point
decrease in the yield earned on the loan portfolio. Interest on mortgage-backed
securities increased $383,000 or 20.73% to $2.2 million during the three months
ended March 31, 1998 when compared with $1.8 million for the same 1997 period.
The increase during the 1998 period resulted primarily from an increase of
twenty-one basis points in the yield earned on the mortgage-backed securities
along with an increase of $19.1 million in the average balance of such portfolio
outstanding. Interest earned on investments and other interest-earning assets
decreased by $128,000 or 35.36% to $234,000 during the three months ended March
31, 1998, when compared to $362,000 during the same 1997 period primarily due to
a decrease of $10.0 million in the average balance of such assets outstanding
sufficient to offset a forty-six basis point increase in the yield earned on
such portfolio.
Interest expense on deposits increased $88,000 or 3.23% to $2.8 million during
the three months ended March 31, 1998 when compared to $2.7 million during the
same 1997 period. Such increase was primarily attributable to increases of $2.3
million in the average balance of interest-bearing deposits and ten basis points
in the cost of interest-bearing deposits. Interest expense on advances and other
borrowed money increased by $149,000 or 209.86% to $220,000 during the three
months ended March 31, 1998 when compared with $71,000 during the same 1997
period, primarily due to an increase of $9.7 million in the average balance of
advances outstanding from the FHLB sufficient to offset an eighty-six basis
point decrease in the cost of advances and other borrowed money.
Net interest income increased $32,000 or .77% during the three months ended
March 31, 1998 when compared with the same 1997 period. Such increase was due to
an increase in total interest income of $269,000, sufficient to offset an
increase in total interest expense of $237,000. The Bank's net interest rate
spread decreased from 4.28% in 1997 to 4.06% in 1998. The decrease in the
interest rate spread resulted from a decrease of six basis points in the yield
earned on interest-earning assets along with a sixteen basis point increase in
the cost of interest-bearing liabilities.
During the three months ended March 31, 1998 and 1997, the Bank provided $75,000
and $150,000, respectively, as a provision for loan losses. The allowance for
loan losses is based on management's evaluation of the risk inherent in its loan
portfolio and gives due consideration to the changes in general market
conditions and in the nature and volume of the Bank's loan activity. The Bank
intends to continue to provide for loan losses based on its periodic review of
the loan portfolio and general market conditions. At March 31, 1998, December
31, 1997 and March 31, 1997, the Bank's non-performing loans, which were
delinquent ninety days or more, totalled $6.0 million or 1.57% of total assets,
$6.9 million or 1.83% of total assets and $11.5 million or 3.13% of total
assets, respectively. At March 31, 1998, $900,000 of non-performing loans were
accruing interest and $5.1 million were on non-accrual status. During the three
months ended March 31, 1998 and 1997, the Bank transferred $261,000 and
$151,000, respectively, of loans to foreclosed real estate. The non-performing
loans primarily consist of one-to-four family mortgage loans. During the three
months ended March 31, 1998 and 1997, the Bank charged off loans aggregating
$133,000 and $186,000, respectively. The allowance for loan losses amounted to
$2.4 million at March 31, 1998, representing 1.10% of total loans and 40.4% of
loans delinquent ninety days or more and $2.5 million at December 31, 1997,
representing 1.15% of total loans and 35.6% of loans delinquent ninety days or
more.
-8-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997 (Cont'd.)
Non-interest income decreased $58,000 or 14.61% to $339,000 during the three
months ended March 31, 1998 from $397,000 during the same 1997 period. The
decrease resulted from decreases in gain on sales of mortgage-backed securities
of $112,000 sufficient to offset increases in fees and service charges and
miscellaneous income of $17,000 and $37,000, respectively.
Non-interest expenses increased by $303,000 or 13.10% to $2.6 million during the
three months ended March 31, 1998 when compared with $2.3 million during the
same 1997 period. Salaries and employee benefits, net occupancy expense,
equipment, and miscellaneous expenses increased $209,000, $36,000, $39,000 and
$50,000, respectively, which was sufficient to offset decreases in advertising,
loss on foreclosed real estate and federal insurance premium of $4,000, $26,000
and $1,000, respectively, during the 1998 period when compared with the same
1997 period. The increase in salaries and employee benefits resulted from, in
addition to normal increases, the costs associated with the opening of two new
branch offices in Brick, New Jersey.
Income taxes totalled $666,000 and $762,000 during the three months ended March
31, 1998 and 1997, respectively. The decrease during the 1998 period resulted
from a decrease in pre-tax income.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision (the "OTS") regulations. This requirement,
which may vary from time to time, depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
required ratio currently is 4%. The Bank's liquidity averaged 7.48% during the
month of March 1998. The Bank adjusts its liquidity levels in order to meet
funding needs for deposit outflows, payment of real estate taxes from escrow
accounts on mortgage loans, repayment of borrowings, when applicable and loan
funding commitments. The Bank also adjusts its liquidity level as appropriate to
meet its asset/liability objectives.
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities principal, FHLB advances, maturities of
investment securities and funds provided from operations. While scheduled loan
and mortgage-backed securities amortization and maturing investment securities
are a relatively predictable source of funds, deposit flow and loan and
mortgage-backed securities prepayments are greatly influenced by market interest
rates, economic conditions and competition. The Bank invests its excess funds in
federal funds and overnight deposits with the FHLB, which provides liquidity to
meet lending requirements. Interest-bearing deposits at March 31, 1998 amounted
to $10.0 million.
-9-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources (Cont'd.)
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operating, investing and financing activities. These activities are
summarized below:
Three Months Ended March 31,
----------------------------
1998 1997
----------- ----------
(In Thousands)
Cash and cash equivalents - beginning $ 13,307 $ 21,143
-------- --------
Operating activities:
Net income 1,155 1,313
Adjustments to reconcile net income to
net cash provided by operating activities 2,164 2,061
-------- --------
Net cash provided by operating activities 3,319 3,374
Net cash provided by (used in) investing activities 832 (2,340)
Net cash provided by financing activities 2,460 1,693
-------- --------
Net increase in cash and cash equivalents 6,611 2,727
-------- --------
Cash and cash equivalents - ending $ 19,918 $ 23,870
======== ========
Cash was generated by operating activities during the three months ended March
31, 1998. The primary source of cash was net income. Cash dividends paid during
the three months ended March 31, 1998 and 1997 amounted to $796,000 and
$794,000, respectively.
The primary sources of investing activity of the Bank are lending and the
purchase of mortgage-backed securities. Net loans amounted to $215.8 million and
$211.2 million at March 31, 1998 and December 31, 1997, respectively. Securities
available for sale totalled $10.6 million and $11.8 million at March 31, 1998
and December 31, 1997, respectively. Mortgage-backed securities held to maturity
totalled $121.4 million and $126.1 million at March 31, 1998 and December 31,
1997, respectively. In addition to funding new loan production and
mortgage-backed securities purchases through operations and financing
activities, such activities were funded by principal repayments on existing
loans and mortgage-backed securities.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds and interest-bearing deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB which provide an additional source of funds. At March 31, 1998,
advances from the FHLB amounted to $13.6 million.
-10-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources (Cont'd.)
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At March 31, 1998, the Bank has outstanding
commitments to originate mortgage loans of $16.2 million. Certificates of
deposit scheduled to mature in one year or less at March 31, 1998, totalled
$118.2 million. Management believes that, based upon its experience and the
Bank's deposit flow history, a significant portion of such deposits will remain
with the Bank.
Under OTS regulations, three separate measurements of capital adequacy (the
"Capital Rule") are required. The Capital Rule requires each savings institution
to maintain tangible capital equal to at least 1.5% and core capital equal to
4.0% of its adjusted total assets. The Capital rule further requires each
savings institution to maintain total capital equal to at least 8.0% of its
risk-weighted assets.
The following table sets forth the Bank's capital position at March 31, 1998, as
compared to the minimum regulatory capital requirements:
Amount Percent of adjusted assets
------------- --------------------------
(In millions)
Tangible Capital:
Requirement $ 5,698 1.50 %
Actual 44,993 11.85
------- -------
Excess $39,295 10.35 %
======= =======
Core Capital:
Requirement $15,193 4.00 %
Actual 44,993 11.85
------- -------
Excess $29,800 7.85 %
======= =======
Risk-based Capital:
Requirement $14,806 8.00 %
Actual 46,785 25.28
------- -------
Excess $31,979 17.28 %
======= =======
-11-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Thrift Rechartering Legislation
The proposed legislation regarding elimination of the federal thrift charter and
related issues remains pending before Congress. The Bank, whose deposits are
insured by Savings Associations Insurance Fund ("SAIF"), is unable to predict
whether such legislation will be enacted, the extent to which the legislation
would restrict or disrupt its operations or whether the Bank Insurance Fund
("BIF") or SAIF funds will eventually merge.
Supervisory Examination
The Bank's financial statements are periodically examined by the OTS, the
Federal Deposit Insurance Corporation ("FDIC") and the New Jersey Department of
Banking and Insurance, as part of their regulatory oversight of the thrift
industry. As a result of these examinations, the regulators can direct that the
Bank make adjustments to its financial statements based on their findings.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Bank's
computer programs that would have date sensitive software may recognize a date
during "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions, or engage in
similar normal business activities.
Based on a recent assessment, the Bank has determined that it will be required
to modify or replace portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999. The Bank presently believes
that with modifications to existing software and conversion to new software, the
year 2000 Issue can be mitigated. However, if such modifications and conversions
are not made, or are not completed timely, the Year 2000 Issue may have a
material impact on the operations of the Bank.
The Bank has initiated formal communications with all or its significant
suppliers and vendors to determine the extent to which the Bank is vulnerable to
those third parties failure to remediate their own Year 2000 Issues. The Bank
will utilize both internal and external resources to reprogram, or replace, and
test the software for year 2000 modifications. The Bank expects to complete the
Year 2000 project no later than December 31, 1998. The Bank is in the process of
determining the costs and time associated with the Year 2000 project. The Bank
does not expect that the total cost of the Year 2000 project will have a
material adverse impact on the financial condition or operations of the Bank. To
date, the Bank has not incurred or expensed any material amount related to the
assessment of, and preliminary efforts in connection with, its Year 2000 project
and the development of a remediation plan.
-12-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Management of Interest Rate Risk. The ability to maximize net interest income is
largely dependent upon the achievement of a positive interest rate spread that
can be sustained during fluctuations in prevailing interest rates. Interest rate
sensitivity is a measure of the difference between amounts of interest-earning
assets and interest-bearing liabilities which either reprice or mature within a
given period of time. The difference, or the interest rate repricing "gap",
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities, and is considered negative when the amount
of interest rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would result in a
decrease in net interest income.
Because the Bank's interest-bearing liabilities which mature or reprice within
short periods exceed its interest-earning assets with similar characteristics,
material and prolonged increases in interest rates generally would adversely
affect net interest income, while material and prolonged decreases in interest
rates generally would have a positive effect on net interest income.
The Bank's current investment strategy is to maintain an overall securities
portfolio that provides a source of liquidity and that contributes to the Bank's
overall profitability and asset mix within given quality and maturity
considerations. The securities portfolio is concentrated in U.S. Treasury and
federal government agency securities providing high asset quality to the overall
balance sheet mix. Securities classified as available for sale provide
management with the flexibility to make adjustments to the portfolio given
changes in the economic or interest rate environment, to fulfill unanticipated
liquidity needs, or to take advantage of alternative investment opportunities.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored by
management through the use of the OTDS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV
is the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. The OTS produces its analysis based upon data submitted on the
Bank's quarterly Thrift Financial Reports. The following table sets forth the
Bank's NPV as of December 31, 1997, the most recent date the Bank's NPV was
calculated by the OTS.
-13-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
NPV as
Percent of Portfolio
Change in Net Portfolio Value Value of Assets
Interest Rates ---------------------------------- -------------------------
In Basis Points Dollar Percent NPV Change
(Rate Shock) Amount Change Change Ratio Basis Points
- --------------- --------- ----------- -------- ------- ------------
(Dollars in Thousands)
400 $ 31,769 $ (30,647) (49) 8.84% (701)
300 39,667 (22,750) (36) 10.77 (508)
200 47,808 (14,608) (23) 12.67 (318)
100 55,746 (6,671) (11) 14.43 (141)
Static 62,416 - - 15.85 -
-100 67,449 5,033 8 16.87 102
-200 70,909 8,492 14 17.53 168
-300 74,440 12,024 19 18.19 234
-400 79,955 17,539 28 19.21 337
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV model
presented assumes that the composition of the Bank's interest sensitive assets
and liabilities existing at the beginning of a period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or repricing of specific assets and liabilities. Accordingly,
although the NPV measurements and net interest income models provide an
indication of the Bank's interest rate risk exposure at a particular point in
time, such measurements are not intended to and do not provide a precise
forecast of the effect of changes in market interest rates on the Bank's net
interest income and will differ from actual results.
-14-
<PAGE>
PAMRAPO BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
Neither the Corporation nor the Bank are involved in any pending legal
proceedings other than routine legal proceedings occurring in the ordinary
course of business, which involve amounts in the aggregate believed by
management to be immaterial to the financial condition of the Corporation
and the Bank.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Stockholders' Meeting was held on April 29, 1998. The following
matters were submitted to the stockholders:
1. Election of two directors:
A. Directors elected at the meeting for terms to expire in
2001.
Number of Shares
-------------------------
For Withheld
--------- --------
Dr. Jamie Portela 2,558,265 33,989
Mr. James Kennedy 2,580,018 12,236
The following directors' terms of office as a director
continued after the meeting:
(i) Mr. William J. Campbell
(ii) Mr. John A. Morecraft
(iii) Mr. Daniel J. Masarelli
(iv) Mr. Francis J. O'Donnell
-15-
<PAGE>
PAMRAPO BANCORP, INC.
PART II (Cont'd.)
ITEM 4. Submission of Matters to a Vote of Security Holders (Cont'd.)
---------------------------------------------------
<TABLE>
<CAPTION>
Number of Shares
-----------------------------------
For Against Abstained
--------- ------- ---------
<C> <S> <C> <C> <C>
2. The ratification of Radics & Co., LLC
as independent auditors of the
Corporation for the Fiscal year
ending December 31, 1998. 2,580,228 9,426 26,000
</TABLE>
ITEM 5. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Pamrapo Bancorp, Inc.(*)
3.2 By-Laws of Pamrapo Bancorp, Inc.(*)
11.0 Computation of earnings per share (filed herewith).
27.0 Financial data schedule (filed herewith).
(*) Incorporated herein by reference to Form S-1,
Registration Statement, as amended, filed on August 11,
1989, Registration Number 33-30370.
(b) Reports on Form 8-K
NONE
-16-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PAMRAPO BANCORP, INC.
Date: 5/15/98 By /s/William J. Campbell
-------------------------------------
William J. Campbell
President and Chief Executive Officer
Date: 5/15/98 By: /s/Gary J. Thomas
------------------------------------
Gary J. Thomas
Vice President, Chief Financial Officer
-17-
<PAGE>
Exhibit 11.0
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
-----------------------------------------------
Three Months Ended
March 31, 1998
------------------
Net income $1,154,985
==========
Weighted average shares outstanding - basic and diluted 2,842,924
==========
Basic and diluted earnings per share $ 0.41
==========
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,917,553
<INT-BEARING-DEPOSITS> 10,000,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,641,865
<INVESTMENTS-CARRYING> 121,400,590
<INVESTMENTS-MARKET> 123,801,000
<LOANS> 218,216,998
<ALLOWANCE> 2,418,994
<TOTAL-ASSETS> 381,444,206
<DEPOSITS> 309,105,882
<SHORT-TERM> 13,851,607
<LIABILITIES-OTHER> 9,578,722
<LONG-TERM> 0
0
0
<COMMON> 34,500
<OTHER-SE> 48,873,495
<TOTAL-LIABILITIES-AND-EQUITY> 381,444,206
<INTEREST-LOAN> 4,741,404
<INTEREST-INVEST> 2,231,183
<INTEREST-OTHER> 234,375
<INTEREST-TOTAL> 7,206,962
<INTEREST-DEPOSIT> 2,813,725
<INTEREST-EXPENSE> 3,033,839
<INTEREST-INCOME-NET> 4,173,123
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,616,138
<INCOME-PRETAX> 1,820,618
<INCOME-PRE-EXTRAORDINARY> 1,820,618
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,154,985
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
<YIELD-ACTUAL> 4.64
<LOANS-NON> 5,073,000
<LOANS-PAST> 920,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 837,803
<ALLOWANCE-OPEN> 2,475,000
<CHARGE-OFFS> 132,906
<RECOVERIES> 1,900
<ALLOWANCE-CLOSE> 2,418,994
<ALLOWANCE-DOMESTIC> 627,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,791,994
</TABLE>
