<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, 1999
-------------------------------------------------
OR
- -----
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934
For the transition period from to
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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, including 201-339-4600
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, 1999.
----------------
$.01 par value common stock - 2,742,924 shares outstanding
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
------
<S> <C>
Consolidated Statements of Financial Condition
at September 30, 1999 and December 31, 1998 (Unaudited) 1
Consolidated Statements of Income for the
Three Months and Nine Months Ended
September 30, 1999 and 1998 (Unaudited) 2
Consolidated Statements of Comprehensive Income
for the Three Months and Nine Months Ended
September 30, 1999 and 1998 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 (Unaudited) 4 - 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 13
Item 3: Quantitative and Qualitative Disclosure About Market Risk 14 - 15
PART II - OTHER INFORMATION 16 - 17
SIGNATURES 18
</TABLE>
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
- ------ ------------- -------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 10,405,484 $ 12,547,045
Interest-bearing deposits in other banks 7,000,000 15,500,000
------------- -------------
Total cash and cash equivalents 17,405,484 28,047,045
Securities available for sale 6,625,008 9,651,512
Investment securities held to maturity; estimated
fair value of $9,744,000 (1999) and $1,998,000 (1998) 9,995,854 1,998,142
Mortgage-backed securities held to maturity; estimated
fair value of $122,215,000 (1999) and $121,920,000 (1998) 123,950,951 120,400,191
Loans receivable 268,143,715 239,009,990
Foreclosed real estate 335,195 1,237,097
Investment in real estate 259,461 270,539
Premises and equipment 4,552,756 4,695,440
Federal Home Loan Bank stock, at cost 3,243,200 3,097,200
Interest receivable 2,621,304 2,364,340
Excess of cost over assets acquired 90,974 181,949
Other assets 2,478,387 2,520,712
------------- -------------
Total assets $ 439,702,289 $ 413,474,157
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $ 355,060,474 $ 325,985,283
Advances from Federal Home Loan Bank of New York 28,583,100 28,583,100
Other borrowed money 235,577 252,535
Advance payments by borrowers for taxes and insurance 3,403,683 2,911,061
Other liabilities 4,175,411 5,969,273
------------- -------------
Total liabilities 391,458,245 363,701,252
------------- -------------
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; 2,742,924 shares and 2,842,924
shares, respectively, outstanding 34,500 34,500
Paid-in capital in excess of par value 18,906,768 18,906,768
Retained earnings - substantially restricted 45,159,144 44,217,856
Unrealized (loss) gain on securities available for sale (55,434) 39,715
Treasury stock, at cost; 707,076 shares and 607,076
shares, respectively (15,800,934) (13,425,934)
------------- -------------
Total stockholders' equity 48,244,044 49,772,905
------------- -------------
Total liabilities and stockholders' equity $ 439,702,289 $ 413,474,157
============= =============
</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,
---------------------------- ------------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 5,465,429 $ 4,908,457 $ 15,934,433 $ 14,404,315
Mortgage-backed securities 2,041,198 1,988,012 6,187,822 6,308,878
Investments and other interest-earning assets 405,800 351,681 1,079,636 847,018
----------- ----------- ------------ ------------
Total interest income 7,912,427 7,248,150 23,201,891 21,560,211
----------- ----------- ------------ ------------
Interest expense:
Deposits 3,047,807 2,825,872 8,771,816 8,454,650
Advances and other borrowed money 428,185 264,249 1,271,088 706,676
----------- ----------- ------------ ------------
Total interest expense 3,475,992 3,090,121 10,042,904 9,161,326
----------- ----------- ------------ ------------
Net interest income 4,436,435 4,158,029 13,158,987 12,398,885
Provision for loan losses 75,000 75,000 225,000 225,000
----------- ----------- ------------ ------------
Net interest income after provision for loan losses 4,361,435 4,083,029 12,933,987 12,173,885
----------- ----------- ------------ ------------
Non-interest income:
Fees and service charges 251,286 236,159 761,489 653,743
Miscellaneous 131,084 126,048 426,774 350,566
----------- ----------- ------------ ------------
Total non-interest income 382,370 362,207 1,188,263 1,004,309
----------- ----------- ------------ ------------
Non-interest expenses:
Salaries and employee benefits 1,469,124 1,429,246 4,551,023 4,198,696
Net occupancy expense of premises 275,294 274,390 850,369 780,325
Equipment 278,601 257,414 815,530 756,190
Advertising 10,497 94,867 142,867 164,205
Loss on foreclosed real estate 776 20,670 28,873 88,235
Federal insurance premium 49,861 42,356 147,324 142,549
Amortization of intangibles 30,325 30,325 90,975 90,975
Miscellaneous 683,450 580,731 1,925,599 1,796,248
----------- ----------- ------------ ------------
Total non-interest expenses 2,797,928 2,729,999 8,552,560 8,017,423
----------- ----------- ------------ ------------
Income before income taxes 1,945,877 1,715,237 5,569,690 5,160,771
Income taxes 709,204 623,308 2,025,660 1,874,318
----------- ----------- ------------ ------------
Net income $ 1,236,673 $ 1,091,929 $ 3,544,030 $ 3,286,453
=========== =========== ============ ============
Net income per common share:
Basic/diluted $ 0.45 $ 0.38 $ 1.27 $ 1.16
=========== =========== ============ ============
Dividends per common share $ 0.3125 $ 0.28 $ 0.9375 $ 0.84
=========== =========== ============ ============
Weighted average number of common shares and
common stock equivalents outstanding:
Basic/diluted 2,742,924 2,842,924 2,785,049 2,842,924
=========== =========== ============ ============
</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,
------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 1,236,673 $ 1,091,929 $ 3,544,030 $ 3,286,453
----------- ----------- ----------- -----------
Other comprehensive (loss) income, net of income taxes:
Gross unrealized holding (loss) gain on
securities available for sale (23,318) (16,221) (148,749) 45,845
Deferred income taxes 8,400 5,800 53,600 (16,600)
----------- ----------- ----------- -----------
Other comprehensive (loss) income (14,918) (10,421) (95,149) 29,245
----------- ----------- ----------- -----------
Comprehensive income $ 1,221,755 $ 1,081,508 $ 3,448,881 $ 3,315,698
=========== =========== =========== ===========
</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,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,544,030 $ 3,286,453
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation of premises and equipment and investment in real estate 413,986 355,911
Accretion of deferred fees, premiums and discounts, net (24,639) (97,577)
Provision for loan losses 225,000 225,000
Provision for losses on foreclosed real estate 60,000 47,206
(Gain) on sales of foreclosed real estate (48,418) (41,095)
(Increase) decrease in interest receivable (256,964) 157,139
Decrease in other assets 95,925 867,302
(Decrease) increase in other liabilities (1,793,862) 446,656
Amortization of intangibles 90,975 90,975
------------ ------------
Net cash provided by operating activities 2,306,033 5,337,970
------------ ------------
Cash flow from investing activities:
Proceeds from calls and maturities of securities available for sale 2,000,000 1,000,000
Principal repayments on securities available for sale 895,617 907,826
Purchases of securities available for sale (47,376) (51,832)
Purchases of investment securities held to maturity (7,997,500) -
Principal repayments on mortgage-backed securities held to maturity 24,324,573 22,967,499
Purchases of mortgage-backed securities held to maturity (28,056,770) (20,696,182)
Purchases of loans (131,000) (903,200)
Proceeds from sales of student loans 98,419 817,555
Net change in loans receivable (28,469,016) (16,851,398)
Proceeds from sales of foreclosed real estate 268,570 470,801
Additions to premises and equipment (260,224) (1,231,367)
Purchase of Federal Home Loan Bank of New York stock (146,000) (117,800)
------------ ------------
Net cash (used in) investing activities (37,520,707) (13,688,098)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 29,075,191 7,120,478
Net increase in advances from Feeral Home Loan Bank of New York - 10,000,000
Net (decrease) in other borrowed money (16,958) (15,658)
Net increase in payments by borrowers for taxes and insurance 492,622 2,022,347
Purchase of treasury stock (2,375,000) -
Cash dividends paid (2,602,742) (2,388,056)
------------ ------------
Net cash provided by financing activities 24,573,113 16,739,111
------------ ------------
Net (decrease) increase in cash and cash equivalents (10,641,561) 8,388,983
Cash and cash equivalents - beginning 28,047,045 13,306,794
------------ ------------
Cash and cash equivalents - ending $ 17,405,484 $ 21,695,777
============ ============
</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
June 30,
-----------------------------
1999 1998
------------ -----------
<S> <C> <C>
Supplemental information:
Transfer of loans receivable to foreclosed real estate $ 45,000 $ 608,098
============ ===========
Loans to facilitate sales of foreclosed real estate $ 666,750 $ 340,200
============ ===========
Net unrealized (loss) gain on securities available for sale $ (95,149) $ 29,245
============ ===========
Cash paid during the period for:
Income taxes $ 1,761,654 $ 1,734,309
============ ===========
Interest on deposits and borrowings $ 10,042,904 $ 9,161,326
============ ===========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of Pamrapo Bancorp,
Inc. (the "Corporation") and its wholly owned subsidiaries, Pamrapo Savings
Bank, SLA (the "Bank") and Pamrapo Service Corp, Inc. The Corporation's business
is conducted principally through the Bank. All significant intercompany accounts
and transactions have been eliminated in consolidation.
2. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and regulations S-X and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements have been included.
The results of operations for the three and nine months ended September 30,
1999, 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, 1999 totalled $439.7 million, which
represents an increase of $26.2 million or 6.34% as compared with $413.5 million
at December 31, 1998.
Securities available for sale at September 30, 1999 decreased $3.0 million or
31.36% to $6.6 million when compared with $9.6 million at December 31, 1998. The
decrease during the nine months ended September 30, 1999, resulted primarily
from repayments on securities available for sale of $2.9 million, along with an
increase in net unrealized loss of $149,000.
Investment securities held to maturity increased $8.0 million to $10.0 million
at September 30, 1999 when compared with $2.0 million at December 31, 1998,
resulting from the purchase of $8.0 million of FHLMC obligations. Mortgage-
backed securities held to maturity increased $3.6 million or 2.95% to $124.0
million at September 30, 1999 when compared to $120.4 million at December 31,
1998. The increase during nine months ended September 30, 1999, resulted
primarily from purchases of $28.1 million, which were sufficient to offset
principal repayments of $24.3 million.
Net loans amounted to $268.1 million at September 30, 1999 as compared to $239.0
million at December 31, 1998, which represents an increase of $29.1 million or
12.19%. The increase, during the nine months ended September 30, 1999, resulted
primarily from loan originations exceeding principal repayments.
Foreclosed real estate totalled $335,000 and $1.2 million at September 30, 1999
and December 31, 1998, respectively. During the nine months ended September 30,
1999, eight foreclosed real estate properties with a combined book value of
$887,000 were sold. At September 30, 1999, foreclosed real estate consisted of
six properties, three of which are under contract for sale.
Total deposits at September 30, 1999 totalled $355.1 million as compared with
$326.0 million at December 31, 1998, representing an increase of $29.1 million
or 8.92%.
Advances from the Federal Home Loan Bank ("FHLB") amounted to $28.6 million at
September 30, 1999 and December 31, 1998.
Stockholders' equity totalled $48.2 million and $49.8 million at September 30,
1999 and December 31, 1998, respectively.
Comparison of Operating Results for the Three Months Ended September 30, 1999
and 1998
Net income increased $145,000 or 13.28% to $1.2 million for the three months
ended September 30, 1999 compared with $1.1 million for the same 1998 period.
The increase in net income during the 1999 period resulted from increases in
total interest income and non-interest income, which were partially offset by
increases in total interest expense, non-interest expense 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, 1999
and 1998 (Cont'd.)
Interest income on loans increased by $557,000 or 11.35% to $5.5 million during
the three months ended September 30, 1999 when compared with $4.9 million for
the same 1998 period. The increase during the 1999 period resulted from an
increase of $40.0 million in the average balance of loans outstanding sufficient
to offset a forty-eight basis point decrease in the yield earned on the loan
portfolio. Interest on mortgage-backed securities increased $53,000 or 2.67% to
$2.04 million during the three months ended September 30, 1999 when compared
with $1.99 million during the same 1998 period. During the 1999 period, a
decrease of six basis points in the yield earned on the mortgage-backed
securities was more than offset by an increase of $4.4 million in the average
balance of such portfolio outstanding. Interest earned on investments and other
interest-earning assets increased by $54,000 or 15.34% to $406,000 during the
three months ended September 30, 1999, when compared to $352,000 during the same
1998 period primarily due to an increase of $4.5 million in the average balance
of such assets outstanding, which more than offset a twenty-seven basis point
decrease in the yield earned on such portfolio.
Interest expense on deposits increased $222,000 or 7.86% to $3.0 million during
the three months ended September 30, 1999 when compared to $2.8 million during
the same 1998 period. Such increase was primarily attributable to an increase of
$35.5 million in the average balance of interest-bearing deposits sufficient to
offset a decrease of fourteen basis points in the cost of interest-bearing
deposits. Interest expense on advances and other borrowed money increased by
$164,000 or 62.12% to $428,000 during the three months ended September 30, 1999
when compared with $264,000 during the same 1998 period, primarily due to an
increase of $13.2 million in the average balance of advances outstanding from
the FHLB sufficient to offset a eighty-two basis point decrease in the cost of
advances and other borrowed money.
Net interest income increased $278,000 or 6.69% during the three months ended
September 30, 1999 when compared with the same 1998 period. Such increase was
due to an increase in total interest income of $664,000, sufficient to offset an
increase in total interest expense of $386,000. The Bank's net interest rate
spread decreased to 3.74% in 1999 from 3.91% in 1998. The decrease in the
interest rate spread resulted from a decrease of twenty-eight basis points in
the yield earned on interest-earning assets partially offset by a eleven basis
point decrease in the cost of interest-bearing liabilities.
During the three months ended September 30, 1999 and 1998, the Bank provided
$75,000 each 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, 1999, December 31, 1998 and
September 30, 1998, the Bank's non-performing loans, which were delinquent
ninety days or more, totalled $4.4 million or 1.01% of total assets, $4.6
million or 1.11% of total assets and $5.0 million or 1.27% of total assets,
respectively. At September 30, 1999, $1.1 million of non-performing loans were
accruing interest and $3.3 million were on non-accrual status. The non-
performing loans primarily consist of one-to-four family mortgage loans. During
the three months ended September 30, 1999 and 1998, the Bank charged off loans
aggregating $202,000 and
-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, 1999
and 1998 (Cont'd.)
$33,000, respectively. The allowance for loan losses amounted to $2.0 million at
September 30, 1999, representing 0.72% of total loans and 44.4% of loans
delinquent ninety days or more and $2.3 million at December 31, 1998,
representing 0.94% of total loans and 50.0% of loans delinquent ninety days or
more.
Non-interest income increased $20,000 or 5.52% to $382,000 during the three
months ended September 30, 1999 from $362,000 during the same 1998 period. The
increase resulted from increases in fees and service charges of $15,000 and
miscellaneous income of $5,000.
Non-interest expenses increased by $68,000 or 2.49% to $2.8 million during the
three months ended September 30, 1999 when compared with $2.7 million during the
same 1998 period. Salaries and employee benefits, net occupancy expense,
equipment, federal insurance premium and miscellaneous increased $40,000,
$1,000, $22,000, $8,000 and $102,000, respectively, which was sufficient to
offset decreases in advertising and loss on foreclosed real estate of $85,000
and $20,000, respectively, during the 1999 period when compared with the same
1998 period. The 1999 non-interest expenses include increased operating costs
resulting from opening a new branch office in Jamesburg, New Jersey in October
1998.
Income taxes totalled $709,000 and $623,000 during the three months ended
September 30, 1999 and 1998, respectively. The increase during the 1999 period
resulted from an increase in pre-tax income.
Comparison of Operating Results for the Nine Months Ended September 30, 1999 and
1998
Net income increased $258,000 or 7.85% to $3.5 million for the nine months ended
September 30, 1999 compared with $3.3 million for the same 1998 period. The
increase in net income during the 1999 period resulted from increases in total
interest income and non-interest income, which were partially offset by
increases in total interest expense, non-interest expenses and income taxes.
Interest income on loans increased by $1.5 million or 10.62% to $15.9 million
during the nine months ended September 30, 1999 when compared with $14.4 million
for the same 1998 period. The increase during the 1999 period resulted from an
increase of $35.3 million in the average balance of loans outstanding sufficient
to offset a forty-two basis point decrease in the yield earned on the loan
portfolio. Interest on mortgage-backed securities decreased $121,000 or 1.92% to
$6.2 million during the nine months ended September 30, 1999 when compared with
$6.3 million for the same 1998 period. The decrease during the 1999 period
resulted primarily from a decrease of twenty-one basis points in the yield
earned on the mortgage-backed securities sufficient to offset an increase of
$1.5 million in average balance of such portfolio. Interest earned on
investments and other interest-earning assets increased by $233,000 or 27.51% to
$1.1 million during the nine months ended September 30, 1999, when compared to
$847,000 during the same 1998 period primarily due to an increase of $7.2
million in the average balance of such assets outstanding sufficient to offset a
sixty basis point decrease in the yield earned on such portfolio.
-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, 1999 and
1998 (Cont'd.)
Interest expense on deposits increased $317,000 or 3.75% to $8.8 million during
the nine months ended September 30, 1999 when compared to $8.5 million during
the same 1998 period. Such increase was primarily attributable to an increase of
$28.0 million in the average balance of interest-bearing deposits sufficient to
offset a twenty basis point decline in cost of interest-bearing deposits.
Interest expense on advances and other borrowed money increased by $564,000 or
79.77% to $1.3 million during the nine months ended September 30, 1999 when
compared with $707,000 during the same 1998 period, primarily due to an increase
of $14.4 million in the average balance of advances outstanding from the FHLB
sufficient to offset a sixty-five basis point decrease in the cost of advances
and other borrowed money.
Net interest income increased $760,000 or 6.13% during the nine months ended
September 30, 1999 when compared with the same 1998 period. Such increase was
due to an increase in total interest income of $1.6 million, sufficient to
offset an increase in total interest expense of $882,000. The Bank's net
interest rate spread decreased to 3.80% in 1999 from 3.98% in 1998. The decrease
in the interest rate spread resulted from a decrease of thirty-two basis points
in the yield earned on interest-earning assets sufficient to offset a fourteen
basis point decrease in the cost of interest-bearing liabilities.
During the nine months ended September 30, 1999 and 1998, the Bank provided
$225,000 each 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, 1999, December 31, 1998 and
September 30, 1998, the Bank's non-performing loans, which were delinquent
ninety days or more, totalled $4.4 million or 1.01% of total assets, $4.6
million or 1.11% of total assets and $5.0 million or 1.27% of total assets,
respectively. At September 30, 1999, $1.1 million of non-performing loans were
accruing interest and $3.3 million were on non-accrual status. The non-
performing loans primarily consist of one-to-four family mortgage loans. During
the nine months ended September 30, 1999 and 1998, the Bank charged off loans
aggregating $559,000 and $343,000, respectively. The allowance for loan losses
amounted to $2.0 million at September 30, 1999, representing 0.72% of total
loans and 44.4% of loans delinquent ninety days or more and $2.3 million at
December 31, 1998, representing 0.94% of total loans and 50.0% of loans
delinquent ninety days or more.
Non-interest income increased $184,000 or 18.33% to $1.2 million during the nine
months ended September 30, 1999 from $1.0 million during the same 1998 period.
The increase resulted from increases in fees and service charges of $108,000 and
miscellaneous income of $76,000.
Non-interest expenses increased by $536,000 or 6.69% to $8.6 million during the
nine months ended September 30, 1999 when compared with $8.0 million during the
same 1998 period. Salaries and employee benefits, net occupancy expense,
equipment, federal insurance premium and miscellaneous increased $352,000,
$70,000, $60,000, $4,000, and $130,000 respectively, which was sufficient to
offset decreases in advertising and loss on foreclosed real estate of $21,000
and $59,000, respectively, during the 1999 period when compared with the same
1998 period. The 1999 non-interest expenses include increased operating costs
resulting from opening a new branch office in Jamesburg, New Jersey in October
1998.
-10-
<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, 1999 and
1998 (Cont'd.)
Income taxes totalled $2.0 million and $1.9 million during the nine months ended
September 30, 1999 and 1998, respectively. The increase during the 1999 period
resulted from an increase 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 8.73% during the
month of September 1999. 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, 1999
amounted to $7.0 million.
Cash was generated by operating activities during the nine months ended
September 30, 1999. The primary source of cash was net income. Cash dividends
paid during the nine months ended September 30, 1999 and 1998 amounted to $2.6
million and $2.4 million, respectively.
The primary sources of investing activity of the Bank are lending and the
purchase of mortgage-backed securities. Net loans amounted to $268.1 million and
$239.0 million at September 30, 1999 and December 31, 1998, respectively.
Mortgage-backed securities held to maturity totalled $124.0 million and $120.4
million at September 30, 1999 and December 31, 1998, respectively. In addition
to funding new loan production and mortgage-backed securities purchases through
operating 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 September 30, 1999,
advances from the FHLB amounted to $28.6 million.
-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.)
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At September 30, 1999, the Bank has outstanding
commitments to originate mortgage loans of $8.0 million. Certificates of deposit
scheduled to mature in one year or less at September 30, 1999, totalled $148.5
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 September 30,
1999, as compared to the minimum regulatory capital requirements:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
---------------- ----------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets) $ 46,809 21.26% $ 17,614 8.00% $ 22,018 10.00%
Tier 1 Capital
(to risk-weighted assets) $ 45,216 20.54% - - $ 13,211 6.00%
Core (Tier 1) Capital
(to adjusted total assets) $ 45,216 10.32% $ 17,529 4.00% $ 21,911 5.00%
Tangible Capital
(to adjusted total assets) $ 45,216 10.32% $ 6,573 1.50% - -
</TABLE>
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.
-12-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Financial Modernization Legislation
Over the past several years, Congress has considered legislation to modernize
the relationships between banks and other financial services companies. In 1999,
both the House of Representatives and the Senate passed different versions of a
bill that would repeal the laws that have restricted cross-ownership of banks,
insurers and securities firms. On November 4, 1999, a compromise bill was
approved by both houses of Congress and is expected to be signed into law by the
President during the week of November 8, 1999. If the revised bill is enacted
into law, it would permit banks, securities firms and insurers to combine and to
offer a wide variety of financial products and services. Many of the resulting
companies would be larger and have more resources than the Bank, and, should
they choose to compete directly with the Bank in providing products similar to
those of the Bank, they could adversely impact the Bank's results of operations.
While press reports currently indicate that passage is likely, the financial
reform legislation has been controversial, and there can be no assurances that
the compromise bill will be signed into law by the President. Due to this
uncertainty, as well the wide range of reforms contemplated by the bill, the
Bank is unable to predict the impact that the financial modernization
legislation will have on its business and results of operations.
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, or engage in
similar normal business activities.
Based on an internal assessment, the Bank determined that it would be required
to modify or replace portions of its software so that its computer systems would
properly utilize dates beyond December 31, 1999. These modifications and
replacements are complete and tested. Should the system fail to perform
adequately on January 1, 2000 or thereafter, such failure may have a material
impact on the operations of the Bank.
The Bank has conducted 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
utilized both internal and external resources to reprogram, or replace, and test
the software for year 2000 modifications. The Bank incurred costs of
approximately $335,000 related to the Year 2000 project. The Bank has completed
general and branch operating contingency plans in the event of unforeseen
problems. In the event that any of the Bank's major customers, significant
suppliers, or other vendors do not successfully achieve Year 2000 compliance in
a timely manner, the Bank's business or operations could be adversely affected.
There can be no assurances, however, that such plans or the performances by any
of the Bank's suppliers and vendors will be effective to remedy all potential
problems.
-13-
<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 June 30, 1999, the most recent date the Bank's NPV was
calculated by the OTS.
-14-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
<TABLE>
<CAPTION>
NPV as
Change in Percent of Portfolio
Interest Rates Net Portfolio Value Value of Assets
------------------------------------- ----------------------
In Basis Points Dollar Percent NPV Change
(Rate Shock) Amount Change Change Ratio Basis Points
--------------- -------- --------- ------- ----- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
300 $ 33,497 $ (24,849) (43) 8.01 % (504)
200 42,185 (16,161) (28) 9.85 (320)
100 50,771 (7,575) (13) 11.59 (146)
Static 58,346 - - 13.05 -
-100 64,202 5,856 10 14.13 108
-200 69,916 11,571 20 15.14 209
-300 76,101 17,755 30 16.21 316
</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.
-15-
<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
---------------------------------------------------
Not applicable.
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: November 10, 1999 By: /s/ William J. Campbell
----------------- -----------------------
William J. Campbell
President and Chief Executive Officer
Date: November 10, 1999 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
-----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Net income $ 1,236,673 $ 3,544,030
=========== ===========
Weighted average shares outstanding - basic and diluted 2,742,924 2,785,049
=========== ===========
Basic and diluted earnings per share $ 0.45 $ 1.27
=========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,405,484
<INT-BEARING-DEPOSITS> 7,000,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,625,008
<INVESTMENTS-CARRYING> 133,946,805
<INVESTMENTS-MARKET> 131,959,000
<LOANS> 270,113,602
<ALLOWANCE> 1,969,887
<TOTAL-ASSETS> 439,702,289
<DEPOSITS> 355,060,474
<SHORT-TERM> 28,818,677
<LIABILITIES-OTHER> 7,579,094
<LONG-TERM> 0
0
0
<COMMON> 34,500
<OTHER-SE> 48,209,544
<TOTAL-LIABILITIES-AND-EQUITY> 439,702,289
<INTEREST-LOAN> 15,934,433
<INTEREST-INVEST> 6,187,822
<INTEREST-OTHER> 1,079,636
<INTEREST-TOTAL> 23,201,891
<INTEREST-DEPOSIT> 8,771,816
<INTEREST-EXPENSE> 10,042,904
<INTEREST-INCOME-NET> 13,158,987
<LOAN-LOSSES> 225,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,552,560
<INCOME-PRETAX> 5,569,690
<INCOME-PRE-EXTRAORDINARY> 5,569,690
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,544,030
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 7.57
<LOANS-NON> 3,307,000
<LOANS-PAST> 1,124,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,043,074
<ALLOWANCE-OPEN> 2,300,000
<CHARGE-OFFS> 558,690
<RECOVERIES> 3,577
<ALLOWANCE-CLOSE> 1,969,887
<ALLOWANCE-DOMESTIC> 378,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,591,887
</TABLE>
