<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 September 30, 1998
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- ------------------------------------
Commission File Number 0-18014
-------
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 October 31, 1998.
----------------
$.01 par value common stock - 2,842,924 shares outstanding
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
--------------
<S> <C> <C>
Consolidated Statements of Financial Condition
at September 30, 1998 and December 31, 1997 (Unaudited) 1
Consolidated Statements of Income for the
Three Months and Nine Months Ended
September 30, 1998 and 1997 (Unaudited) 2
Consolidated Statements of Comprehensive Income
for the Three Months and Nine Months Ended
September 30, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 (Unaudited) 4 - 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 14
Item 3: Quantitative and Qualitative Disclosure About Market Risk 15 - 16
PART II - OTHER INFORMATION 17
SIGNATURES 18
</TABLE>
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------------- ------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 10,895,777 $ 10,406,794
Interest-bearing deposits in other banks 10,800,000 2,900,000
------------ ------------
Total cash and cash equivalents 21,695,777 13,306,794
Securities available for sale 9,994,677 11,849,202
Mortgage-backed securities held to maturity; estimated
fair value of $125,799,000 (1998) and $127,777,000 (1997) 123,677,107 126,108,914
Loans receivable 227,902,683 211,156,095
Foreclosed real estate 1,145,333 1,354,347
Investment in real estate 274,232 285,310
Premises and equipment 4,368,712 3,482,178
Federal Home Loan Bank of New York stock, at cost 3,097,200 2,979,400
Interest receivable 2,338,061 2,495,200
Excess of cost over assets acquired 212,275 303,250
Other assets 2,509,570 3,393,472
------------ ------------
Total assets $397,215,627 $376,714,162
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $314,592,478 $307,472,000
Advances from Federal Home Loan Bank of New York 23,583,100 13,583,100
Other borrowed money 257,965 273,623
Advance payments by borrowers for taxes and insurance 4,860,183 2,837,836
Other liabilities 4,461,144 4,014,488
------------ ------------
Total liabilities 347,754,870 328,181,047
------------ ------------
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 43,905,625 43,007,228
Unrealized gain on securities available for sale, net 39,798 10,553
Treasury stock, at cost; 607,076 shares (13,425,934) (13,425,934)
------------ ------------
Total stockholders' equity 49,460,757 48,533,115
------------ ------------
Total liabilities and stockholders' equity $397,215,627 $376,714,162
============ ============
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1998 1997 1998 1997
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Interest income:
Loans $4,908,457 $4,619,414 $14,404,315 $13,968,177
Mortgage-backed securities 1,988,012 2,292,995 6,308,878 6,354,231
Investments and other interest-earning assets 351,681 221,634 847,018 883,723
---------- ---------- ---------- -----------
Total interest income 7,248,150 7,134,043 21,560,211 21,206,131
---------- ---------- ---------- -----------
Interest expense:
Deposits 2,825,872 2,781,069 8,454,650 8,252,071
Advances and other borrowed money 264,249 245,053 706,676 546,651
---------- ---------- ---------- -----------
Total interest expense 3,090,121 3,026,122 9,161,326 8,798,722
---------- ---------- ---------- -----------
Net interest income 4,158,029 4,107,921 12,398,885 12,407,409
Provision for loan losses 75,000 150,000 225,000 450,000
---------- ---------- ---------- -----------
Net interest income after provision for loan losses 4,083,029 3,957,921 12,173,885 11,957,409
---------- ---------- ---------- -----------
Non-interest income:
Fees and service charges 236,159 220,728 653,743 618,136
Gain on sale of mortgage-backed securities - - - 111,583
Miscellaneous 126,048 152,557 350,566 324,833
---------- ---------- ---------- -----------
Total non-interest income 362,207 373,285 1,004,309 1,054,552
---------- ---------- ---------- -----------
Non-interest expenses:
Salaries and employee benefits 1,429,246 1,166,336 4,198,696 3,538,723
Net occupancy expense of premises 274,390 227,302 780,325 619,900
Equipment 257,414 206,350 756,190 618,437
Advertising 94,867 32,863 164,205 82,229
Loss on foreclosed real estate 20,670 79,732 88,235 167,593
Federal insurance premium 42,356 47,430 142,549 145,520
Amortization of intangibles 30,325 30,325 90,975 90,975
Miscellaneous 580,731 610,375 1,796,248 1,731,222
---------- ---------- ---------- -----------
Total non-interest expenses 2,729,999 2,400,713 8,017,423 6,994,599
---------- ---------- ---------- -----------
Income before income taxes 1,715,237 1,930,493 5,160,771 6,017,362
Income taxes 623,308 665,290 1,874,318 2,178,820
---------- ---------- ---------- -----------
Net income $1,091,929 $1,265,203 $ 3,286,453 $ 3,838,542
========== ========== ========== ===========
Basic and diluted earnings per common share $0.38 $0.44 $1.16 $1.30
===== ===== ===== =====
Dividends per common share $0.28 $0.25 $0.84 $0.75
===== ===== ===== =====
Weighted average number of common shares outstanding:
Basis 2,842,924 2,842,924 2,842,924 2,946,254
========== ========== ========== ===========
Diluted 2,842,924 2,842,924 2,842,924 2,947,334
========== ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
1998 1997 1998 1997
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Net income $1,091,929 $1,265,203 $ 3,286,453 $ 3,838,542
----------- ---------- ----------- -----------
Other comprehensive income, net of income taxes:
Unrealized holding (loss) gain on securities available for sale (10,421) 193,312 29,245 209,008
Less reconciliation adjustment for realized gains - - - (3,477)
----------- ---------- ----------- -----------
Other comprehensive income (10,421) 193,312 29,245 205,531
----------- ---------- ----------- -----------
Comprehensive income $1,081,508 $1,458,515 $ 3,315,698 $ 4,044,073
=========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1998 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,286,453 $ 3,838,542
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation of premises and equipment and investment in real estate 355,911 248,379
Accretion of deferred fees, premiums and discounts, net (97,577) (105,341)
Gain on sale of mortgage-backed securities - (111,583)
Provision for loan losses 225,000 450,000
Provision for losses on foreclosed real estate 47,206 124,747
(Gain) on sales of foreclosed real estate (41,095) (35,356)
Decrease in interest receivable 157,139 130,262
Decrease in other assets 867,302 681,332
Increase in other liabilities 446,656 980,438
Amortization of intangibles 90,975 90,975
----------- -----------
Net cash provided by operating activities 5,337,970 6,292,395
----------- -----------
Cash flow from investing activities:
Proceeds from calls and maturities of securities available for sale 1,000,000 3,000,000
Proceeds from sales of securities available for sale - 3,992,226
Principal repayments on securities available for sale 907,826 1,411,719
Purchases of securities available for sale (51,832) (48,756)
Proceeds from sales of mortgage-backed securities held to maturity - 3,640,635
Principal repayments on mortgage-backed securities held to maturity 22,967,499 11,329,243
Purchases of mortgage-backed securities held to maturity (20,696,182) (43,158,257)
Purchases of loans (903,200) (391,550)
Proceeds from sales of student loans 817,555 457,623
Net change in loans receivable (16,851,398) (196,504)
Proceeds from sales of foreclosed real estate 470,801 482,386
Additions to premises and equipment (1,231,367) (376,491)
Purchase of Federal Home Loan Bank stock (117,800) -
----------- -----------
Net cash (used in) investing activities (13,688,098) (19,857,726)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 7,120,478 858,682
Net increase in advances from Federal Home Loan Bank of New York 10,000,000 10,000,000
Net (decrease) increase in other borrowed money (15,658) 1,598,343
Net increase in payments by borrowers for taxes and insurance 2,022,347 1,111,229
Purchase of treasury stock - (7,369,153)
Proceeds from sale of treasury stock - 34,339
Cash dividends paid (2,388,056) (2,210,710)
----------- -----------
Net cash provided by financing activities 16,739,111 4,022,730
----------- -----------
Net increase (decrease) in cash and cash equivalents 8,388,983 (9,542,601)
Cash and cash equivalents - beginning 13,306,794 21,142,656
----------- -----------
Cash and cash equivalents - ending $21,695,777 $11,600,055
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Supplemental information:
Transfer of loans receivable to foreclosed real estate $ 608,098 $ 894,000
============= =============
Loans to facilitate sales of foreclosed real estate $ 340,200 $ 875,300
============= =============
Change in unrealized gain on securities available for sale $ 29,245 $ 205,531
============= =============
Cash paid during the period for:
Income taxes, net of refunds $ 1,734,309 $ 1,334,382
============= =============
Interest on deposits and borrowings $ 9,161,326 $ 8,798,722
============= =============
</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 regulation S-X and do not include
information or footnotes necessary for a complete presentation of financial
condition, results of operations, and cash flows in conformity with generally
accepted accounting principles. However, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial statements have been included. The
results of operations for the three and nine months ended September 30, 1998,
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
3. NET INCOME PER COMMON SHARE
- --------------------------------
Basic net income per common share is based on the weighted average number of
common shares actually outstanding. Diluted net income per share is calculated
by adjusting the weighted average number of shares of common stock outstanding
to include the effect of stock options, if dilutive, using the treasury stock
method.
-6-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Changes in Financial Condition
The Corporation's assets at September 30, 1998 totalled $397.2 million, which
represents an increase of $20.5 million or 5.44% as compared with $376.7
million at December 31, 1997.
Cash and cash equivalents increased $8.4 million or 63.16% to $21.7 million at
September 30, 1998 from $13.3 million at December 31, 1997, resulting primarily
from an increase of $7.9 million in short-term interest-bearing deposits.
Securities available for sale at September 30, 1998 decreased $1.8 million or
15.25% to $10.0 million when compared with $11.8 million at December 31, 1997.
The decrease during the nine months ended September 30, 1998, resulted primarily
from calls of securities available for sale of $1.0 million and repayments on
securities available for sale of $908,000, sufficient to offset purchases of
securities available for sale of $52,000.
Mortgage-backed securities held to maturity decreased $2.4 million or 1.90% to
$123.7 million at September 30, 1998 when compared to $126.1 million at December
31, 1997. The decrease during the nine months ended September 30, 1998, resulted
from principal repayments of $23.0 million sufficient to offset purchases of
$20.7 million.
Net loans amounted to $227.9 million at September 30, 1998 as compared to $211.2
million at December 31, 1997, which represents an increase of $16.7 million or
7.91%. The increase, during the nine months ended September 30, 1998, resulted
primarily from loan originations and purchases exceeding principal repayments.
Foreclosed real estate totalled $1.1 million and $1.4 million at September 30,
1998 and December 31, 1997, respectively. During the nine months ended
September 30, 1998, ten foreclosed real estate properties with a combined book
value of $770,000 were sold resulting in a gain of $41,000. At September 30,
1998, foreclosed real estate consisted of fourteen properties, five of which are
under contract for sale.
Total deposits at September 30, 1998 totalled $314.6 million as compared with
$307.5 million at December 31, 1997, representing an increase of $7.1 million
or 2.31%.
Advances from the Federal Home Loan Bank of New York ("FHLB") amounted to $23.6
million and $13.6 million at September 30, 1998 and December 31, 1997,
respectively. The increase, during the nine months ended September 30, 1998,
resulted from new advances from the FHLB of $10.0 million, which were used for
general corporate purposes.
Stockholders' equity totalled $49.5 million and $48.5 million at September 30,
1998 and December 31, 1997, respectively.
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997
Net income decreased $173,000 or 13.68% to $1.1 million for the three months
ended September 30, 1998 compared with $1.3 million for the same 1997 period.
The decrease in net income during the 1998 period resulted from a decrease in
non-interest income along with increases in total interest expense and non-
interest expenses, which were partially offset by an increase in interest income
and decreases in provision for loan losses and income taxes.
-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 September 30, 1998
and 1997 (Cont'd.)
Interest income on loans increased by $289,000 or 6.26% to $4.9 million during
the three months ended September 30, 1998 when compared with $4.6 million during
the same 1997 period. The increase during the 1998 period resulted from an
increase of $20.0 million in the average balance of loans outstanding sufficient
to offset a twenty-nine basis point decrease in the yield earned on the loan
portfolio. Interest on mortgage-backed securities decreased $305,000 or 13.30%
to $2.0 million during the three months ended September 30, 1998 when compared
with $2.3 million for the same 1997 period. The decrease during the 1998 period
resulted from a decrease of thirty-one basis points in the yield earned on the
mortgage-backed securities outstanding along with a decrease of $12.3 million in
the average balance of such portfolio outstanding. Interest earned on
investments and other interest-earning assets increased by $130,000 or 58.56% to
$352,000 during the three months ended September 30, 1998, when compared to
$222,000 during the same 1997 period primarily due to an increase of $9.0
million in the average balance of such assets outstanding sufficient to offset a
forty-five basis point decrease in the yield earned on such portfolio.
Interest expense on deposits increased $45,000 or 1.62% to $2.826 million during
the three months ended September 30, 1998 when compared to $2.781 million during
the same 1997 period. Such increase was primarily attributable to an increase
of $9.8 million in the average balance of interest-bearing deposits sufficient
to offset a six basis point decrease in the cost of interest-bearing deposits.
Interest expense on advances and other borrowed money increased by $19,000 or
7.76% to $264,000 during the three months ended September 30, 1998 when compared
with $245,000 during the same 1997 period, primarily due to a six basis point
increase in the cost of advances and other borrowed money along with an increase
of $1.0 million in the average balance of advances and other borrowed money
outstanding.
Net interest income increased $50,000 or 1.22% during the three months ended
September 30, 1998 when compared with the same 1997 period. Such increase was
due to an increase in total interest income of $114,000, sufficient to offset an
increase in total interest expense of $64,000. The Bank's net interest rate
spread decreased from 4.10% in 1997 to 3.91% in 1998. The decrease in the
interest rate spread resulted from a decrease of twenty-four basis points in the
yield earned on interest-earning assets which more than offset a five basis
point decrease in the cost of interest-bearing liabilities.
During the three months ended September 30, 1998 and 1997, the Bank provided
$75,000 and $150,000, respectively, as a provision for loan losses. The
allowance for loan losses is based on management's evaluation of the risk
inherent in the Bank's loan portfolio and gives due consideration to the changes
in general market conditions and in the nature and volume of the Bank's loan
activity. The Bank intends to continue to provide for loan losses based on its
periodic review of the loan portfolio and general market conditions. At
September 30, 1998, December 31, 1997 and September 30, 1997, the Bank's non-
performing loans, which were delinquent ninety days or more, totalled $5.0
million or 1.27% of total assets, $6.9 million or 1.83% of total assets and $7.5
million or 2.00% of total assets, respectively. At September 30, 1998,
$865,000 of non-performing loans were accruing interest and $4.2 million were on
nonaccrual status. During the three months ended September 30, 1998 and 1997,
the Bank transferred $143,000 and $445,000, 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 September 30, 1998 and 1997, the
Bank charged off loans aggregating $33,000 and $298,000, respectively. The
allowance for loan losses amounted to $2.4 million at September 30, 1998,
representing 1.02% of total loans and 46.99% of loans delinquent ninety days or
more and $2.5 million at December 31, 1997, representing 1.15% of total loans
and 35.64% of loans delinquent ninety days or more.
-8-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997 (Cont'd.)
Non-interest income decreased $11,000 or 2.95% to $362,000 during the three
months ended September 30, 1998 from $373,000 during the same 1997 period. The
decrease, during the 1998 period resulted from a decrease of $27,000 in
miscellaneous income sufficient to offset an increase of $16,000 in fees and
service charges.
Non-interest expenses increased by $329,000 or 13.70% to $2.7 million during the
three months ended September 30, 1998 when compared with $2.4 million during
the same 1997 period. Salaries and employee benefits, net occupancy expense,
equipment and advertising expenses increased $263,000, $47,000, $51,000, and
$62,000, respectively, sufficient to offset decreases in loss on foreclosed real
estate, federal insurance premium and miscellaneous expenses of $59,000, $5,000,
and $30,000, respectively, during the 1998 period when compared with the same
1997 period. The 1998 non-interest expenses include increased operating costs
resulting from two Brick, New Jersey offices opened after September 30, 1997.
Income taxes totalled $623,000 and $665,000 during the three months ended
September 30, 1998 and 1997, respectively. The decrease during the 1998 period
resulted from a decrease in pre-tax income.
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
1997
Net income decreased $552,000 or 14.38% to $3.3 million for the nine months
ended September 30, 1998 compared with $3.8 million for the same 1997 period.
The decrease in net income during the 1998 period resulted from a decrease in
non-interest income, along with increases in total interest expense and non-
interest expenses, which were partially offset by an increase in interest income
and decreases in provision for loan losses and income taxes.
Interest income on loans increased by $436,000 or 3.12% to $14.4 million during
the nine months ended September 30, 1998 when compared with $14.0 million during
the same 1997 period. The increase during the 1998 period resulted from an
increase of $13.9 million in the average balance of loans outstanding sufficient
to offset a thirty-one basis point decrease in the yield earned on the loan
portfolio. Interest on mortgage-backed securities decreased $45,000 or .71% to
$6.3 million during the nine months ended September 30, 1998 when compared with
$6.4 million for the same 1997 period. The decrease during the 1998 period
resulted from a decrease of eleven basis points in the yield earned on the
mortgage-backed securities outstanding sufficient to offset an increase of $1.3
million in the average balance of such portfolio outstanding. Interest earned on
investments and other interest-earning assets decreased by $37,000 or 4.19% to
$847,000 during the nine months ended September 30, 1998, when compared to
$884,000 during the same 1997 period primarily due to a decrease of $893,000 in
the average balance of such assets outstanding sufficient to offset a four basis
point increase in the yield earned on such portfolio.
Interest expense on deposits increased $203,000 or 2.46% to $8.5 million during
the nine months ended September 30, 1998 when compared to $8.3 million during
the same 1997 period. Such increase was primarily attributable to an increase of
$7.0 million in the average balance of interest-bearing deposits along with a
one basis point increase in the cost of interest-bearing deposits. Interest
expense on advances and other borrowed money increased by $160,000 or 29.25% to
$707,000 during the nine months ended September 30, 1998 when compared with
$547,000 during the same 1997 period, primarily due to an increase of $3.8
million in the average balance of advances and other borrowed money outstanding
sufficient to offset a thirty basis point decrease in the cost of advances and
other borrowed money.
-9-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
1997 (Cont'd.)
Net interest income decreased $8,000 during the nine months ended September 30,
1998 when compared with the same 1997 period. Such decrease was due to an
increase in total interest expense of $363,000, sufficient to offset an increase
in total interest income of $354,000. The Bank's net interest rate spread
decreased from 4.19% in 1997 to 3.98% in 1998. The decrease in the interest
rate spread resulted from a decrease of nineteen basis points in the yield
earned on interest-earning assets along with a two basis point increase in the
cost of interest-bearing liabilities.
During the nine months ended September 30, 1998 and 1997, the Bank provided
$225,000 and $450,000, 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
September 30, 1998, December 31, 1997 and September 30, 1997, the Bank's non-
performing loans, which were delinquent ninety days or more, totalled $5.0
million or 1.27% of total assets, $6.9 million or 1.83% of total assets and $7.5
million or 2.00% of total assets, respectively. At September 30, 1998, $865,000
of non-performing loans were accruing interest and $4.2 million were on non-
accrual status. During the nine months ended September 30, 1998 and 1997, the
Bank transferred $608,000 and $894,000, respectively, of loans to foreclosed
real estate. The non-performing loans primarily consist of one-to-four family
mortgage loans. During the nine months ended September 30, 1998 and 1997, the
Bank charged off loans aggregating $343,000 and $733,000, respectively. The
allowance for loan losses amounted to $2.4 million at September 30, 1998,
representing 1.02% of total loans and 46.99% of loans delinquent ninety days or
more and $2.5 million at December 31, 1997, representing 1.15% of total loans
and 35.64% of loans delinquent ninety days or more.
Non-interest income decreased $50,000 or 4.74% to $1.0 million during the nine
months ended September 30, 1998 from $1.1 million during the same 1997 period.
The decrease resulted from a decrease in gain on sale of mortgage-backed
securities of $112,000 sufficient to offset increases in fees and service
charges and miscellaneous income of $36,000 and $26,000, respectively.
Non-interest expenses increased by $1.0 million or 14.61% to $8.0 million during
the nine months ended September 30, 1998 when compared with $7.0 million during
the same 1997 period. Salaries and employee benefits, net occupancy expense,
equipment, advertising, and miscellaneous expenses increased $660,000, $160,000,
$138,000, $82,000, and $65,000, respectively, sufficient to offset decreases in
federal insurance premium and loss on foreclosed real estate of $3,000 and
$79,000, respectively, during the 1998 period when compared with the same 1997
period. The 1998 non-interest expenses include increased operating costs
resulting from two Brick, New Jersey offices opened after September 30, 1997.
Income taxes totalled $1.9 million and $2.2 million during the nine months ended
September 30, 1998 and 1997, respectively. The decrease during the 1998 period
resulted from a decrease in pre-tax income.
-10-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision (the "OTS") regulations. This requirement,
which may vary from time to time, depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
required ratio currently is 4.0%. The Bank's liquidity averaged 8.04% during the
month of September 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 September 30, 1998
amounted to $10.8 million.
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operating, investing and financing activities. These activities are
summarized below:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
----------- ----------
(In Thousands)
<S> <C> <C>
Cash and cash equivalents - beginning $ 13,307 $ 21,143
---------- ----------
Operating activities:
Net income 3,286 3,839
Adjustments to reconcile net income to
net cash provided by operating activities 2,052 2,453
---------- ----------
Net cash provided by operating activities 5,338 6,292
Net cash (used in) investing activities (13,688) (19,858)
Net cash provided by financing activities 16,739 4,023
---------- ----------
Net increase (decrease) in cash and cash equivalents 8,389 (9,543)
---------- ----------
Cash and cash equivalents - ending $ 21,696 $ 11,600
========== ==========
</TABLE>
-11-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources (Cont'd.)
Cash was generated by operating activities during the nine months ended
September 30, 1998. The primary source of cash was net income. Cash dividends
paid during the nine months ended September 30, 1998 and 1997 amounted to $2.4
million and $2.2 million, respectively.
The primary sources of investing activity of the Bank are lending and the
purchase of mortgage-backed securities. Net loans amounted to $227.9 million
and $211.2 million at September 30, 1998 and December 31, 1997, respectively.
Securities available for sale totalled $10.0 million and $11.8 million at
September 30, 1998 and December 31, 1997, respectively. Mortgage-backed
securities held to maturity totalled $123.7 million and $126.1 million at
September 30, 1998 and December 31, 1997, respectively. In addition to funding
new loan production and mortgage-backed securities purchases through operations
and financing activities, such activities were funded by principal repayments on
existing loans and mortgage-backed securities.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds and interest-bearing deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB which provides an additional source of funds. At September 30, 1998,
advances from the FHLB amounted to $23.6 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At September 30, 1998, the Bank has outstanding
commitments to originate mortgage loans of $11.4 million. Certificates of
deposit scheduled to mature in one year or less at September 30, 1998, totalled
$120.0 million. Management believes that, based upon its experience and the
Bank's deposit flow history, a significant portion of such deposits will remain
with the Bank.
Under OTS regulations, three separate measurements of capital adequacy (the
"Capital Rule") are required. The Capital Rule requires each savings
institution to maintain tangible capital equal to at least 1.5% and core capital
equal to 4.0% of its adjusted total assets. The Capital Rule further requires
each savings institution to maintain total capital equal to at least 8.0% of its
risk-weighted assets.
-12-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources (Cont'd.)
The following table sets forth the Bank's capital position at September 30,
1998, as compared to the minimum regulatory capital requirements:
<TABLE>
<CAPTION>
Amount Percent of adjusted assets
------------ --------------------------
(In millions)
<S> <C> <C>
Tangible Capital:
Requirement $ 5,935 1.50%
Actual 47,263 11.95
-------- -----
Excess $ 41,328 10.45%
======== =====
Core Capital:
Requirement $ 15,827 4.00%
Actual 47,263 11.95
-------- -----
Excess $ 31,436 7.95%
======== =====
Risk-based Capital:
Requirement $ 15,565 8.00%
Actual 49,129 25.25
-------- -----
Excess $ 33,564 17.25%
======== =====
</TABLE>
Thrift Rechartering Legislation
The proposed legislation regarding elimination of the thrift charter and related
issues remains pending before Congress. The Bank, whose deposits are insured by
Savings Associations Insurance Fund ("SAIF"), is unable to predict whether such
legislation would be enacted, the extent to which the legislation would restrict
or disrupt its operations or whether the Bank Insurance Fund ("BIF") or SAIF
funds will eventually merge.
-13-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Supervisory Examination
The Bank's financial statements are periodically examined by the OTS, the
Federal Deposit Insurance Corporation ("FDIC") and the New Jersey Department of
Banking and Insurance as part of their regulatory oversight of the thrift
industry. As a result of these examinations, the regulators can direct that the
Bank make adjustments to its financial statements based on their findings.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Bank's
computer programs that would have date sensitive software may recognize a date
during "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions, or engage in
similar normal business activities.
Based on a recent assessment, the Bank has determined that it will be required
to modify or replace portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999. The Bank presently believes
that with modifications to existing software and conversion to new software, the
Year 2000 Issue can be mitigated. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 Issue may
have a material impact on the operations of the Bank.
The Bank has initiated formal communications with all 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 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 March 31, 1999. The Bank is in the process of
determining the costs and time associated with the Year 2000 project. The Bank
does not expect that the total cost of the Year 2000 project will have a
material adverse impact on the financial condition or operations of the Bank. To
date, the Bank has not incurred or expensed any material amount related to the
assessment of, and preliminary efforts in connection with, its Year 2000 project
and the development of a remediation plan.
-14-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Management of Interest Rate Risk
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap", provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest-rate sensitive assets.
Generally, during a period of rising interest rates, a negative gap within
shorter maturities would adversely affect net interest income, while a positive
gap within shorter maturities would result in an increase in net interest
income, and during a period of falling interest rates, a negative gap within
shorter maturities would result in an increase in net interest income while a
positive gap within shorter maturities would result in a decrease in net
interest income.
Because the Bank's interest-bearing liabilities which mature or reprice within
short periods exceed its interest-earning assets with similar characteristics,
material and prolonged increases in interest rates generally would adversely
affect net interest income, while material and prolonged decreases in interest
rates generally would have a positive effect on net interest income.
The Bank's current investment strategy is to maintain an overall securities
portfolio that provides a source of liquidity and that contributes to the Bank's
overall profitability and asset mix within given quality and maturity
considerations. Securities classified as available for sale provide management
with the flexibility to make adjustments to the portfolio given changes in the
economic or interest rate environment, to fulfill unanticipated liquidity needs,
or to take advantage of alternative investment opportunities.
Net Portfolio Value
The Bank's interest rate sensitivity is monitored by management through the use
of the OTDS model which estimates the change in the Bank's net portfolio value
("NPV") over a range of interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The OTS
produces its analysis based upon data submitted on the Bank's quarterly Thrift
Financial Reports. The following table sets forth the Bank's NPV as of June 30,
1998, the most recent date the Bank's NPV was calculated by the OTS.
-15-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Net Portfolio Value (Cont'd.)
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
+400 $37,360 $ (26,752) (42) 9.81% -580
+300 44,574 (19,538) (30) 11.46 -415
+200 51,903 (12,209) (19) 13.08 -253
+100 58,778 (5,534) (8) 14.53 -108
Static 64,112 - - 15.61 -
-100 69,313 5,200 8 16.63 102
-200 73,236 9,124 14 17.36 175
-300 78,282 14,170 22 18.29 268
-400 84,334 20,222 32 19.38 377
</TABLE>
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV
model presented assumes that the composition of the Bank's interest sensitive
assets and liabilities existing at the beginning of a period remains constant
over the period being measured and also assumes that a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration to maturity or repricing of specific assets and liabilities.
Accordingly, although the NPV measurements and net interest income models
provide an indication of the Bank's interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income and will differ from actual results.
-16-
<PAGE>
PAMRAPO BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
Neither the Corporation nor the Bank are involved in any pending legal
proceedings other than routine legal proceedings occurring in the
ordinary course of business, which involve amounts in the aggregate
believed by management to be immaterial to the financial condition of
the Corporation and the Bank.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
ITEM 5. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Pamrapo Bancorp, Inc.*
3.2 By-Laws of Pamrapo Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith).
27.0 Financial data schedule (filed herewith).
* Incorporated herein by reference to Form S-1,
Registration Statement, as amended, filed on August 11,
1989, Registration Number 33-30370.
(b) Reports on Form 8-K
None
-17-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PAMRAPO BANCORP, INC.
Date: November 13, 1998 By: /s/ William J. Campbell
------------------------------- ------------------------------------
William J. Campbell
President and Chief Executive Officer
Date: November 13, 1998 By: /s/ Gary J. Thomas
------------------------------ ------------------------------------
Gary J. Thomas
Vice President, Chief Financial Officer
-18-
<PAGE>
Exhibit 11.0
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
-----------------------------------------------
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
1998 1998
-------------- --------------
<S> <C> <C>
Net income $1,019,929 $3,286,453
========== ==========
Weighted average - basic and diluted shares outstanding 2,842,942 2,842,924
========== ==========
Basic and diluted earnings per share $0.38 $1.16
========== ==========
</TABLE>
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,895,777
<INT-BEARING-DEPOSITS> 10,800,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,994,677
<INVESTMENTS-CARRYING> 123,677,107
<INVESTMENTS-MARKET> 125,799,000
<LOANS> 230,272,187
<ALLOWANCE> 2,369,504
<TOTAL-ASSETS> 397,215,627
<DEPOSITS> 314,592,478
<SHORT-TERM> 23,841,065
<LIABILITIES-OTHER> 9,321,327
<LONG-TERM> 0
0
0
<COMMON> 34,500
<OTHER-SE> 49,426,257
<TOTAL-LIABILITIES-AND-EQUITY> 397,215,627
<INTEREST-LOAN> 14,404,315
<INTEREST-INVEST> 6,308,878
<INTEREST-OTHER> 847,018
<INTEREST-TOTAL> 21,560,211
<INTEREST-DEPOSIT> 8,454,650
<INTEREST-EXPENSE> 9,161,326
<INTEREST-INCOME-NET> 12,398,885
<LOAN-LOSSES> 225,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,017,423
<INCOME-PRETAX> 5,160,771
<INCOME-PRE-EXTRAORDINARY> 5,160,771
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,286,453
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
<YIELD-ACTUAL> 4.32
<LOANS-NON> 4,180,000
<LOANS-PAST> 865,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,717,871
<ALLOWANCE-OPEN> 2,475,000
<CHARGE-OFFS> 342,969
<RECOVERIES> 12,473
<ALLOWANCE-CLOSE> 2,369,504
<ALLOWANCE-DOMESTIC> 503,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,866,504
</TABLE>
