<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1998
Commission File No. 0-18014
PAMRAPO BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 22-2984813
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
611 AVENUE C, BAYONNE, NEW JERSEY 07002
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 339-4600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK PAR VALUE $0.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [_____]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than directors and executive officers of the
registrant is $51,776,727 and is based upon the last sales price as quoted on
The Nasdaq Stock Market for March 11, 1999.
<PAGE>
The Registrant had 2,842,924 shares outstanding as of March 11, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31,
1998 ARE INCORPORATED BY REFERENCE INTO PARTS I AND II OF THIS FORM 10-K.
PORTIONS OF THE PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS ARE
INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.
2
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business........................................... 4
Item 2. Properties......................................... 38
Item 3. Legal Proceedings.................................. 39
Item 4. Submission of Matters to a Vote of Security Holders 39
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters........................ 40
Item 6. Selected Financial Data............................ 40
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 40
Item 8. Financial Statements and Supplementary Data........ 40
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 40
PART III
Item 10. Directors and Executive Officers of the Registrant. 41
Item 11. Executive Compensation............................. 41
Item 12. Security Ownership of Certain Beneficial
Owners and Management.............................. 41
Item 13. Certain Relationships and Related Transactions..... 41
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K............................ 42
SIGNATURES
</TABLE>
3
<PAGE>
PART I
ITEM 1. BUSINESS.
Pamrapo Bancorp, Inc. (also referred to as the "Company" or the
"Registrant") was incorporated under Delaware law on June 26, 1989. On November
10, 1989, the Registrant acquired Pamrapo Savings Bank, S.L.A. (the "Bank" or
"Pamrapo") as a part of the Bank's conversion from a New Jersey chartered
savings association in mutual form to a New Jersey chartered stock savings
association. The Registrant is a savings and loan holding company and is
subject to regulation by the Office of Thrift Supervision ("OTS"), the Federal
Deposit Insurance Corporation ("FDIC") and the Securities and Exchange
Commission ("SEC"). Currently, the Registrant does not transact any material
business other than through its sole subsidiary, the Bank.
Pamrapo was organized in 1887 as Pamrapo Building and Loan Association. On
October 6, 1952, it changed its name to Pamrapo Savings and Loan Association, a
New Jersey chartered savings and loan association in mutual form, and in 1988 it
changed its name to Pamrapo Savings Bank, S.L.A. The Bank's principal office is
located in Bayonne, New Jersey. Its deposits are insured up to applicable
limits by the Savings Association Insurance Fund (the "SAIF") which is
administered by the FDIC. At December 31, 1998, the Bank had total assets of
$413.2 million, deposits of $332.6 million and stockholders' equity of $42.9
million before elimination of intercompany accounts with the Company,
respectively.
As a community-oriented institution, the Bank is principally engaged in
attracting retail deposits from the general public and investing those funds in
fixed-rate one- to four-family residential mortgage loans and, to a lesser
extent, in multi-family residential mortgage loans, commercial real estate
loans, home equity and second mortgage loans, consumer loans and mortgage-backed
securities. The Bank's revenues are derived principally from interest on loans
and mortgage-backed securities, interest and dividends on investment securities
and short-term investments, and other fees and service charges. The Bank's
primary sources of funds are deposits and, to a lesser extent, Federal Home Loan
Bank of New York ("FHLB-NY") advances and other borrowings.
MARKET AREA
The Bank, which is headquartered in Bayonne, New Jersey, conducts its
business through eleven retail banking offices, six of which are located in
Bayonne, New Jersey, one in Hoboken, New Jersey, one in Fort Lee, New Jersey,
two in Brick, New Jersey and one in Jamesburg, New Jersey. The Bank's deposit
base is located primarily in Hudson County, with a large concentration in
Bayonne, an older, stable, residential community of one-family and two-family
residences and middle income families who have lived in the area for many years.
The communities in which the Bank's branches are located are strategically
located in the New York City metropolitan area and many residents of these
communities commute to Manhattan to work on a daily basis. The Bank's lending
activities have also been concentrated in Hudson County and to a lesser extent
in Bergen, Monmouth and Ocean Counties, areas which have had a high level of new
development in recent years.
4
<PAGE>
LENDING ACTIVITIES
GENERAL. Pamrapo principally originates fixed-rate mortgage loans on one-
to four-family residential dwellings primarily for retention in its own
portfolio. The Bank also originates acquisition, development and construction
loans in addition to multi-family and commercial real estate loans. At December
31, 1998, the Bank's total gross loans outstanding amounted to $245.4 million,
of which $179.3 million consisted of loans secured by one- to four-family
residential properties, $7.3 million consisted of construction and land loans,
and $55 million consisted of loans secured by multi-family and commercial real
estate. Substantially all of the Bank's real estate loan portfolio consists of
conventional mortgage loans, of which $761,000 million are either insured by the
Federal Housing Administration ("FHA") or partially guaranteed by the Veterans
Administration ("VA").
5
<PAGE>
LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Bank's loan and
mortgage-backed securities portfolios in dollar amounts and in percentages at
the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------
1994 1995 1996
------------------- ------------------- --------------------
Amount Percent Amount Percent Amount Percent
--------- -------- --------- -------- --------- --------
Real estate mortgage loans:
Permanent:
<S> <C> <C> <C> <C> <C> <C>
Fixed-rate........................... $179,492 80.68% $175,034 80.24% $168,727 81.35%
Adjustable rate...................... 7,823 3.52 7,131 3.27 5,453 2.63
Construction(1)....................... 3,572 1.60 3,584 1.64 1,986 .96
Guaranteed by VA or
insured by FHA....................... 2,404 1.08 1,958 .90 1,520 .73
-------- ------ -------- ------ -------- ------
Total mortgage loans.................. $193,291 86.88 $187,707 86.05 $177,686 85.67
-------- ------ -------- ------ -------- ------
CONSUMER LOANS:
Passbook or certificate............... 481 .22 441 .20 391 .19
Home improvement...................... 535 .24 501 .23 446 .22
Equity and second mortgages........... 31,622 14.21 31,487 14.43 30,683 14.79
Education............................. 1,820 .82 1,691 .78 1,351 .65
Automobile............................ 920 .41 1,074 .49 1,107 .53
Personal.............................. 1,302 .59 1,188 .55 1,158 .56
-------- ------ -------- ------ -------- ------
Total consumer loans.................. 36,680 16.49 36,382 16.68 35,136 16.94
-------- ------ -------- ------ -------- ------
Total loans........................... 229,971 103.37 224,089 102.73 212,822 102.61
-------- ------ -------- ------ -------- ------
Less:
Allowance for loan losses............. 3,650 1.64 2,725 1.25 2,800 1.35
Loans in process...................... 1,162 .52 852 .39 466 .22
Deferred loan fees and discounts...... 2,687 1.21 2,372 1.09 2,151 1.04
-------- ------ -------- ------ -------- ------
Total................................. 7,499 3.37 5,949 2.73 5,417 2.61
-------- ------ -------- ------ -------- ------
Total net loans....................... $222,472 100.00% $218,140 100.00% $207,405 100.00%
======== ====== ======== ====== ======== ======
MORTGAGE-BACKED SECURITIES:
GNMA (2).............................. $ 950 .79% $ 849 .75% $ 707 .65%
FHLMC (3) (5)......................... 95,972 79.54 89,234 79.12 86,023 78.34
FNMA (4) (5).......................... 22,769 18.87 22,066 19.56 22,736 20.71
-------- ------ -------- ------ -------- ------
Total mortgage-backed securities...... 119,691 99.20 112,149 99.43 109,466 99.70
ADD/LESS:
Premiums (discounts), net (5)......... 1,070 .89 881 .78 749 .68
Unrealized loss on securities
available for sale................... (105) (.09) (239) (.21) (419) (.38)
-------- ------ -------- ------ -------- ------
Net mortgage-backed securities........ $120,656 100.00% $112,791 100.00% $109,796 100.00%
======== ====== ======== ====== ======== ======
<CAPTION>
At December 31,
-----------------------------------------------------------------
1997 1998
-------------------------------- --------------------------------
Amount Percent Amount Percent
--------------- --------------- --------------- ---------------
Real estate mortgage loans:
Permanent:
<S> <C> <C> <C> <C>
Fixed-rate........................... $168,225 79.67% $189,478 79.27%
Adjustable rate...................... 6,316 2.99 4,385 1.84
Construction(1)....................... 2,638 1.25 7,258 3.04
Guaranteed by VA or
insured by FHA....................... 1,086 .51 761 .32
-------- ------ -------- ------
Total mortgage loans.................. $178,265 84.42 $201,882 84.47
-------- ------ -------- ------
CONSUMER LOANS:
Passbook or certificate............... 431 .20 459 .19
Home improvement...................... 440 .21 508 .21
Equity and second mortgages........... 33,587 15.91 39,184 16.40
Education............................. 753 .36 54 .02
Automobile............................ 1,210 .57 1,273 .53
Personal.............................. 1,445 .68 2,033 .85
-------- ------ -------- ------
Total consumer loans.................. 37,866 17.93 43,511 18.20
-------- ------ -------- ------
Total loans........................... 216,131 102.35 245,393 102.67
-------- ------ -------- ------
Less:
Allowance for loan losses............. 2,475 1.17 2,300 .96
Loans in process...................... 571 .27 2,409 1.01
Deferred loan fees and discounts...... 1,929 .91 1,674 .70
-------- ------ -------- ------
Total................................. 4,975 2.35 6,383 2.67
-------- ------ -------- ------
Total net loans....................... $211,156 100.00% $239,010 100.00%
======== ====== ======== ======
MORTGAGE-BACKED SECURITIES:
GNMA (2).............................. $ 7,978 5.97% $ 5,169 4.08%
FHLMC (3) (5)......................... 97,093 72.63 95,209 75.14
FNMA (4) (5).......................... 27,960 20.91 25,676 20.26
-------- ------ -------- ------
Total mortgage-backed securities...... 133,031 99.51 126,054 99.48
ADD/LESS:
Premiums (discounts), net (5)......... 790 .59 746 .59
Unrealized loss on securities
available for sale................... (135) (.10) (93) (.07)
-------- ------ -------- ------
Net mortgage-backed securities........ $133,686 100.00% $126,707 100.00%
======== ====== ======== ======
</TABLE>
6
<PAGE>
- ------------------
(1) Includes acquisition and development and land loans.
(2) Government National Mortgage Association ("GNMA").
(3) Federal Home Loan Mortgage Corporation ("FHLMC")
(4) Federal National Mortgage Association ("FNMA").
(5) Includes available for sale securities having a principal balance of
$13,145,000 and a net premium of $344,000 for 1996, a principal balance of
$7,498,000 and a net premium of $214,000 for 1997, and a principal balance
of $6,228,000 and a net premium of $172,000 for 1998.
7
<PAGE>
The following table sets forth the composition of the Bank's gross loan
portfolio by type of security at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------
1996 1997 1998
---------------------------------------------------------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------------ ---------- ---------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
One-to four-family.................... $151,175 71.04% $155,457 71.93% $179,339 73.08%
Multi-family.......................... 34,051 16.00 32,873 15.21 33,718 13.74
Commercial real estate................ 21,604 10.15 21,324 9.86 21,259 8.66
Construction and land................. 1,985 .93 2,638 1.22 7,258 2.96
Consumer-secured and unsecured........ 4,007 1.88 3,839 1.78 3,818 1.56
-------- ------ -------- ------ -------- ------
Total gross loans.................... $212,822 100.00% $216,131 100.00% $245,392 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
ORIGINATION, PURCHASE AND SALE OF LOANS AND MORTGAGE-BACKED SECURITIES.
The following table sets forth the Bank's loan originations, purchases, sales
and principal repayments for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1997 1998
--------- ---------- ----------
(In thousands)
Mortgage Loans (gross):
<S> <C> <C> <C> <C> <C>
At beginning of period............... $187,707 $177,686 $178,265
-------- -------- --------
Mortgage loans originated:
One- to four-family residential..... 10,462 20,250 43,982
Multi-family residential............ 4,654 6,393 9,193
Commercial.......................... 1,477 1,035 3,028
Construction(1)..................... 1,810 2,976 3,302
-------- -------- --------
Total mortgage loans originated 18,403 30,654 59,505
-------- -------- --------
Mortgage loans purchased............. 109 392 1,785
-------- -------- --------
Transfer to REO...................... 2,176 1,419 992
Charge offs.......................... 398 853 327
Repayments........................... 25,959 28,195 36,355
-------- -------- --------
Total mortgage repayments and
other reductions................... 28,533 30,467 37,674
-------- -------- --------
At end of period..................... $177,686 $178,265 $201,881
======== ======== ========
Consumer Loans (gross):
At beginning of period............... $ 36,382 $ 35,136 $ 37,866
Consumer loans originated............ 8,102 12,202 19,986
Consumer loans sold.................. 771 685 818
Charge-offs.......................... 240 75 157
Repayments........................... 8,337 8,712 13,366
-------- -------- --------
At end of period $ 35,136 $ 37,866 $ 43,511
======== ======== --------
Mortgage-backed securities (gross):
At beginning of period............... $112,149 $109,466 $133,031
Mortgage-backed securities
purchased........................... 12,699 48,959 25,997
Mortgage-backed securities sold...... -- 7,521 --
Repayments........................... 15,382 17,873 32,974
-------- -------- --------
At end of period..................... $109,466 $133,031 $126,054
======== ======== ========
</TABLE>
(1) Includes acquisition and development and land loans.
8
<PAGE>
LOAN MATURITY. The following table sets forth the maturity of the Bank's
gross loan portfolio at December 31, 1998. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on mortgage loans totaled $26.0 million $28.1 million, and
$34.9 million for the years ended December 31, 1996, 1997 and 1998,
respectively.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------------
One- to
four-family Multi-family and
residential commercial real Construction Consumer-secured and
mortgage loans (1) estate loans Loans (2) unsecured loans Total
-------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Amounts due:
Within 1 year........................ $ 113 $ 191 $5,234 $ 376 $ 5,914
-------- ------- ------ ------ --------
After 1 year:
1 to 3 years......................... 2,072 717 25 757 3,571
3 to 5 years......................... 8,085 3,818 -- 1,058 12,961
5 to 10 years........................ 33,993 14,881 576 862 50,312
10 to 20 years....................... 75,311 32,754 73 765 108,903
Over 20 years........................ 59,765 2,616 1,350 -- 63,731
-------- ------- ------ ------ --------
Total due after 1 year............... 179,226 54,786 2,024 3,442 239,478
-------- ------- ------ ------ --------
Total amounts due..................... $179,339 $54,977 $7,258 $3,818 $245,392
======== ======= ====== ====== --------
Less:
Allowance for loan losses............ 2,300
Loans in process..................... 2,409
Deferred loan fees and discounts..... 1,674
--------
6,383
--------
Total................................ $239,009
========
</TABLE>
- -------------------
(1) Includes equity and second mortgages.
(2) Includes acquisition and development and land loans.
9
<PAGE>
The following table sets forth at December 31, 1998, the dollar amount of
all mortgage,consumer and construction loans, due after December 31, 1999, which
have fixed interest rates or adjustable interest rates:
<TABLE>
<CAPTION>
Due after December 31, 1999
-------------------------------------------------------------------
Fixed Floating or Adjustable Total Due
Rates Rates After One Year
------------ ------------------------- ----------------
(In thousands)
<S> <C> <C> <C>
One- to four-family residential (1)... $172,857 $6,369 $179,226
Construction loans.................... 2,024 -- 2,024
Multi-family and commercial real
estate............................... 54,132 654 54,786
Consumer-secured and unsecured
loans................................ 3,442 -- 3,442
-------- ------ --------
Totals $232,455 $7,023 $239,478
======== ====== ========
</TABLE>
- ------------------
(1) Includes equity and second mortgages.
RESIDENTIAL MORTGAGE LENDING. Pamrapo presently originates first mortgage
loans, equity loans, second mortgage loans and improvement loans secured by one-
to four-family residences, multi-family residences and commercial real estate.
As of December 31, 1998, 94.2% of gross mortgage loans were fixed-rate loans and
5.8% were ARMs or shorter term construction loans, and were principally
originated for the Bank's portfolio. Residential loan originations are
generally obtained from existing or past customers and members of the local
community. As of December 31, 1998, $213.1 million or 86.8% of the Bank's total
gross loan portfolio consisted of one- to four-family and multi-family
residential mortgage loans, home improvement loans, second mortgage loans and
home equity loans. Of this amount $179.3 million were one- to four-family and
$33.7 million were multi-family.
The one- to four-family residential loans originated by the Bank are
primarily fixed-rate mortgages, generally with terms of 15 or 25 years.
Typically, such homes in the Bayonne area are one- or two-family owner-occupied
dwellings. The Bank generally makes one- to four-family residential mortgage
loans in amounts up to 80% of the appraised value of the secured property. The
Bank will originate loans with loan-to-value ratios up to 90% within the local
community, provided that private mortgage insurance on the amount in excess of
such 80% ratio is obtained. Mortgage loans in the Bank's portfolio generally
include due-on-sale clauses, which provide the Bank with the contractual right
to demand the loan immediately due and payable in the event that the borrower
transfers ownership of the property that is subject to the mortgage. It is the
Bank's policy to enforce due-on-sale provisions. As of December 31, 1998, the
interest rate for one- to four-family residential fixed-rate mortgages offered
by the Bank was 6.625% on 15-year loans and 6.875% on 25-year loans.
The Bank also originates loans on multi-family residences. Such residences
generally consist of 6 to 24 units. Such loans are generally fixed-rate loans
with interest rates 2.0% higher than those offered on one- to four-family
residences. The Bank generally makes multi family residential loans in amounts
up to 75% of the appraised value of the secured property. Such appraisals are
based primarily on the income producing ability of the property. The terms of
multi-family residential loans range from 10 to 15 years. As of December 31,
1998, $33.7 million or 13.7% of the Bank's total gross loan portfolio consisted
of multi-family residential loans.
10
<PAGE>
Upon receipt of an application for a mortgage loan from a prospective
borrower, a credit report is ordered to verify information relating to the
applicant's employment, income and credit standing. A preliminary inspection of
the subject premises is made by at least one member of the Executive Committee.
The report of that inspection is brought before the Executive Committee or the
full Board of Directors to approve the amount of the loan and the terms.
Approval is given subject to a report of value from an independent appraiser and
credit approval. Approval of credit is given by the Bank's president or loan
officer. It is the Bank's policy to obtain title insurance on all real estate
loans. Borrowers also must obtain hazard insurance and flood insurance, if
required, prior to closing. The Bank generally requires borrowers to advance
funds on a monthly basis together with each payment of principal and interest to
a tax escrow account from which the Bank can make disbursements for items such
as real estate taxes and certain insurance premiums, if any, as they become due.
ACQUISITION, DEVELOPMENT, CONSTRUCTION AND LAND LENDING. The Bank
originates loans to finance the construction of one- to four-family dwellings,
multi-family dwellings and, to a lesser extent, commercial real estate. It also
originates loans for the acquisition and development of unimproved property to
be used principally for residential purposes in cases where the Bank is to
provide the construction funds to improve the properties.
The interest rates and terms of the construction and land development loans
vary, depending upon market conditions, the size of the construction or
development project and negotiations with the borrower. Advances are generally
made to the borrower to cover actual construction costs incurred. On larger
constructions loans, the Bank requires the project to be built out in phases.
Advancement of funds is dependent upon completion of the project stages. The
Bank generally limits its exposure to 75% of the projected market value of the
completed project. The amount of the loans are generally determined as follows:
(i) land acquisition loans with no immediate plans for construction are limited
to 65% of the appraised value of the land; (ii) acquisition and development
loans are limited to 65% of appraised value of the improved lot not to exceed
150% of the original acquisition cost; (iii) in addition to the disbursement for
acquisition and development, in an acquisition, development and construction
loan, the Bank will not advance more than 90% of the construction costs; and
(iv) loans secured by previously owned vacant land are limited to 65%. Prior to
making any disbursements, the Bank requires that the projects securing the
construction and development loans be inspected. The Bank will finance the
construction of properties without a prospective buyer or without permanent
take-out financing in place at the time of origination.
The underwriting criteria used by the Bank are designed to evaluate and
minimize the risks of each construction loan. Among other things, the Bank
generally considers an appraisal of the project, the reputation of the borrower
and the contractor, the amount of the borrower's equity in the project,
independent valuations and review of cost estimates, plans and specifications,
preconstruction sale and leasing information, current and expected economic
conditions in the area of the project, cash flow projections of the borrower,
and, to the extent available, guarantees by the borrower and/or third parties.
All of the Bank's acquisition, development and construction loan portfolio is
secured by real estate properties located in northern and central New Jersey.
Acquisition, development and construction lending is generally considered
to involve a higher level of risk than one- to four-family permanent residential
lending due to the concentration of principal in a limited number of loans and
borrowers and the effects of general economic conditions on development
projects, real estate developers and managers. In addition, the nature of these
loans is such that they are generally less predictable and more difficult to
evaluate and monitor. As of December 31, 1998, the Bank's acquisition,
development, construction and land loans varied in size from $15,000 to $1.3
million, net of loans in process, and represented 2.96% of total gross loans.
11
<PAGE>
COMMERCIAL REAL ESTATE LENDING. Loans secured by commercial real estate
totaled $21.3 million, or 8.7% of the Bank's total gross loan portfolio, at
December 31, 1998. Commercial real estate loans are generally originated in
amounts up to 70% of the appraised value of the property. Such appraised value
is determined by an independent appraiser previously approved by the Bank. The
Bank's commercial real estate loans are secured by improved property such as
office buildings, retail stores, warehouses and other non-residential buildings.
Once the loan has been determined to be creditworthy and of sufficient property
value, in the case of corporate borrowers, the Bank obtains a personal guaranty
from third party principals of the corporate borrower as supplemental security
on the loan. This enables the Bank to proceed against the guarantor in the
event of default without first exhausting remedies against the borrower.
Inquiry as to collectibility pursuant to such third party guarantees may be made
by means of review of other properties secured by the Bank, personal interviews
with the applicants, review of the applicant's personal financial statements and
income tax returns and review of credit bureau reports. Borrowers must
personally guarantee loans made for commercial real estate. Commercial real
estate loans have terms ranging from 5 to 15 years and are generally fixed-rate
loans.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject to adverse conditions in the real estate market or the
economy. Emphasis is placed on the income producing capability of the
collateral rather than on management-intensive projects.
CONSUMER LENDING. The Bank offers various other secured and unsecured
consumer loan products such as automobile loans, personal loans, passbook loans
and educational loans. At December 31, 1998, the balance of such loans was $3.8
million, or 1.55% of the Bank's total gross loan portfolio.
LOAN REVIEW. The Bank has a formalized loan review policy, providing for
detailed post-closing reviews for all loans over $150,000 and a random sampling
of loans under $150,000. After review, reports are made to the mortgage and
loan officers and the Board of Directors. Classification determination is
presently the responsibility of the Asset Classification Committee. See "-
Classification of Assets." The purpose of these procedures is to enhance the
Bank's ability to properly document the loans it originates and to improve the
performance of such loans.
LENDING AUTHORITY. The Bank's Executive Committee has the authority to
approve loans up to $500,000, with the stipulation that loans approved in excess
of $350,000 must be reported at the next Board of Directors meeting. The Bank's
Vice President and Loan Officer has the authority to approve consumer and equity
loans of up to $150,000.
LOAN SERVICING. The Bank originates all of the loans that it has sold and
services for other investors. Pamrapo receives fees for these servicing
activities, which include collecting and remitting loan payments, inspecting the
properties and making certain insurance and tax payments on behalf of the
borrowers. At December 31, 1998 the Bank was servicing $3.8 million of loans
for others. There were no new loans sold in 1998 that required servicing.
LOAN ORIGINATION FEES AND OTHER FEES. Loan origination fees and certain
related direct loan origination costs are deferred and the resulting net amount
is amortized over the life of the related loan as an adjustment to the yield of
such loans. In addition, commitment fees are required to be offset against
related direct costs and the resulting net amount generally recognized over the
life of the related loans as an adjustment of yield or if the commitment expires
unexercised, recognized upon expiration of the commitment. The Bank had $1.7
million in deferred origination fees and discounts at December 31, 1998.
12
<PAGE>
NON-PERFORMING ASSETS
When a borrower fails to make a required payment by the fifteenth day of
the month in which the payment is due, the Bank sends a late notice advising the
borrower that the payment has not been received. In most cases delinquencies
are cured promptly; however, if a loan has been delinquent for more than 60
days, the Bank reviews the loan status more closely and, where appropriate,
appraises the condition of the property and the financial circumstances of the
borrower. Based upon the results of any such investigation, the Bank (1) may
accept a repayment program for the arrearage from the borrower; (2) may seek
evidence, in the form of a listing contract, of efforts by the borrower to sell
the property if the borrower has stated that he is attempting to sell; (3) may
request a deed in lieu of foreclosure or (4) generally will initiate foreclosure
proceedings when a loan payment is delinquent for more than three monthly
installments.
The following table sets forth information regarding non-accrual loans,
loans which are 90 days or more delinquent, but on which the Bank is accruing
interest and other real estate owned held by the Bank at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------
1994 1995 1996 1997 1998
------- ----------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
One- to four-family residential real
estate loans:
Non-accrual loans.............................. $ 5,122 $ 5,099 $ 4,532 $3,254 $2,064
Accruing loans 90 days overdue................. 2,928 2,326 2,993 1,645 764
------- ------- ------- ------ ------
Total......................................... 8,050 7,425 7,525 4,899 2,828
------- ------- ------- ------ ------
Multi-family residential and commercial real
estate loans:
Non-accrual loans.............................. 2,905 2,014 1,881 1,280 863
Accruing loans 90 days overdue................. 642 890 542 255 335
------- ------- ------- ------ ------
Total......................................... 3,547 2,904 2,423 1,535 1,198
------- ------- ------- ------ ------
Construction loans:
Non-accrual loans.............................. 686 237 237 185 185
Accruing loans 90 days overdue................. - - - - -
------- ------- ------- ------ ------
Total......................................... 686 237 237 185 185
------- ------- ------- ------ ------
Consumer loans:
Non-accrual loans.............................. 512 274 277 323 334
Accruing loans 90 days overdue................. 33 23 30 7 9
------- ------- ------- ------ ------
Total......................................... 545 297 307 330 343
------- ------- ------- ------ ------
Total non-performing loans:
Non-accrual loans.............................. 9,225 7,624 6,927 5,042 3,446
Accruing loans 90 days overdue................. 3,603 3,239 3,565 1,907 1,108
------- ------- ------- ------ ------
Total......................................... $12,828 $10,863 $10,492 $6,949 $4,554
======= ======= ======= ====== ======
Total foreclosed real estate, net of related
======= ======= ======= ======= =======
Reserves..................................... $ 1,118 $ 1,467 $ 1,996 $1,354 $1,237
======= ======= ======= ====== ======
Total non-performing loans and foreclosed
Real estate to total assets.................. 3.63% 3.32% 3.44% 2.20% 1.40%
======= ======= ======= ====== ======
</TABLE>
- ----------------
(1) Includes acquisition and development loans.
At December 31, 1996, 1997, and 1998 nonaccrual loans for which interest
has been discontinued totaled approximately $6.9 million, $5.0 million, and,
$3.4 million, respectively. During the years ended
13
<PAGE>
December 31, 1996, 1997 and 1998, the Bank recognized interest income of
approximately $172,000, $144,000, and $97,000, respectively, on these loans.
Interest income that would have been recorded, had the loans been on the accrual
status, would have amounted to approximately $665,000, $491,000, and $333,000
for the years ended December 31, 1996, 1997 and 1998, respectively. The Bank is
not committed to lend additional funds to the borrowers whose loans have been
placed on nonaccrual status.
14
<PAGE>
DELINQUENT LOANS. At December 31, 1996, 1997 and 1998, respectively,
delinquencies in the Bank's portfolio were as follows:
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1997
----------------------------------------------- -----------------------------------------------
60 - 89 Days 90 Days or more 60 - 89 Days 90 Days or more
------------------------ --------------------- --------------------- ------------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of of Balance of of Balance of of Balance of
Loans Loans Loans Loans Loans Loans Loans Loans
--------- ------------- -------- ----------- ------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Delinquent loans............. 52 $3,660 146 $10,492 42 $2,162 105 $6,949
As a percent of total gross
loans....................... 1.72% 4.93% 1.00% 3.22%
<CAPTION>
At December 31, 1998
--------------------------------------------------------
60 - 89 Days 90 Days or more
--------------------------- ---------------------------
Number Principal Number Principal
of Balance of of Balance of
Loans Loans Loans Loans
----------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Delinquent loans............. 28 $1,457 79 $4,554
As a percent of total gross
loans....................... .59% 1.86%
</TABLE>
15
<PAGE>
As of December 31, 1998, the Bank had 79 loans which were 90 days or more
past due totaling $4.6 million. The average balance of such loans was
approximately $58,000. Management is of the opinion that the Bank will not
incur any additional substantial losses on such loans, giving consideration to
existing loan loss reserves. Most of the loans are of moderate size; three of
the loans have loan balances greater than $200,000, the largest of which is
$241,000. All loans are within the Bank's lending areas.
The Bank's level of non-performing loans 90 days or more delinquent
decreased from $6.9 million at December 31, 1997 to $4.6 million at December 31,
1998. The total of such loans in the lower risk one- to four-family residential
category decreased to $2.8 million or 62.1% of non-performing loans 90 days or
more delinquent at December 31, 1998, when compared with $4.9 million, or 70.5%
at December 31, 1997. Non-performing multi-family residential, commercial real
estate and construction loans, loans normally having greater elements of risk,
decreased from $1.7 million at December 31, 1997, to $1.4 million at December
31, 1998, which represents a decrease of 17.6%. The decrease in non-performing
loans can be attributed to the Bank's continued emphasis on collection efforts.
CLASSIFIED ASSETS. Federal regulations provide for the classification of
loans and other assets such as debt and equity securities considered to be of
lesser quality as "substandard," "doubtful" or "loss" assets. Assets which do
not currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention" by management.
A classification of either substandard or doubtful requires the
establishment of general allowances for loan losses in an amount deemed prudent
by management. Assets classified as "loss" require either a specific allowance
for losses equal to 100% of the amount of the asset so classified or a charge
off of such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
has adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation allowances. Generally, the policy
statement requires that institutions have effective systems and controls to
identify, monitor and address asset quality problems; have analyzed all
significant factors that affect the collectibility of the portfolio in a
reasonable manner; and have established acceptable allowance evaluation
processes that meet the objectives set forth in the policy statement.
Management of the Bank has classified $5.5 million of its assets as
substandard and approximately $691,000 as loss based upon its review of the
Bank's loan and foreclosed real estate portfolios. Such review, among other
things, takes into consideration the appraised value of underlying collateral,
economic conditions and paying capacity of the borrowers. However, the Bank's
Asset Classification Committee carefully monitors all of the Bank's delinquent
loans to determine whether or not they should be classified. At a minimum, the
Bank classifies all foreclosed real estate and non-performing loans 90 days or
more delinquent as substandard assets. At December 31, 1998, the allowance for
loan losses totaled $2.3 million.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and
16
<PAGE>
changes in the nature and volume of its loan activity. Such evaluation,
which includes a review of all loans of which full collectibility may not be
reasonably assured, considers among other matters, the estimated net realizable
value of the underlying collateral, economic conditions, historical loan loss
experience and other factors that warrant recognition in providing for an
adequate loan loss allowance.
During the years ended December 31, 1996, 1997 and 1998, gross charge-offs
totaled $638,000, $928,000, and $484,000, respectively. A majority of the
charge-offs in all three years resulted from the transferring of loans to
foreclosed real estate and charging-off the difference between the carrying
value of the loans and the fair values of the properties securing such loans to
the loan loss allowance.
The following table sets forth the activity of the Bank's allowance for
loan losses at the dates indicated:
<TABLE>
<CAPTION>
At or for the year ended December 31,
----------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.............. $4,000 $3,650 $2,725 $2,800 $2,475
Provision for loan losses................... 495 411 644 586 292
Charge-offs:
Real estate mortgage loans................. 879 1,008 404 853 327
Consumer loans............................. 32 333 234 75 157
Recoveries................................. 66 5 69 17 17
------ ------ ------ ------ ------
Net charge-offs............................. 845 1,336 569 911 467
------ ------ ------ ------ ------
Balance at end of period.................... $3,650 $2,725 $2,800 $2,475 $2,300
====== ====== ====== ====== ======
Ratio of net charge offs during the
period to average loans receivable
during the period.......................... .38% .61% .27% .44% .21%
Ratio of allowance for loan losses to
total outstanding loans (gross) at
the end of period.......................... 1.59% 1.22% 1.32% 1.14% .94%
Ratio of allowance for loan losses
to non-performing loans.................... 28.45% 25.09% 26.69% 35.62% 50.51%
</TABLE>
17
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation to the allowance by category is not necessarily indicative of further
losses and does not restrict the use of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
At December 31,
1994 1995 1996 1997 1998
------------------------------------------------
Amount Amount Amount Amount Amount
------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans (1)........ $3,050 $2,325 $2,450 $2,075 $1,900
Consumer loans........................ 600 400 350 400 400
------ ------ ------ ------ ------
Total allowance...................... $3,650 $2,725 $2,800 $2,475 $2,300
====== ====== ====== ====== ======
</TABLE>
- -----------------
(1) Includes equity and second mortgages.
18
<PAGE>
MORTGAGE-BACKED SECURITIES. The Bank has significant investments in
mortgage-backed securities and has, during periods when loan demand was low and
the interest yields on alternative investments was minimal, utilized such
investments as an alternative to mortgage lending. All of the securities in the
portfolio were insured or guaranteed by GNMA, FNMA or FHLMC and have coupon
rates as of December 31, 1998 ranging from 5.10% to 10.00%. At December 31,
1998 the unamortized principal balance of mortgage-backed securities, both held
to maturity and available for sale, totaled $126.1 million or 30.5% of total
assets. The carrying value of such securities amounted to $109.8 million,
$133.7 million and $126.7 million at December 31, 1996, 1997 and 1998,
respectively, and the fair market value of such securities totaled approximately
$109.2 million, $135.4 million, and $128.2 million at December 31, 1996, 1997
and 1998, respectively.
The following table sets forth the contractual maturities of the Bank's
gross mortgage-backed securities portfolio which includes available for sale and
held to maturity at December 31, 1998.
<TABLE>
<CAPTION>
Contractual Maturities Due in Year (s) Ended
December 31,
--------------------------------------------------------------------------------
1999- 2001- 2003- 2008- 2018 and
2000 2002 2007 2017 Thereafter Total
------- ------- ------- ------- ------------ --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Held to maturity..................... $ - $359 $4,366 $100,123 $14,978 $119,826
Available for sale................... - - - 258 5,970 6,228
--- ---- ------ -------- ------- --------
Total............................... $ - $359 $4,366 $100,381 $20,948 $126,054
=== ==== ====== ======== ======= ========
</TABLE>
Mortgage-backed securities are a low risk investment for the Bank. The
Bank's substantial investment in mortgage-backed securities will significantly
enhance the Bank's ability to meet risk based capital requirements as mortgage-
backed securities are assigned a risk rating, generally from 0% to 20%. Based
on historical experience, the Bank believes that the mortgage-backed securities
will be repaid significantly in advance of the stated maturities reflected in
the above table.
INVESTMENT ACTIVITIES
SAIF-insured savings institutions have the authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and savings institutions, certain bankers' acceptances, repurchase agreements
and federal funds. Subject to various restrictions, SAIF-insured savings
institutions may also invest their assets in commercial paper, corporate debt
securities and mutual funds whose assets conform to the investments that a SAIF-
insured savings institution is otherwise authorized to make directly.
The Board of Directors sets the investment policy of the Bank. This policy
dictates that investments will be made based on the safety of the principal,
liquidity requirements of the Bank and the return on the investment and capital
appreciation. The Bank's Chief Executive Officer may make investments up to
$10.0 million, subject to ratification by the Bank's Board of Directors.
The Bank's conservative policy does not permit investment in junk bonds or
speculative strategies based upon the rise and fall of interest rates.
Pamrapo's goal, however, has always been to realize the greatest possible return
commensurate with its interest rate risk. Pamrapo has emphasized shorter term
securities for their liquidity to increase sensitivity of its investment
securities to changes in interest rates.
19
<PAGE>
As a member of the FHLB-NY, the Bank is required to maintain liquid assets
at minimum levels which vary from time to time. See "Regulation Federal Home
Loan Bank System." The Bank's liquid investments primarily include federal
agency securities, overnight deposits and federal funds. The average liquidity
for the month of December 1998 was 10.54%, which exceeded the minimum level of
4.0% prescribed by the OTS.
INVESTMENT PORTFOLIO
The following table sets forth certain information regarding the Bank's
investment portfolio, which includes available for sale securities carried at
fair value and held to maturity, at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------
1996 1997 1998
----------------------- ------------------------ ---------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
---------- --------- ---------- --------- -------- -------
(In thousands)
Investments:
<S> <C> <C> <C> <C> <C> <C>
U.S. Government (including federal
agencies) available for sale and
held to maturity.................... $8,000 $8,023 $2,999 $3,018 $3,998 $ 4,015
Mutual Funds available for sale...... 1,049 1,049 1,114 1,119 1,182 1,176
Equity securities available for sale. 7 91 7 136 7 151
FHLB-NY stock........................ 2,979 2,979 2,979 2,979 3,097 3,097
Net unrealized (loss) gain on
available for sale securities....... 107 -- 153 -- 155 --
------- ------- ------- ------- ------- -------
Total investment securities......... $12,142 $12,142 $ 7,252 $ 7,252 $ 8,439 $ 8,439
======= ======= ======= ======= ======= =======
Other interest-earning assets:
Overnight deposits................... $ 9,000 $ 9,000 $ 2,900 $ 2,900 $15,500 $15,500
Federal funds sold................... 100 100 -- -- -- --
------- ------- ------- ------- ------- -------
Total other interest-earning assets. $ 9,100 $ 9,100 $ 2,900 $ 2,900 $15,500 $15,500
======= ======= ======= ======= ======= =======
Total investment portfolio.......... $21,242 $21,242 $10,152 $10,152 $23,939 $23,939
======= ======= ======= ======= ======= =======
</TABLE>
As of December 31, 1998, the Bank's investment securities issued by the
U.S. Government agencies have a carrying value of $4 million, a weighted average
yield of 6.53% and maturities of $2 million within 1 year and $2 million after
10 years.
The Bank has no investments with any one issuer which exceeds ten percent
of stockholders' equity.
SOURCES OF FUNDS
General. Deposits are the primary source of the Bank's funds for use in
lending and for other general business purposes. In addition to deposits, the
Bank obtains funds from advances from the FHLB-NY and other borrowings.
Deposits. Pamrapo offers a variety of deposit accounts having a wide range
of interest rates and terms. The Bank's deposits consist of regular savings,
non-interest bearing demand, NOW and Super NOW, money market and certificate
accounts. Pamrapo's deposits are obtained primarily from the Hudson County
area. Pamrapo had acquired brokered deposits totaling $3.4 million, at
December 31,
20
<PAGE>
1998, as compared to $4.2 million at December 31, 1997. The Bank relies
primarily on customer service and long-standing relationships with customers to
attract and retain deposits. Deposits increased by $18.5 million or 6% from
$307.5 million at December 31, 1997 to $326.0 million at December 31, 1998.
The flow of deposits is influenced significantly by general economic
conditions, changes in the money market and prevailing interest rates and
competition.
21
<PAGE>
Deposit Portfolio. The following table sets forth the distribution and
wieghted average nominal interest rate of the Bank's deposit accounts at the
dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------
1996 1997 1998
--------------------------- ---------------------------- ------------------------------
Weighted Weighted Weighted
% of Average % of Average % of Average
Total Nominal Total Nominal Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- -------- ------ -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook and club
Accounts.................... $111,706 38.80% 2.75% $109,476 35.61% 2.75% $111,715 34.27% 2.25%
0.00% demand................. 11,869 2.76 0.00 14,856 4.83 0.00 17,379 5.33 0.00
NOW.......................... 18,676 5.72 2.50 19,679 6.40 2.00 22,127 6.79 2.00
Super NOW.................... 179 .06 2.50 238 .07 2.00 247 .08 2.00
Money market demand.......... 22,140 7.37 2.87 22,214 7.23 2.75 22,854 7.01 3.00
-------- ------ -------- ------ -------- ------
Total passbook, club,
NOW, and money
market accounts............ 164,570 54.71 2.54 166,463 54.14 2.42 174,322 53.48 2.09
-------- ------ -------- ------ -------- ------
Certificate accounts:
91-day money market......... 1,297 .43 4.51 979 .32 4.81 1,253 .38 4.26
26-week money market........ 36,161 12.02 4.69 30,395 9.88 4.77 30,251 9.28 4.59
12- to 30-month money
market..................... 55,071 18.31 5.04 70,406 22.90 5.22 79,955 24.53 5.09
30- to 48-month money
market..................... 8,551 2.84 5.65 4,133 1.34 5.53 9,170 2.81 5.69
IRA and KEOGH............... 28,829 9.59 4.92 29,482 9.59 4.90 26,741 8.20 4.97
Negotiated rate............. 6,306 2.10 6.00 5,614 1.83 6.02 4,293 1.32 6.02
-------- ------ -------- ------ -------- ------
Total certificates......... 136,215 45.29 5.02 141,009 45.86 5.09 151,663 46.52 5.02
-------- ------ -------- ------ -------- ------
Total deposits............. $300,785 100.00% 3.68% $307,472 100.00% 3.61% $325,985 100.00% 3.46%
======== ====== ==== ======== ====== ==== ======== ====== ====
</TABLE>
22
<PAGE>
The following table sets forth the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Deposits (less than) withdrawals...... $(9,291) $(4,375) $ 7,209
Interest credited..................... 11,175 11,062 11,304
------- ------- -------
Net (decrease) increase in deposits... $ 1,884 $ 6,687 $18,513
======= ======= =======
</TABLE>
The following table sets forth, by various rate categories, the amount of
certificate accounts outstanding as of the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1997.
<TABLE>
<CAPTION>
At December 31, 1998,
At December 31, Maturing in
------------------------------------ ------------------------------------------------------
One Year Two Three Greater than
1996 1997 1998 or Less Years Years Three Years
-------- -------- -------- -------- ------ ------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate Accounts:
2.99% or less........... $ 60 $ 209 $ 375 $ 375 $ -- $ -- $ --
3.00% to 4.99%.......... 82,499 61,740 61,357 60,689 448 45 175
5.00% to 5.99%.......... 45,518 61,059 82,954 77,516 1,973 1,166 2,299
6.00% to 6.99%.......... 7,302 13,411 5,701 5,192 377 126 6
7.00% to 7.99%.......... 815 4,566 1,257 757 500 -- --
8.00% to 8.99%.......... 6 7 -- -- -- -- --
9.00% to 9.99%.......... 15 17 19 19 -- -- --
-------- -------- -------- -------- ------ ------ ------
Total.................. $136,215 $141,009 $151,663 $144,548 $3,298 $1,337 $2,480
======== ======== ======== ======== ====== ====== ======
</TABLE>
At December 31, 1998, the Bank had outstanding $29.6 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Amount
(In thousands)
<S> <C>
Three months or less........................................... $ 9,094
Over three through six months.................................. 6,110
Over six through twelve months................................. 10,387
Over twelve months............................................. 3,991
-------
Total........................................................ $29,582
=======
</TABLE>
Borrowings. Although deposits are the Bank's primary source of funds, the
Bank utilizes borrowings when they are a less costly source of funds or can be
invested at a positive rate of return.
Pamrapo obtains advances from the FHLB-NY upon the security of its capital
stock of the FHLB-NY and a blanket assignment of the Bank's unpledged qualifying
mortgage loans, mortgage-backed
23
<PAGE>
securities and investment securities. Such advances are made pursuant to several
different credit programs, each of which has its own interest rate and range of
maturities. As of December 31, 1998, outstanding advances from the FHLB-NY
amounted to $28.6 million.
The following table sets forth certain information regarding FHLB-NY
advances at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------
1996 1997 1998
---------------------- ------------------------ -----------------
(In thousands)
<S> <C> <C> <C>
Fixed-rate advances from the FHLB-NY......................
6.47% due 1999.......................................... $3,000 $ 3,000 $ 3,000
6.27% due 2000.......................................... -- 5,000 5,000
5.10% due 2001.......................................... 243 243 243
6.51% due 2002.......................................... -- 5,000 5,000
5.36% due 2003.......................................... 340 340 15,340
------ ------- -------
Total advances from the FHLB-NY...................... $3,583 $13,583 $28,583
====== ======= =======
</TABLE>
The Bank obtained a mortgage loan of $325,000 in connection with the
purchase of premises. The mortgage loan carries an interest rate of 8% and is
amortized over a 12 year term. The unpaid mortgage loan balance at December 31,
1998 amounted to $253,000.
COMPETITION
Pamrapo has substantial competition for both loans and deposits. The New
York City metropolitan area has a high density of financial institutions, many
of which are significantly larger and have substantially greater financial
resources than the Bank, and all of which are competitors of the Bank to varying
degrees. The Bank faces significant competition both in making mortgage loans
and in attracting deposits. The Bank's competition for loans comes principally
from savings and loan associations, savings banks, mortgage banking companies,
insurance companies, commercial banks and other institutional lenders. Its most
direct competition for deposits has historically come from savings and loan
associations, savings banks, commercial banks, credit unions and other financial
institutions. The Bank faces additional competition for deposits from short-
term money market funds and other corporate and government securities funds.
The Bank faces increased competition among financial institutions for deposits.
Competition also may increase as a result of the continuing reduction in the
effective restrictions on the interstate operations of financial institutions
and legislation authorizing the acquisition of thrifts by Banks.
The Bank competes for loans principally through the interest rates and loan
fees it charges and the efficiency and quality of services it provides borrowers
and real estate brokers. It competes for deposits through pricing, service and
by offering a variety of deposit accounts. New powers for thrift institutions
provided by New Jersey and federal legislation enacted in recent years have
resulted in increased competition between savings banks and other financial
institutions for both deposits and loans. Management believes that
implementation of new powers set forth in such recent legislation is expected to
intensify this competition.
SUBSIDIARIES
Pamrapo is generally permitted under New Jersey law and the regulations of
the Commissioner of the New Jersey Department of Banking and Insurance (the
"Commissioner") to invest an amount equal to
24
<PAGE>
3% of its assets in subsidiary service corporations. As of December 31, 1998,
Pamrapo had $1.3 million, or .3%, of its assets invested in Pamrapo Service
Corporation (the "Corporation"), a wholly owned subsidiary of the Bank. In the
past, the Corporation has entered into real estate joint ventures for the
principal purpose of land acquisition and development. However, the Corporation
has disposed of all such real estate joint ventures. Currently, the
Corporation's only investments are in bank premises and real estate held for
investment.
Under OTS regulation, investments in and loans to subsidiaries not engaged
in activities permissible to national banks, such as the real estate investment
activities previously entered into by the Bank, generally are required to be
deducted from capital. Although the Bank will continue to consider joint
venture opportunities, it will do so with the effects of the OTS regulations in
mind. The Bank currently has no plans to enter into any joint ventures.
YIELDS EARNED AND RATES PAID
The Bank's earnings depend primarily on its net interest income. Net
interest income is affected by (i) the volume of interest-earning assets and
interest-bearing liabilities, (ii) rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities and (iii) the difference
("interest rate spread") between rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
A large portion of the Bank's real estate loans are long-term, fixed-rate
loans. Accordingly, the average yield recognized by the Bank on its total loan
portfolio changes slowly and generally does not keep pace with changes in
interest rates on deposit accounts and borrowings. At December 31, 1998,
approximately 97.8% of the Bank's gross mortgage loan portfolio, excluding
mortgage-backed securities, consisted of fixed-rate mortgage loans with original
terms consisting primarily of 15 to 30 years. Accordingly, when interest rates
rise, the Bank's yield on its loan portfolio increases at a slower pace than the
rate by which its cost of funds increases, which may adversely impact the Bank's
interest rate spread.
25
<PAGE>
The following tables set forth for the periods indicated information
regarding the average balances of interest-earning assets and interest-bearing
liabilities, the dollar amount of interest income earned on such assets and the
resultant yields, the dollar amount of interest expense paid on such liabilities
and the resultant costs. The tables also reflect the interest rate spread for
such periods, the net yield on interest-earning assets (i.e., net interest
income as a percentage of average interest-earning assets) and the ratio of
average interest-earning assets to average interest-bearing liabilities.
Average balances are based on month-end amounts.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1996 1997
-------------------------------- ------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Cost Balance Cost
---------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)...................................... $213,122 $19,191 9.00% $205,594 $18,700 9.10%
Mortgage-backed securities..................... 108,500 7,324 6.75 127,004 8,572 6.75
Investments.................................... 11,725 906 7.73 6,541 508 7.77
Other interest-earning assets.................. 12,599 614 4.87 11,079 616 5.56
-------- ------- -------- -------
Total interest-earning assets................. $345,946 28,035 8.10% $350,218 $28,396 8.11%
-------- ------- -------- -------
Non-interest-earning assets..................... 21,301 19,018
-------- --------
Total assets (1).............................. $367,247 $369,236
======== ========
Interest-bearing liabilities:
Passbook and club account...................... 112,489 3,166 2.81% $108,105 $ 3,078 2.85%
NOW and money market accounts.................. 41,289 1,079 2.61 41,603 994 2.39
Certificates of Deposits....................... 137,193 6,930 5.05 139,242 6,990 5.02
Advances and other borrowings.................. 3,369 206 6.11 11,743 800 6.81
-------- ------- -------- -------
Total interest-bearing liabilities............ 294,340 11,381 3.87% $300,693 $11,862 3.94%
-------- ------- -------- -------
Non-interest-bearing liabilities:
Non-interest-bearing demand accounts........... 11,004 $ 13,046
Other.......................................... 5,606 6,461
-------- --------
Total non-interest-bearing demand
liabilities.................................. 16,610 19,507
-------- --------
Total liabilities............................. 310,950 320,200
Stockholders' equity............................ 56,297 49,036
-------- --------
Total liabilities and stockholders' equity.... $367,247 $369,236
======== ========
Net interest income/interest rate spread........ $16,654 4.23% $16,534 4.17%
======= ==== ======= ====
Net interest-earning assets/net yield on
Interest- earning assets....................... $ 51,606 4.81% $ 49,525 4.72%
======== ==== ======== ====
Ratio of average interest-earning assets to
Average interest-bearing liabilities........... 1.17x 1.16x
======== ========
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998
-----------------------------------------------
Average Interest Yield/
Balance Cost
------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)...................................... 222,154 $ 19,380 8.72%
Mortgage-backed securities..................... 127,086 8,389 6.60
Investments.................................... 3,588 223 6.22
Other interest-earning assets.................. 15,671 979 6.25
-------- --------
Total interest-earning assets................. 368,499 28,971 7.86%
-------- --------
Non-interest-earning assets..................... 19,505
--------
Total assets (1).............................. $388,004
========
Interest-bearing liabilities:
Passbook and club account...................... $110,930 2,834 2.55%
NOW and money market accounts.................. 42,299 1,045 2.47
Certificates of Deposits....................... 143,430 7,425 5.18
Advances and other borrowings.................. 17,636 1,124 6.37
-------- --------
Total interest-bearing liabilities............ 314,295 12,428 3.95%
-------- --------
Non-interest-bearing liabilities:
Non-interest-bearing demand accounts........... 15,966
Other.......................................... 8,695
--------
Total non-interest-bearing demand
liabilities.................................. 24,661
--------
Total liabilities............................. 338,956
Stockholders' equity............................ 49,048
--------
Total liabilities and stockholders' equity.... $338,004
========
Net interest income/interest rate spread........ $ 16,543 3.91%
======== ====
Net interest-earning assets/net yield on
Interest- earning assets....................... $ 54,204 4.49%
======== ====
Ratio of average interest-earning assets to
Average interest-bearing liabilities........... 1.17x
=====
</TABLE>
- ----------------
(1) Non-accruing loans are part of the average balances of loans outstanding.
26
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. During a period of rising
interest rates, a negative gap would tend to adversely affect net interest
income while a positive gap would tend to result in an increase in net interest
income. During a period of falling interest rates, a negative gap would tend to
result in an increase in net interest income while a positive gap would tend to
adversely affect net interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1998, which are
expected to reprice or mature in each of the future time periods shown. Except
as stated below, the amount of assets and liabilities shown which reprice or
mature during a particular period were determined in accordance with the
contractual terms of the asset or liability. Loans and mortgage-backed
securities that have adjustable rates are shown as being due in the period
during which the interest rates are next subject to change. The Bank has
assumed that its passbook savings and club accounts which totaled $111.7 million
at December 31, 1998, are withdrawn at the following rates, 17.00%, 31.11%,
29.44%, 52.96%, 77.87% and 100.00% on the cumulative declining balance of such
accounts during the periods shown. The Bank has further assumed that its money
market accounts which totaled $22.9 million at December 31, 1998, are withdrawn
at the following rates, 79.00%, 52.39%, 52.39%, 84.36%, 97.62% and 100.00% on
the cumulative declining balance of such accounts during the periods shown.
Additionally, the Bank has assumed that its non-interest bearing demand,
NOW and Super NOW accounts which totaled $39.8 million at December 31, 1998, are
withdrawn at the following rates, 37.00%, 53.76%, 31.11%, 60.62%, 84.47% and
100.00% on the cumulative declining balance of such accounts during the periods
shown.
27
<PAGE>
<TABLE>
<CAPTION>
More than
More than More than More than 10 Years
1 Year 1 Year to 3 Years to 5 Years to to More than
or Less 3 Years 5 Years 10 Years 20 Years 20 Years Total
--------- ------------ ----------- ----------- --------- --------- ---------
(In thousands)
Interest-earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans............................. $ 5,914 $ 3,571 $ 12,961 $ 50,312 $108,903 $63,731 $245,392
Mortgage-backed securities (1).... - 77 1,842 5,149 98,039 20,947 126,054
Investments (1) (2)............... 3,189 - - - 2,000 - 5,189
Other interest-earning assets (3). 18,597 - - - - - 18,597
--------- --------- --------- --------- -------- ------- --------
Total interest-earning assets.... 27,700 3,648 14,803 55,461 208,942 84,678 395,232
--------- --------- --------- --------- -------- ------- --------
Interest-bearing Liabilities:
NOW and Super NOW
accounts (4)..................... 14,708 13,464 3,603 4,836 2,654 488 39,753
Money market accounts............. 18,055 2,514 1,197 918 166 4 22,854
Passbook and club accounts........ 18,992 28,846 18,806 23,870 16,510 4,692 111,716
Certificate accounts 144,548 4,635 2,012 402 66 - 151,663
Advances and other borrowings...... - 8,243 20,340 - 253 - 28,836
--------- --------- --------- --------- -------- ------- --------
Total interest-bearing
liabilities...................... 196,303 57,702 45,958 30,026 19,649 5,184 354,822
--------- --------- --------- --------- -------- ------- --------
Interest sensitivity gap per period $(168,603) $ (54,054) $ (31,155) $ 25,435 $189,293 $79,494 $ 40,410
========= ========= ========= ========= ======== ======= ========
Cumulative interest sensitivity gap $(168,603) $(222,657) $(253,812) $(228,377) $(39,084) $40,410
========= ========= ========= ========= ======== =======
Cumulative gap as a percent of
Total assets...................... (40.78)% (53.85)% (61.39)% (55.23)% (9.45)% 9.76%
========= ========= ========= ========= ======== =======
Cumulative interest-sensitive
assets as a percent of interest-
sensitive liabilities....... ....... 14.11% 12.34% 15.38% 30.79% 88.82% 111.39%
========= ========= ========= ========= ======== =======
</TABLE>
- -------------
(1) Includes available for sale securities.
(2) Includes marketable equity securities which have no stated maturity.
(3) Includes FHLB-NY stock.
(4) Includes non-interest bearing demand accounts.
RATE/VOLUME ANALYSIS
Changes in net interest income are attributable to three factors: (i) a
change in volume or amount of an interest-earning asset or interest-bearing
liability, (ii) a change in interest rates or (iii) a change caused by a
combination of changes in volume and interest rate. The table below sets forth
certain information regarding changes in interest income and interest expense of
the Bank for the periods indicated, reflecting the extent to which such changes
are attributable to changes in volume and changes in rate. The amount
attributable to a change in volume or amount is calculated by multiplying the
average interest rate for the prior period by the increase (decrease) in the
average balance of the related asset or liability. The amount attributable to a
change in rate is calculated by multiplying the increase (decrease) in the
average interest rate from the prior period by the average balance of the
related asset or liability for
28
<PAGE>
the prior period. The rate/volume change represents a change in rate multiplied
by a change in volume and is allocated proportionately to volume and rate
changes.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1997 v. 1996 1998 v. 1997
------------------------------- ----------------------------
Increase (decrease) Increase (decrease)
due to due to
------------------------------- ---------------------------
Volume Rate Net Volume Rate Net
----------- ------- ------ ------- --------- -----
Interest income:
<S> <C> <C> <C> <C> <C> <C>
Loans......................................... $ (698) $207 $ (491) $1,484 $(804) $ 680
Mortgaged-backed securities................... 1,248 - 1,248 6 (189) (183)
Investments................................... (403) 5 (398) (206) (79) (285)
Other interest-earning assets................. (79) 81 2 271 92 363
------ ---- ------ ------ ----- -----
Total interest income....................... 68 293 361 1,555 (980) 575
------ ---- ------ ------ ----- -----
Interest expense:
Passbook and club accounts.................... (130) 42 (88) 81 (325) (244)
NOW and money market accounts................. 9 (94) (85) 18 33 51
Certificates of deposit....................... 102 (42) 60 212 223 435
Advance and other borrowings.................. 567 27 594 389 (65) 324
------ ---- ------ ------ ----- -----
Total interest expense...................... 548 (67) 481 700 (134) 566
------ ---- ------ ------ ----- -----
Net change in net interest..................... $ (480) $360 $ (120) $ 855 $(846) $ 9
====== ==== ====== ====== ===== =====
</TABLE>
REGULATION AND SUPERVISION
GENERAL
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
Office of Thrift Supervision ("OTS") under the Home Owners' Loan Act, as amended
(the "HOLA"). In addition, the activities of savings institutions, such as the
Bank, are governed by the HOLA and the Federal Deposit Insurance Act ("FDI
Act").
The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its primary federal regulator, and the Federal Deposit Insurance
Corporation ("FDIC"), as the deposit insurer. The Bank is a member of the
Federal Home Loan Bank ("FHLB") System and its deposit accounts are insured up
to applicable limits by the Savings Association Insurance Fund ("SAIF") managed
by the FDIC. The Bank must file reports with the OTS and the FDIC concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The OTS and/or the FDIC conduct
periodic examinations to test the Bank's safety and soundness and compliance
with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Bank and their operations. Certain of the
regulatory requirements applicable to the Bank and to the Company are
29
<PAGE>
referred to below or elsewhere herein. The description of statutory provisions
and regulations applicable to savings institutions and their holding companies
set forth in this Form 10-K does not purport to be a complete description of
such statutes and regulations and their effects on the Bank and the Company.
HOLDING COMPANY REGULATION
The Company is a nondiversified unitary savings and loan holding company
within the meaning of the HOLA. As a unitary savings and loan holding company,
the Company generally is not restricted under existing laws as to the types of
business activities in which it may engage, provided that the Bank continues to
be a qualified thrift lender ("QTL"). Upon any non-supervisory acquisition by
the Company of another savings institution or savings bank that meets the QTL
test and is deemed to be a savings institution by the OTS, the Company would
become a multiple savings and loan holding company (if the acquired institution
is held as a separate subsidiary) and would be subject to extensive limitations
on the types of business activities in which it could engage. The HOLA limits
the activities of a multiple savings and loan holding company and its non-
insured institution subsidiaries primarily to activities permissible for bank
holding companies under Section 4(c)(8) of the Bank Holding Company Act ("BHC
Act"), subject to the prior approval of the OTS, and certain activities
authorized by OTS regulation, and no multiple savings and loan holding company
may acquire more than 5% the voting stock of a company engaged in impermissible
activities.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof,
without prior written approval of the OTS or acquiring or retaining control of a
depository institution that is not insured by the FDIC. In evaluating
applications by holding companies to acquire savings institutions, the OTS must
consider the financial and managerial resources and future prospects of the
company and institution involved, the effect of the acquisition on the risk to
the insurance funds, the convenience and needs of the community and competitive
factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions as described below. The Bank must notify the OTS 30 days
before declaring any dividend to the Company. In addition, the financial impact
of a holding company on its subsidiary institution is a matter that is evaluated
by the OTS and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
FEDERAL SAVINGS INSTITUTION REGULATION
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core) capital ratio and an 8% risk-based capital ratio.
Core capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related surplus,
and minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights and credit card
relationships. The OTS regulations require that, in meeting the tangible,
leverage (core)
30
<PAGE>
and risk-based capital standards, institutions must generally deduct investments
in and loans to subsidiaries engaged in activities that are not permissible for
a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight factor of 0% to 100%, as assigned by the OTS capital
regulation based on the risks the OTS believes are inherent in the type of
asset. The components of core capital are equivalent to those discussed earlier
under the 3% leverage standard. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and, within specified limits, the allowance for loan and lease
losses. Overall, the amount of supplementary capital included as part of total
capital cannot exceed 100% of core capital.
The OTS regulatory capital requirements also incorporate an interest rate
risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets, as
calculated in accordance with guidelines set forth by the OTS. A savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets. That dollar amount is deducted from an institution's
total capital in calculating compliance with its risk-based capital requirement.
Under the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings institution with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The
Director of the OTS may waive or defer a savings institution's interest rate
risk component on a case-by-case basis. For the present time, the OTS has
deferred implementation of the interest rate risk component. At December 31,
1998, the Bank met each of its capital requirements.
The following table presents the Bank's capital position at December 31,
1998.
<TABLE>
<CAPTION>
(Dollars in thousands)
Actual Amount Required Amount Excess Amount Actual Percent Required Percent
<S> <C> <C> <C> <C> <C>
Tangible $41,411 $ 6,181 $35,230 10.05% 1.50%
Core (Leverage) $41,411 $ 16,481 $24,930 10.05% 4.00%
Risk-based $43,020 $ 16,214 $26,806 21.23% 8.00%
</TABLE>
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution
that has a total risk-based capital of less than 8% or a leverage ratio or a
Tier 1 capital ratio that is less than 4% is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to
31
<PAGE>
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date a savings
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to the institution
depending upon its category, including, but not limited to, increased monitoring
by regulators and restrictions on growth, capital distributions and expansion.
The OTS could also take any one of a number of discretionary supervisory
actions, including the issuance of a capital directive and the replacement of
senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS. Deposits of the Bank are presently insured
by SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon
the categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.
In addition to the assessment for deposit insurance, institutions are
required to pay on bonds issued in the late 1980s by the Financing Corporation
("FICO") to recapitalize the predecessor to the SAIF. During 1998, FICO
payments for SAIF members approximated 6.10 basis points, while Bank Insurance
Fund ("BIF" -- the deposit insurance fund that covers most commercial bank
deposits) members paid 1.22 basis points. By law, there will be equal sharing
of FICO payments between the members of both insurance funds on the earlier of
January 1, 2000 or the date the two insurance funds are merged.
The Bank's assessment rate for the year ended December 31, 1998 was 6.4
basis points and the premium paid for this period was $190,000, including
payments toward FICO bonds. A significant increase in SAIF insurance premiums
would likely have an adverse effect on the operating expenses and results of
operations of the Bank.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
THRIFT RECHARTERING LEGISLATION. Legislation enacted in 1996 provided that
BIF and SAIF would merge by January 1, 1999, if there were no savings
associations in existence on that date. Various proposals to eliminate the
federal thrift charter, create a uniform financial institutions charter and
abolish the OTS have been introduced in Congress. The Bank is unable to predict
whether such legislation would be enacted or the extent to which the legislation
would restrict or disrupt its operations.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the limits on loans to one borrower applicable to national banks.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain financial instruments and bullion. At December 31,
1998, the Bank's limit on loans to one borrower was $6.78 million. At December
31, 1998, the Bank's largest aggregate outstanding balance of loans to one
borrower was $3.0 million.
32
<PAGE>
QTL TEST. The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings association is required to maintain at least 65%
of its "portfolio assets" (total assets less: (i) specified liquid assets up to
20% of total assets; (ii) intangibles, including goodwill; and (iii) the value
of property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out of each 12
month period. A savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of December 31,
1998, the Bank maintained 89.03% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered "qualified thrift investments."
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Bank") and has not been advised by the OTS that it is in
need of more than normal supervision, could, after prior notice but without
obtaining approval of the OTS, make capital distributions during a calendar year
equal to the greater of (i) 100% of its net earnings to date during the calendar
year plus the amount that would reduce by one-half its "surplus capital ratio"
(the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year or (ii) 75% of its net earnings for the previous
four quarters. Any additional capital distributions would require prior
regulatory approval. In the event the Bank's capital fell below its regulatory
requirements or the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice. At December 31, 1998, the Bank was classified as a Tier 1 Bank.
The OTS has adopted new capital distribution regulations which will become
effective on April 1, 1999. Under the new regulations, an application to and
the prior approval of the Office of Thrift supervision will be required before
an institution makes a capital distribution if (1) the institution does not meet
certain criteria for "expedited treatment" for applications under the
regulations, (2) the total capital distributions by the institution for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years, (3) the institution would be
undercapitalized following the distribution or (4) the distribution would
otherwise be contrary to a statute, regulation or agreement with the OTS. If an
application is not required, the institution may still need to give advance
notice to the OTS of the capital distribution.
LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus short-
term borrowings. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Bank's average liquidity ratio for the year ended
December 31, 1998 was 10.54%, which exceeded the applicable requirements. The
Bank has never been subject to monetary penalties for failure to meet its
liquidity requirements.
ASSESSMENTS. Savings institutions are required to pay assessments to the
OTS to fund the agency's operations. The general assessments, paid on a semi-
annual basis, are based upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Bank's latest quarterly thrift
financial report. The assessments paid by the Bank for the fiscal year ended
December 31, 1998 totaled $97,500.
33
<PAGE>
BRANCHING. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Section 23A restricts the aggregate amount
of covered transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B generally requires that certain transactions with affiliates,
including loans and asset purchases, be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies.
ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS enforcement action to be taken with respect to a particular
savings institution. If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances. Federal law also
establishes criminal penalties for certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
rule establishes deadlines for the submission and review of such safety and
soundness compliance plans.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts. The
Federal Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$46.5 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement was 3%; and for accounts aggregating greater than $46.5
million, the reserve requirement
34
<PAGE>
was $1.395 million plus 10% (subject to adjustment by the Federal Reserve Board)
against that portion of total transaction accounts in excess of $46.5 million.
The first $4.9 million of otherwise reservable balances (subject to adjustments
by the Federal Reserve Board) were exempted from the reserve requirements. The
Bank maintained compliance with the foregoing requirements. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements imposed by the OTS.
NEW JERSEY LAW
The Commissioner regulates, among other things, the Bank's internal
business procedures as well as its deposits, lending and investment activities.
The Commissioner must approve changes to the Bank's Certificate of
Incorporation, establishment or relocation of branch offices, mergers and the
issuance of additional stock. In addition, the Commissioner conducts periodic
examinations of First Savings. Certain of the areas regulated by the
Commissioner are not subject to similar regulation by the FDIC.
Recent federal and state legislative developments have reduced distinctions
between commercial banks and SAIF-insured savings institutions in New Jersey
with respect to lending and investment authority, as well as interest rate
limitations. As federal law has expanded the authority of federally chartered
savings institutions to engage in activities previously reserved for commercial
banks, New Jersey legislation and regulations ("parity legislation") have given
New Jersey chartered savings institutions, such as the Bank, the powers of
federally chartered savings institutions.
New Jersey law provides that, upon satisfaction of certain triggering
conditions, as determined by the Commissioner, insured institutions or savings
and loan holding companies located in a state which has reciprocal legislation
in effect on substantially the same terms and conditions as stated under New
Jersey law may acquire, or be acquired by New Jersey insured institutions or
holding companies on either a regional or national basis. New Jersey law
explicitly prohibits interstate branching.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Bank report their income on a consolidated
basis and the accrual method of accounting, and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank has not been audited by the IRS in the past eight
years. For its 1998 taxable year, the Bank is subject to a maximum federal
income tax rate of 34%.
BAD DEBT RESERVES. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986 (the "Code") were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans (generally secured
by interests in real property improved or to be improved) under (i) the
Percentage of Taxable Income Method (the "PTI Method") or (ii) the Experience
Method. The Bank's reserve for nonqualifying loans was computed using the
Experience Method.
35
<PAGE>
The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, requires savings institutions to recapture (i.e.,
take into income) certain portions of their accumulated bad debt reserves. The
1996 Act repeals the reserve method of accounting for bad debts effective for
tax years beginning after 1995. Thrift institutions that would be treated as
small banks are allowed to utilize the Experience Method applicable to such
institutions, while thrift institutions that are treated as large banks (those
generally exceeding $500 million in assets) are required to use only the
specific charge-off method. Thus, the PTI Method of accounting for bad debts is
no longer available for any financial institution.
A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the IRS.
Any Section 481(a) adjustment required to be taken into income with respect to
such change generally will be taken into income ratably over a six-taxable year
period, beginning with the first taxable year beginning after 1995, subject to
the residential loan requirement
Under the residential loan requirement provision, the recapture required by
the 1996 Act will be suspended for each of two successive taxable years,
beginning with the Bank's current taxable year, in which the Bank originates a
minimum of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
its current taxable year.
Under the 1996 Act, for its current and future taxable years, the Bank is
not permitted to make additions to its tax bad debt reserves. In addition, the
Bank is required to recapture (i.e., take into income) over a six year period
the excess of the balance of its tax bad debt reserves as of December 31, 1995,
other than its supplemental reserve for losses on loans, if any, over the
balance of such reserves as of December 31, 1987. As a result of such
recapture, the Bank incurred an additional tax payment of approximately $150,000
which is being paid beginning in 1996 over a six year period.
DISTRIBUTIONS. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and then
from the Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the Bank's income. Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not be so included in the Bank's income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if the Bank makes a non-dividend distribution
to the Company, approximately one and one-half times the amount of such
distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Banks does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.
STATE AND LOCAL TAXATION
NEW JERSEY TAXATION. The Bank is taxed under the New Jersey Savings
Institutions Tax Act. The tax is an annual privilege tax imposed at a rate of
3% of the net income of the Bank has reported for federal income tax purposes
with certain modifications. The Company is taxed under the New Jersey
Corporation Business Tax Act. If it meets certain tests, the Company would be
taxed as an investment
36
<PAGE>
company at an effective annual rate of approximately 2.25% of New Jersey taxable
income. If it fails to meet such test, it will be taxed at an annual rate of
approximately 9% of New Jersey taxable income. As a Delaware business
corporation, the Company will be required to file annual returns with the
Secretary of the State of Delaware and pay an annual Delaware franchise tax. The
Bank's subsidiary, Pamrapo Service Corporation, which is taxed at an annual rate
of 9%, files its own tax return.
PERSONNEL
As of December 31, 1998, the Bank had 83 full-time employees and 60 part-
time employees. The employees are not represented by a collective bargaining
unit and the Bank considers its relationship with its employers to be good.
37
<PAGE>
Item 2. Properties.
- --------------------
The Bank conducts its business through eleven branch offices and one
administrative office. Five offices have drive-up facilities. The Bank has
automatic teller machines at nine of its eleven branch facilities. The
following table sets forth information relating to each of the Bank's offices as
of December 31, 1998. The total net book value of the Bank's premises and
equipment at December 31, 1998 was $4.7 million.
<TABLE>
<CAPTION>
Year Net
Location Office Opened Book Value
- --------------------------------------------------------- -------------- ------------------
(In thousands)
<S> <C> <C>
Executive Office
591 Avenue C
Bayonne, New Jersey..................................... 1985 $ 566
Branch Offices
611 Avenue C
Bayonne, New Jersey..................................... 1984 769
155 Broadway
Bayonne, New Jersey..................................... 1973 140
175 Broadway
Bayonne, New Jersey..................................... 1985 (1)
861 Broadway
Bayonne, New Jersey..................................... 1962 167
987 Broadway
Bayonne, New Jersey..................................... 1977 292
1475 Bergen Boulevard
Fort Lee, New Jersey.................................... 1990 (2)
544 Broadway
Bayonne, New Jersey..................................... 1995 (2)
1930 Route 88
Brick, New Jersey....................................... 1996 370 (2)
401 Washington Street
Hoboken, New Jersey..................................... 1990 424 (2)
2518 Old Hooper Avenue
Brick, New Jersey....................................... 1998 (2)
473 Spotswood-Englishtown Road
Jamesburg, New Jersey................................... 1998 687 (2)
595-597 Avenue C
Bayonne, New Jersey..................................... (3) 417
-------
Net book value of properties............................ 3,832
Furnishings and equipment............................... 863
-------
Total premises and equipment.......................... $ 4,695
=======
</TABLE>
- ------------------
(1) The net book value of the property is included in investment in real
estate.
(2) Leased Property.
(3) To be renovated.
38
<PAGE>
Item 3. Legal Proceedings.
- ---------------------------
The Bank is from time to time a party to litigation which arises primarily
in the ordinary course of business. In the opinion of management, the ultimate
disposition of any such existing litigation should not have material effect on
the consolidated financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None.
39
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- -------------------------------------------------------------------------------
Information relating to the market for Registrant's common stock and
related stockholder matters appears under Market for Common Stock and Related
Matters in the Registrant's 1998 Annual Report to Stockholders on page 39 and is
incorporated herein by reference.
Item 6. Selected Financial Data.
- ---------------------------------
The selected financial data appears under Selected Consolidated Financial
Condition and Other Data of the Corporation in the Registrant's 1998 Annual
Report to Stockholders on page 38and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
The above-captioned information appears under Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Registrant's
1998 Annual Report to Stockholders on pages 7 through 13 and is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
The Consolidated Statements of Financial Condition, and related notes
thereto, of Pamrapo Bancorp, Inc. and its subsidiaries, together with the report
thereon by Radics & Co., LLC appears in the Registrant's 1998 Annual Report to
Stockholders on pages 14 through 36 and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
- ---------------------
Not Applicable.
40
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -------------------------------------------------------------
The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 28, 1999 at
pages 6 through 17.
Item 11. Executive Compensation.
- ---------------------------------
The information relating to executive compensation is incorporated herein
by reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 28, 1999 at pages 9 through 17, excluding the
Stock Performance Graph and the Compensation Committee Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------------------------------------------------------------------------
The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 28, 1999 at
pages 5 through 8.
Item 13. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 28, 1999 at page 17.
41
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of Pamrapo Bancorp, Inc.
are incorporated by reference to the indicated pages of the
1998 Annual Report to Stockholders.
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1998............................................ 14
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1997 and 1998...................................... 15
Consolidated Statements of Comprehensive Income for
the Years Ended December 31, 1996, 1997 and 1998...................... 16
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1997 and 1998.................. 17
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1997 and 1998................................ 18-19
Notes to Consolidated Financial Statements................................. 20-35
Independent Auditors' Report............................................... 36
</TABLE>
The remaining information appearing in the 1998 Annual Report to
Stockholders is not deemed to be filed as part of this report, except as
expressly provided herein.
(2) All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial
statements or the notes thereto.
42
<PAGE>
Exhibit No. 11 Statement re Computation of Earnings Per Share
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
------------------
<S> <C>
Income available to common stockholders $4,394,703
----------
Weighted average shares outstanding 2,842,924
----------
Basic earnings per share $ 1.55
----------
Income for diluted earnings per share $4,394,703
----------
Total weighted average common shares
and equivalents outstanding for
diluted computation 2,842,924
----------
Diluted earnings per share $ 1.55
----------
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
Pamrapo Bancorp, Inc. (the "Company") owns 100% of the issued and outstanding
stock of Pamrapo Savings Bank, SLA (the "Bank"), which is the primary asset of
the Company. The Company's business is conducted principally through the Bank.
Business of the Company
The Bank's principal business has been and continues to be attracting retail
deposits from the general public and investing those deposits, together with
funds generated from operations, primarily in one-to-four family, owner occupied
residential mortgage loans. In addition, in times of low loan demand, the Bank
will invest in mortgage-backed securities to supplement its lending portfolio.
The Bank also invests, to a lesser extent, in multi-family residential mortgage
loans, commercial real estate loans, home equity and second mortgage loans and
consumer loans.
The earnings of the Bank depend primarily upon the level of net interest
income, which is the difference between the interest earned on assets such as
loans, mortgage-backed securities, investments and other interest-earning assets
and the interest paid on liabilities such as deposits and borrowings. Net
interest income is affected by many factors, including regulatory, economic, and
competitive factors that influence interest rates, loan demand and deposit flow.
Net interest income is also affected by the amount, composition and relative
interest rates of the Bank's assets and liabilities and by the repricing of such
assets and liabilities. The Bank is vulnerable to interest rate fluctuations to
the extent that its interest-bearing liabilities mature or reprice more rapidly
than its interest-earning assets. Such asset/liability structure may result in
lower net interest income during periods of rising interest rates and may be
beneficial in times of declining interest rates. The Bank's net income is also
affected by provisions for loan losses, non-interest income, non-interest
expenses and income taxes.
Financial Condition
The Company's consolidated assets at December 31, 1998 totaled $413.5 million,
which represents an increase of $36.8 million or 9.77% when compared to $376.7
million at December 31, 1997, primarily due to an increase in the loans
receivable.
Securities available for sale decreased $2.2 million or 18.49% to $9.7
million at December 31, 1998 when compared with $11.9 million at December 31,
1997. The decrease during the year ended December 31, 1998, resulted primarily
from proceeds from maturities and calls of and repayments on securities
available for sale amounting to $2.3 million along with the increase in
unrealized gain on securities available for sale of $46,000 which offset
purchases of securities available for sale of $68,000.
Investment securities held to maturity amounted to $2.0 million at
December 31, 1998 as a result of purchases of such securities.
Mortgage-backed securities held to maturity decreased $5.7 million or
4.52% from $126.1 million at December 31, 1997 to $120.4 million at December 31,
1998. The decrease during the year ended December 31, 1998 resulted from
principal repayments of $32.2 million on mortgage-backed securities which were
sufficient to offset purchases of mortgage-backed securities of $26.7 million.
Net loans amounted to $239.0 million and $211.2 million at December 31,
1998 and 1997, respectively, which represents an increase of $27.8 million or
13.16%. During the year ended December 31, 1998, loan originations exceeded loan
principal repayments by $28.3 million. During the year ended December 31, 1998,
the Bank transferred mortgage loans totaling $1.0 million to foreclosed real
estate. Additionally, the Bank provided $292,000 as a provision for loan losses
during the year ended December 31, 1998. At December 31, 1998 and 1997, loans
delinquent ninety days or more totaled $4.6 million or 1.92% of loans receivable
and $6.9 million or 3.27% of loans receivable, respectively.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
Foreclosed real estate amounted to $1.2 million and $1.4 million at
December 31, 1998 and 1997, respectively. At December 31, 1998, foreclosed real
estate consisted of thirteen properties, of which ten were residential, two were
land and one was a commercial property. During the year ended December 31, 1998,
thirteen properties with a combined book value of $1.0 million were sold and
another three properties with a combined book value of $256,000 remain under
contract for sale. At December 31, 1997, foreclosed real estate consisted of
nineteen properties, of which fifteen were residential, three were land and one
was a commercial property. At December 31, 1998 and 1997, non-performing assets
totaled $5.8 million or 1.40% of total assets and $8.3 million or 2.20% of total
assets, respectively.
Total deposits at December 31, 1998 increased $18.5 million or 6.02% to
$326.0 million compared to $307.5 million at December 31, 1997.
Advances from the Federal Home Loan Bank of New York ("FHLB-NY") totaled
$28.6 million and $13.6 million at December 31, 1998 and 1997, respectively. The
increase of $15.0 million during the year ended December 31, 1998, resulted from
new advances from the FHLB-NY, which were used for general corporate purposes.
Stockholders' equity amounted to $49.8 million and $48.5 million at
December 31, 1998 and 1997, respectively. During the years ended December 31,
1998 and 1997, net income of $4.4 million and $5.1 million, respectively, was
recorded and cash dividends of $3.2 million and $2.9 million, respectively, were
paid on the Company's common stock. During the year ended December 31, 1997, the
Company repurchased 318,900 shares of its common stock, at prices ranging from
$19.50 to $23.50 per share, for $7.4 million under a stock repurchase program
and reissued 5,860 shares of its common stock from treasury stock for $34,000 as
a result of the exercise of stock options by officers and employees. The Company
did not repurchase any shares during the year ended December 31, 1998.
Results of Operations For The Years Ended December 31, 1998 and 1997
Net Income
Net income decreased by $676,000 or 13.33% to $4.4 million during the year ended
December 31, 1998 compared with $5.1 million for the year ended December 31,
1997. The decrease in net income during the 1998 period was due to increases in
total interest expense of $566,000 and non-interest expenses of $1.02 million,
along with a decrease in non-interest income of $275,000, which more than offset
an increase in total interest income of $575,000 along with decreases in
provision for loan losses of $294,000 and income taxes of $316,000.
Interest Income
Interest income on loans during the year ended December 31, 1998 increased by
$682,000 or 3.65% to $19.4 million when compared to $18.7 million during 1997.
During the years ended December 31, 1998 and 1997, the yield earned on the loan
portfolio was 8.72% and 9.10%, respectively. The average balance of loans
outstanding during the years ended December 31, 1998 and 1997, totaled $222.2
million and $205.6 million, respectively.
Interest on mortgage-backed securities decreased $184,000 or 2.15%,
during the year ended December 31, 1998 to $8.4 million compared to $8.6 million
for 1997. During the years ended December 31, 1998 and 1997, the average balance
of mortgage-backed securities outstanding was $127.1 million and $127.0 million,
respectively. The yield earned on the mortgage-backed securities portfolio was
6.60% and 6.75% during 1998 and 1997, respectively.
Interest earned on investment securities decreased by $285,000 or 56.10%
to $223,000 for the year ended December 31, 1998, when compared to $508,000 for
1997. The decrease resulted from a decrease of $3.0 million or 45.15% in the
average balance of the investment securities portfolio along with a decrease of
155 basis points in the yield earned on the investment securities portfolio from
7.77% in 1997 to 6.22% in 1998.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
Interest on other interest-earning assets increased by $363,000 or
58.93% to $979,000 during the year ended December 31, 1998 when compared to
$616,000 in 1997. During the year ended December 31, 1998, the increase in
interest on other interest-earning assets resulted from an increase in the yield
earned to 6.25% in 1998 from 5.56% in 1997, along with an increase of $4.6
million or 41.45% in the average balance of other interest-earning assets
outstanding.
Interest Expense
Interest on deposits increased $242,000 or 2.19% to $11.3 million during the
year ended December 31, 1998 compared to $11.1 million for 1997. The increase
during 1998 was attributable to an increase of $7.7 million or 2.67% in the
average balance of interest-bearing deposits outstanding which was sufficient to
offset a decrease of two basis points in the Bank's average cost of interest-
bearing deposits to 3.81% for 1998 from 3.83% for 1997.
Interest on advances and other borrowed money increased $324,000 or
40.50% to $1.1 million during the year ended December 31, 1998 compared to
$800,000 for 1997. The increase during 1998 was attributable to an increase of
$5.9 million in the average balance of advances and other borrowings outstanding
which was sufficient to offset a decrease of 44 basis points in the Bank's cost
of borrowings to 6.37% for 1998 from 6.81% for 1997.
Net Interest Income
Net interest income for the years ended December 31, 1998 and 1997 remained the
same at $16.5 million. The Bank's net interest rate spread decreased from 4.17%
in 1977 to 3.91% in 1998 and its interest rate margin decreased from 4.72% in
1997 to 4.49% in 1998. These decreases primarily resulted from a one basis point
increase in the cost of average interest-bearing liabilities from 3.94% in 1997
to 3.95% in 1998, along with 25 basis point decrease in the yield on interest-
earning assets to 7.86% in 1998 from 8.11% in 1997. The level of net interest
income was maintained despite the decreases in the interest rate spread and
margin as a result of an increased level of net interest earning assets.
Provision for Loan Losses
During the years ended December 31, 1998 and 1997, the Bank provided $292,000
and $586,000, respectively, for loan losses. At December 31, 1998 and 1997, the
Bank's loan portfolio included loans totaling $4.6 million and $6.9 million,
respectively, which were delinquent ninety days or more. The Bank maintains an
allowance for loan losses based on management's evaluation of the risks inherent
in its loan portfolio which gives due consideration to changes in general market
conditions and in the nature and volume of the Bank's loan activity. The
allowance for loan losses amounted to $2.3 million at December 31, 1998,
representing .94% of total loans and 50.00% of loans delinquent ninety days or
more compared to an allowance of $2.5 million at December 31, 1997, representing
1.15% of total loans and 36.23% of loans delinquent ninety days or more. During
the years ended December 31, 1998 and 1997, the bank charged off loans
aggregating $484,000 and $928,000, respectively. The Bank monitors its loan
portfolio and intends to continue to provide for loan losses based on its
ongoing periodic review of the loan portfolio and general market conditions.
Non-Interest Income
Non-interest income decreased by $275,000 or 16.43% to $1.4 million during the
year ended December 31, 1998 as compared to $1.7 million for 1997. The decrease
in non-interest income during 1998 resulted primarily from gains in 1997 on
sales of mortgage-backed securities and fixed assets of $112,000 and $247,000,
respectively. No such activity took place in 1998. Partially offsetting the
aforementioned decreases were increases in fees and service charges of $79,000
and miscellaneous income of $4,000.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
Non-Interest Expenses
Non-interest expenses increased $1.0 million or 10.42% to $10.8 million during
the year ended December 31, 1998 compared to $9.8 million for 1997. Salaries and
employee benefits, occupancy, equipment and advertising expenses increased
$674,000, $243,000, $165,000 and $168,000, respectively, during the year ended
December 31, 1998, which were partially offset of decreases in legal expenses,
federal insurance premium, loss on foreclosed real estate and miscellaneous
expenses by $32,000, $3,000, $85,000 and $110,000, respectively. The 1998 non-
interest expenses include increased operating costs resulting from two Brick,
New Jersey branch offices opened after September 30, 1997 and a branch in
Jamesburg, New Jersey opened in October, 1998.
Income Taxes
Income tax expense totaled $2.4 million and $2.8 million during the years ended
December 31, 1998 and 1997, respectively. The decrease in 1998 resulted
primarily from a decrease in pre-tax income of $1.0 million.
Results of Operations For The Years Ended December 31, 1997 and 1996
Net Income
Net income increased by $2.1 million or 70.00% to $5.1 million during the year
ended December 31, 1997 compared with $3.0 million for the year ended December
31, 1996. The increase in net income during the 1997 period was primarily due to
a decrease in federal insurance premium of $2.5 million. The 1996 results
include a charge of $2.0 million to recapitalize the Savings Association
Insurance Fund (the "SAIF"). During the year ended December 31, 1996, a one-time
special assessment was levied amounting to 65.7 basis points on SAIF assessable
deposits held as of March 31, 1995. The after-tax charge of $1.3 million reduced
net income for the year ended December 31, 1996 by $.40 per share. In addition,
the results also reflect increases in total interest income of $361,000 and in
non-interest income of $1.0 million, along with decreases in provision for loan
losses of $59,000 and non-interest expenses of $721,000, excluding the
aforementioned special assessment, which more than offset increases in total
interest expense of $481,000 and income taxes of $1.6 million.
Interest Income
Interest income on loans during the year ended December 31, 1997 decreased by
$492,000 or 2.56% to $18.7 million when compared to $19.2 million during 1996.
During the years ended December 31, 1997 and 1996, the yield earned on the loan
portfolio was 9.10% and 9.00%, respectively. The average balance of loans
outstanding during the years ended December 31, 1997 and 1996, totaled $205.6
million and $213.1 million, respectively.
Interest on mortgage-backed securities increased $1.3 million or 17.81%
during the year ended December 31, 1997 to $8.6 million compared to $7.3 million
for 1996. During the year ended December 31, 1997, the average balance of
mortgage-backed securities outstanding increased $18.5 million or 17.05% to
$127.0 million when compared to $108.5 million for 1996. The yield earned on the
mortgage-backed securities portfolio remained the same at 6.75% during 1997 and
1996. The increase in the average balance of mortgage-backed securities during
1997 resulted primarily from purchases of mortgage-backed securities which more
than offset principal repayments.
Interest earned on investment securities decreased by $398,000 or 43.93%
to $508,000 for the year ended December 31, 1997, when compared to $906,000 for
1996. The decrease resulted from a decrease of $5.2 million or 44.21% in the
average balance of the investment securities portfolio, which more than offset
an increase of four basis points in the yield earned on the investment
securities portfolio from 7.73% in 1996 to 7.77% in 1997.
Interest on other interest-earning assets amounted to $616,000 and
$614,000 during the years ended December 31, 1997 and 1996, respectively. The
yield earned on other interest-earning assets increased from 4.87% in 1996 to
5.56% in 1997, which more than offset a decrease of $1.5 million or 12.06% in
the average balance of other interest-earning assets outstanding.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
Interest Expense
Interest on deposits decreased $113,000 or 1.01% to $11.1 million during the
year ended December 31, 1997 compared to $11.2 million for 1996. The decrease
during 1997 was attributable to a decrease of one basis point in the Bank's
average cost of interest-bearing deposits to 3.83% for 1997 from 3.84% for 1996,
along with a decrease of $2.0 million or .69%, in the average balance of
interest-bearing deposits outstanding.
Interest on advances and other borrowed money increased
$594,000 or 288.35% to $800,000 during the year ended December 31, 1997 compared
to $206,000 for 1996. The increase during 1997 was attributable to an increase
of $8.4 million in the average balance of advances and other borrowings
outstanding, along with an increase of 70 basis points in the Bank's cost of
borrowings to 6.81% for 1997 from 6.11% for 1996.
Net Interest Income
Net interest income for the year ended December 31, 1997, decreased $120,000 or
.72% from $16.7 million for 1996 to $16.5 million for 1997. The Bank's net
interest rate spread decreased from 4.23% in 1996 to 4.17% in 1997 and its
interest rate margin decreased from 4.81% in 1996 to 4.72% in 1997. These
decreases primarily resulted from a seven basis point increase in the cost of
average interest-bearing liabilities from 3.87% in 1996 to 3.94% in 1997, which
was sufficient to offset a one basis point increase in the yield on interest-
earning assets to 8.11% in 1997 from 8.10% in 1996.
Provision for Loan Losses
During the years ended December 31, 1997 and 1996, the Bank provided $586,000
and $644,000, respectively, for loan losses. At December 31, 1997 and 1996, the
Bank's loan portfolio included loans totaling $6.9 million and $10.5 million,
respectively, which were delinquent ninety days or more. The Bank maintains an
allowance for loan losses based on management's evaluation of the risks inherent
in its loan portfolio which gives due consideration to changes in general market
conditions and in the nature and volume of the Bank's loan activity. The
allowance for loan losses amounted to $2.5 million at December 31, 1997,
representing 1.15% of total loans and 36.23% of loans delinquent ninety days or
more compared to an allowance of $2.8 million at December 31, 1996, representing
1.32% of total loans and 26.69% of loans delinquent ninety days or more. During
the years ended December 31, 1997 and 1996, the Bank charged off loans
aggregating $928,000 and $638,000, respectively. The Bank monitors its loan
portfolio and intends to continue to provide for loan losses based on its
ongoing periodic review of the loan portfolio and general market conditions.
Non-Interest Income
Non-interest income increased by $1.0 million or 157.54% to $1.7 million during
the year ended December 31, 1997 as compared to $650,000 for 1996. The increase
in non-interest income during 1997 resulted primarily from increases in fees and
service charges of $409,000, gain on sales of mortgage-backed securities of
$112,000, gain on sale of fixed assets of $247,000 and miscellaneous income of
$257,000. The increase during the 1997 period in the fees and service charges
resulted from a revised service fees schedule on various depository services.
During the year ended December 31, 1997, the proceeds from sales of mortgage-
backed securities totaled $7.6 million at a net gain of $112,000. During the
year ended December 31, 1997, the Bank sold its office building in Hoboken, New
Jersey for $815,000 at a gain of $247,000. During the 1997 period, the increase
in the miscellaneous income resulted primarily from commissions earned on the
sales of annuities and mutual funds by Pamrapo Service Corp., Inc., a subsidiary
of the Bank.
Non-Interest Expense
Non-interest expenses decreased $2.7 million or 21.89% to $9.8 million during
the year ended December 31, 1997 compared to $12.5 million for 1996. On
September 30, 1996, legislation was enacted which, among other things, imposed a
one-time special assessment on SAIF member institutions, including the Bank. The
special assessment levied amounted to 65.7 basis points on SAIF assessable
deposits held as of March 31, 1995. The Bank, during the 1996 period, took a
charge of $2.0 million as a result of such assessment. Non-interest expenses,
excluding the above-mentioned one-time SAIF assessment of $2.0, decreased
$721,000 or 6.86% to $9.8 million during the year ended December 31, 1997
compared to $10.5 million for the year ended
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
December 31, 1996. Salaries and employee benefits, legal expenses, federal
insurance premium and loss on foreclosed real estate decreased $188,000,
$387,000, $469,000 and $76,000, respectively, during the year ended December 31,
1997, which were partially offset by increases in occupancy, equipment,
advertising and miscellaneous expenses of $82,000, $91,000, $75,000, and
$152,000, respectively. Non-interest expenses during the year ended December 31,
1996 include a non-recurring expense of $300,000 related to the 1996 Annual
Meeting of Stockholders.
Income Taxes
Income tax expense totaled $2.8 million and $1.2 million during the years ended
December 31, 1997 and 1996, respectively. The increase in 1997 resulted
primarily from an increase in pre-tax income of $3.7 million from 1996 and a
reduction, during the 1996 period, of income tax expense of $250,000 resulting
from the exercise of non-statutory stock options.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, amortization and prepayments
of loan and mortgage-backed securities principal, FHLB-NY advances, maturities
of investment securities and funds provided by operations. While scheduled loan
and mortgage-backed securities amortization and maturities of investment
securities are a relatively predictable source of funds, deposit flows and loan
and mortgage- backed securities prepayments are greatly influenced by market
interest rates, economic conditions and competition.
The Bank is required to maintain minimum levels of liquid assets as
defined by the Office of Thrift Supervision ("OTS") regulations. This
requirement, which may vary from time to time, depending upon economic
conditions and deposit flows, is based upon a percentage of deposits and short-
term borrowings. The required ratio currently is 4.00%. The Bank's liquidity
averaged 10.54% during December, 1998. The Bank adjusts its liquidity levels in
order to meet funding needs for deposit outflows, payments of real estate taxes
from escrow accounts on mortgage loans, repayment of borrowings, when
applicable, and loan funding commitments. The Bank also adjusts it liquidity
level as appropriate to meet its asset/liability objectives. In addition, the
Bank invests its excess funds in federal funds and overnight deposits with the
FHLB-NY, which provides liquidity to meet lending requirements. Interest-bearing
deposits in other banks at December 31, 1998 and 1997 amounted to $15.5 million
and $2.9 million, respectively.
The Bank's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities.
These activities are summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(In Thousands) 1997 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents-- beginning $ 21,143 $ 13,307
- --------------------------------------------------------------------------------------------------------
Operating activities:
Net income 5,071 4,395
Adjustments to reconcile net income to net cash
provided by operating activities 1,547 3,728
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,618 8,123
Net cash (used in) investing activities (22,106) (23,764)
Net cash provided by financing activities 7,652 30,381
- --------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (7,836) 14,740
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents-- ending $ 13,307 $ 28,047
- --------------------------------------------------------------------------------------------------------
</TABLE>
The primary source of cash from operating activities during each period was net
income.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
The primary sources of investing activities of the Bank are lending and
investment in mortgage-backed securities. In addition to funding new loan
production and the purchases of mortgage-backed securities through operations
and financing activities, new loan production and the purchase of mortgage-
backed securities were also funded by principal repayments on existing loans and
mortgage-backed securities. The primary sources of financing activities during
the 1998 period were net increases in deposits of $18.5 million and advances
from the FHLB-NY of $15.0 million.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds and interest-earning deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB-NY, which provide an additional source of funds. At December 31, 1998
and 1997, advances from the FHLB-NY amounted to $28.6 million and $13.6 million,
respectively.
The Bank anticipates that it will have sufficient funds available to
meet its current loan commitments. At December 31, 1998, the Bank has
outstanding commitments to originate loans of $11.6 million. Certificates of
deposit scheduled to mature in one year or less, at December 31, 1998, totaled
$127.6 million. Management believes that, based upon historical experience, a
significant portion of such deposits will remain with the Bank.
At December 31, 1998, the Bank exceeded each of the three OTS capital
requirements. The Bank's tangible, core and risk-based capital ratios were
10.05%, 10.05% and 21.23%, respectively. The Bank qualifies as "well-
capitalized" under the prompt corrective action regulations of the OTS.
Impact of Inflation and Changing Prices
The consolidated financial statements and the related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates have
a more significant impact on the Bank's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services because
such prices are affected by inflation to a larger extent than interest rates.
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 a recent assessment, the Bank has determined that it will be
required to modify or replace portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. The Bank presently
believes that with modifications to existing software and conversion to new
software, the Year 2000 Issue can be mitigated. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 Issue
may have a material adverse impact on the operations of the Bank.
The Bank has initiated formal communications with all of its significant
suppliers and vendors to determine the extent to which the Bank is vulnerable to
those third parties failure to remediate their own Year 2000 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.
<PAGE>
Pamrapo Bancorp, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
Note(s) 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and amounts due from depository institutions $ 10,406,794 $ 12,547,045
Interest-bearing deposits in other banks 2,900,000 15,500,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 1 and 17 13,306,794 28,047,045
Securities available for sale 1,2,9 and 17 11,849,202 9,651,512
Investment securities held to maturity 1,3,9 and 17 - 1,998,142
Mortgage-backed securities held to maturity 1,4,9 and 17 126,108,914 120,400,191
Loans receivable 1,5,9 and 17 211,156,095 239,009,990
Foreclosed real estate 1 1,354,347 1,237,097
Investment in real estate 1 285,310 270,539
Premises and equipment 1,6 and 10 3,482,178 4,695,440
Federal Home Loan Bank of New York stock 9 2,979,400 3,097,200
Interest receivable 1,7 and 17 2,495,200 2,364,340
Deferred tax asset 1 and 14 1,369,891 1,237,626
Excess of cost over assets acquired 1 303,250 181,949
Other assets 14 2,023,581 1,283,086
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $376,714,162 $413,474,157
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Liabilities
Deposits 8 and 17 $307,472,000 $325,985,283
Advances from Federal Home Loan Bank of New York 9 and 17 13,583,100 28,583,100
Other borrowed money 10 and 17 273,623 252,535
Advance payments by borrowers for taxes and insurance 2,837,836 2,911,061
Other liabilities 13 4,014,488 5,969,273
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 328,181,047 363,701,252
- ---------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies 16 and 17 - -
Stockholders' equity 1,11,12,13 and 14
Preferred stock; authorized 3,000,000 shares;
issued and outstanding - none - -
Common stock; par value $.01; authorized 7,000,000
shares; shares issued 3,450,000; shares
outstanding 2,842,924 34,500 34,500
Paid-in capital in excess of par value 18,906,768 18,906,768
Retained earnings - substantially restricted 43,007,228 44,217,856
Accumulated other comprehensive income -
unrealized gain on securities available for sale, net 10,553 39,715
Treasury stock, at cost; 607,076 shares (13,425,934) (13,425,934)
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 48,533,115 49,772,905
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $376,714,162 $413,474,157
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Pamrapo Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
Note(s) 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans 1 and 5 $19,191,106 $18,699,348 $19,380,581
Mortgage-backed securities 1 7,323,334 8,572,270 8,388,483
Investments 1 905,838 507,895 223,459
Other interest-earning assets 614,239 616,023 978,661
- ---------------------------------------------------------------------------------------------------------------
Total interest income 28,034,517 28,395,536 28,971,184
- ---------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 8 11,174,695 11,062,108 11,303,534
Advances and other borrowed money 205,937 799,585 1,124,396
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 11,380,632 11,861,693 12,427,930
- ---------------------------------------------------------------------------------------------------------------
Net interest income 16,653,885 16,533,843 16,543,254
Provision for loan losses 1 and 5 644,466 585,555 291,856
- ---------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 16,009,419 15,948,288 16,251,398
- ---------------------------------------------------------------------------------------------------------------
Non-interest income:
Fees and service charges 431,924 841,389 920,465
Gain on sale of mortgage-backed securities 2 and 4 - 111,583 -
Gain on sale of fixed assets - 246,652 -
Miscellaneous 217,881 474,674 478,693
- ---------------------------------------------------------------------------------------------------------------
Total non-interest income 649,805 1,674,298 1,399,158
- ---------------------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and employee benefits 13 5,082,192 4,893,655 5,567,768
Net occupancy expense of premises 6 and 16 778,225 859,895 1,102,791
Equipment 6 775,360 866,005 1,031,297
Advertising 114,580 189,779 358,144
Legal 516,292 128,607 96,681
Federal insurance premium 15 2,684,879 193,368 189,879
Loss on foreclosed real estate 1 283,187 207,389 122,736
Amortization of intangibles 1 121,300 121,300 121,301
Miscellaneous 2,179,858 2,332,215 2,221,779
- ---------------------------------------------------------------------------------------------------------------
Total non-interest expenses 12,535,873 9,792,213 10,812,376
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 4,123,351 7,830,373 6,838,180
Income taxes 1 and 14 1,158,483 2,759,170 2,443,477
- ---------------------------------------------------------------------------------------------------------------
Net income $ 2,964,868 $ 5,071,203 $ 4,394,703
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per common share 1 $ 0.90 $ 1.74 $ 1.55
- ---------------------------------------------------------------------------------------------------------------
Diluted earnings per common stock 1 $ 0.90 $ 1.74 $ 1.55
- ---------------------------------------------------------------------------------------------------------------
Dividends per common share 1 $ 0.90 $ 1.00 $ 1.12
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Pamrapo Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1997 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $2,964,868 $5,071,203 $4,394,703
Other comprehensive income, net of income taxes:
Unrealized holdings gain (loss) on securities
available for sale, net of income tax expense (benefit)
of ($91,550), $123,638 and $16,500, respectively (155,781) 210,965 29,162
Less reconciliation adjustment for realized gains,
net of income tax expense (benefit) of ($2,038) - (3,477) -
- ----------------------------------------------------------------------------------------------------------
Other comprehensive income (155,781) 207,488 29,162
- ----------------------------------------------------------------------------------------------------------
Comprehensive income $2,809,087 $5,278,691 $4,423,865
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Pamrapo Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income -
Unrealized Debt of
Paid-in Retained (Loss) Gain Employee
Capital in Earnings - on Securities Stock
Common Excess of Substantially Available Ownership Treasury
Stock Par Value Restricted For Sale, Net Plan Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 $ 34,500 $18,906,768 $41,284,431 $ (41,154) $ (148,781) $ (660,335) $59,375,429
Net income for the year ended
December 31, 1996 - - 2,964,868 - - - 2,964,868
Reduction in debt of Employee
Stock Ownership Plan - - - - 148,781 - 148,781
Purchase of treasury stock - - - - - (6,179,188) (6,179,188)
Sale of treasury stock - - (331,960) - - 659,933 327,973
(Increase) in unrealized loss on
securities available for sale,
net of income taxes - - - (155,781) - - (155,781)
Cash dividends - - (2,973,121) - - - (2,973,121)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 34,500 40,944,218 (196,935) - (6,179,590) 53,508,961 18,906,768
Net income for the year ended
December 31, 1997 - - 5,071,203 - - - 5,071,203
Purchase of treasury stock - - - - - (7,369,153) (7,369,153)
Sale of treasury stock - - (88,470) - - 122,809 34,339
Decrease in unrealized loss on
securities available for sale,
net of income taxes - - - 207,488 - - 207,488
Cash dividends - - (2,919,723) - - - (2,919,723)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 34,500 18,906,768 43,007,228 10,553 - (13,425,934) 48,533,115
Net income for the year
ended December 31, 1998 - - 4,394,703 - - - 4,394,703
Increase in unrealized gain on
securities available for sale,
net of income taxes - - - 29,162 - - 29,162
Cash dividends - - (3,184,075) - - - (3,184,075)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 $ 34,500 $18,906,768 $44,217,856 $ 39,715 - $(13,425,934) $49,772,905
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Pamrapo Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,964,868 $ 5,071,203 $ 4,394,703
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment and
investment in real estate 324,807 350,147 508,690
Amortization of deferred fees, premiums and discounts, net (217,913) (185,294) (151,141)
Provision for loan losses 644,466 585,555 291,856
Provision for losses on foreclosed real estate 166,003 144,747 73,206
(Gain) loss on sale of foreclosed real estate 1,810 (46,433) (57,254)
Gain on sales of fixed assets - (246,652) -
Gain on sales of securities available for sale - (5,519) -
Gain on sales of mortgage-backed securities held to maturity - (106,064) -
Deferred income taxes 131,066 5,023 115,765
Decrease in interest receivable 277,213 181,843 130,860
(Increase) decrease in other assets (1,259,706) (124,106) 740,495
Amortization of intangibles 121,300 121,300 121,301
Reduction in debt of Employee Stock Ownership Plan 148,781 - -
Increase in other liabilities 73,532 872,689 1,954,785
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,376,227 6,618,439 8,123,266
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities and calls of securities available for sale 7,000,000 5,000,000 1,000,000
Proceeds from repayments of securities available for sale 1,827,985 1,718,879 1,270,255
Purchases of securities available for sale (3,049,198) (65,220) (67,833)
Proceeds from sale of securities available for sale - 3,992,226 -
Proceeds from maturities of investment securities held to maturity 99,000 - -
Purchases of investment securities held to maturity - - (1,998,125)
Principal repayments on mortgage-backed securities held to maturity 12,504,961 16,228,312 32,197,982
Purchases of mortgage-backed securities held to maturity (12,679,914) (49,297,672) (26,725,908)
Proceeds from sales of mortgage-backed securities held to maturity - 3,640,635 -
Proceeds from sales of student loans 770,672 685,386 817,555
Purchase of mortgage loans (108,500) (391,550) (1,785,275)
Net change in loans receivable 8,729,960 (3,976,415) (27,236,899)
Proceeds from sales of foreclosed real estate 401,761 798,889 588,869
Additions to premises and equipment (224,655) (755,387) (1,707,181)
Proceeds from sales of fixed assets - 315,312 -
Additions to investment in real estate (6,900) - -
Redemption (purchase) of Federal Home Loan Bank of New York stock 93,200 - (117,800)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities $ 15,358,372 $(22,106,605) $(23,764,360)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Pamrapo Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows, continued
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing
activities:
Net increase in deposits $ 1,884,656 $ 6,686,580 $18,513,283
Advances from Federal Home Loan Bank of New York 7,000,000 14,000,000 15,000,000
Repayment of advances from Federal Home Loan
Bank of New York (11,000,000) (4,000,000) -
Repayment of other borrowings (166,761) (19,471) (21,088)
(decrease) increase in advance payments
by borrowers for taxes and insurance (34,111) 1,239,732 73,225
Cash dividends paid (3,318,121) (2,919,723) (3,184,075)
Purchase of treasury stock (6,179,188) (7,369,153) -
Proceeds from sales of treasury stock 327,973 34,339 -
- -----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (11,485,552) 7,652,304 30,381,345
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 7,249,047 (7,835,862) 14,740,251
Cash and cash equivalents - beginning 13,893,609 21,142,656 13,306,794
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - ending $21,142,656 $13,306,794 $28,047,045
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental information:
Dividend payable $ (345,000) $ - $ -
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on securities available for sale, net $ (155,781) $ 207,488 $ 29,162
- -----------------------------------------------------------------------------------------------------------------------------
Transfer from loans receivable to foreclosed real estate $ 2,175,779 $ 1,419,449 $ 992,471
- -----------------------------------------------------------------------------------------------------------------------------
Loans to facilitate sales of foreclosed real estate $ 1,077,800 $ 1,163,700 $ 504,900
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage loan in connection with sale of building $ - $ 500,000 $ -
- -----------------------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Income taxes, net of refunds $ 1,941,053 $ 2,034,382 $ 2,434,309
- -----------------------------------------------------------------------------------------------------------------------------
Interest on deposits and borrowings $11,421,978 $11,781,550 $12,245,397
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Pamrapo Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of consolidated financial statement presentation
The consolidated financial statements include the accounts of the Corporation
and its wholly owned subsidiary, Pamrapo Savings Bank, S.L.A. (the "Savings
Bank") and the Savings Bank's wholly owned subsidiary, Pamrapo Service Corp.,
Inc. (the "Service Corp."). The Corporation's business is conducted principally
through the Savings Bank. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
consolidated statement of financial condition and revenues and expenses for the
period then ended. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
changes relate to the determination of the allowance for loan losses, the
valuation of foreclosed real estate, the assessment of prepayment risks
associated with mortgage-backed securities and the determination of the amount
of deferred tax assets which are more likely than not to be realized. Management
believes that the allowance for loan losses is adequate, foreclosed real estate
is appropriately valued, prepayment risks associated with mortgage-backed
securities are properly recognized and all deferred tax assets are more likely
than not to be recognized. While management uses available information to
recognize losses on loans and foreclosed real estate, future additions to the
allowance for loan losses or further writedowns of foreclosed real estate may be
necessary based on changes in economic conditions in the market area.
Additionally, assessments of prepayment risks related to mortgage-backed
securities are based upon current market conditions, which are subject to
frequent change. Finally, the determination of the amount of deferred tax assets
more likely than not to be realized is dependent on projections of future
earnings, which are subject to frequent change.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Savings Bank's allowance for loan
losses and foreclosed real estate valuations. Such agencies may require the
Savings Bank to recognize additions to the allowance for loan losses or
additional writedowns on foreclosed real estate based on their judgments about
information available to them at the time of their examination.
Cash and cash equivalents
Cash and cash equivalents include cash and amounts due from depository
institutions, federal funds sold and interest-bearing deposits in other banks
having original maturities of three months or less. Generally, federal funds
sold are sold for one-day periods.
Investment and mortgage-backed securities
Investments in debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to-maturity securities and
reported at amortized cost. Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized holding gains and
losses included in earnings. Debt and equity securities not classified as
trading securities nor as held-to-maturity securities are classified as
available for sale securities and reported at fair value, with unrealized
holding gains or losses, net of deferred income taxes, reported in a separate
component of stockholders' equity.
Premiums and discounts on all securities are amortized/accreted using the
interest method. Interest and dividend income on securities, which includes
amortization of premiums and accretion of discounts, is recognized in the
consolidated financial statements when earned. The adjusted cost basis of an
identified security sold or called is used for determining security gains and
losses recognized in the consolidated statements of income.
Loans receivable
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan origination fees and discounts.
The Savings Bank defers loan origination fees and certain direct loan
origination costs and accretes such amounts as an adjustment of yield over the
contractual lives of the related loans. Discounts on loans purchased are
recognized as income by use of the level-yield method over the terms of the
respective loans.
Uncollectible interest on loans is charged off, or an allowance is established
based on management's evaluation. An allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments is probable, in which case the loan is returned
to an accrual status.
<PAGE>
Notes to Consolidated Financial Statements, continued
Allowance for loan losses
An allowance for loan losses is maintained at a level considered adequate to
absorb loan losses. Management of the Savings Bank, in determining the allowance
for loan losses, considers the risks inherent in its loan portfolio and changes
in the nature and volume of its loan activities, along with the general economic
and real estate market conditions.
The Savings Bank utilizes a two tier approach:
(1) identification of impaired loans and the establishment of specific loss
allowances on such loans; and (2) establishment of general valuation allowances
on the remainder of its loan portfolio. The Savings Bank maintains a loan review
system which allows for a periodic review of its loan portfolio and the early
identification of potential impaired loans. Such system takes into
consideration, among other things, delinquency status, size of loans, type of
collateral and financial condition of the borrowers. Specific loan loss
allowances are established for identified loans based on a review of such
information and/or appraisals of the underlying collateral. General loan loss
allowances are based upon a combination of factors including, but not limited
to, actual loan loss experience, composition of loan portfolio, current economic
conditions and management's judgment.
Although management believes that adequate specific and general loan loss
allowances are established, actual losses are dependent upon future events and,
as such, further additions to the allowance for loan losses may be necessary.
An impaired loan is evaluated based on the present value of expected future cash
flows discounted at the loan's effective interest rate, or as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan evaluated for impairment
is deemed to be impaired when, based on current information and events, it is
probable that the Savings Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement. An insignificant
payment delay, which is defined as up to ninety days by the Savings Bank, will
not cause a loan to be classified as impaired. A loan is not impaired during a
period of delay in payment if the Savings Bank expects to collect all amounts
due, including interest accrued at the contractual interest rate for the period
of delay. Thus, a demand loan or other loan with no stated maturity is not
impaired if the Savings Bank expects to collect all amounts due, including
interest accrued at the contractual interest rate, during the period the loan is
outstanding. All loans identified as impaired are evaluated independently. The
Savings Bank does not aggregate such loans for evaluation purposes. Payments
received on impaired loans are applied first to accrued interest receivable and
then to principal.
Foreclosed real estate and investment in real estate
Real estate acquired by foreclosure or deed in lieu of foreclosure is initially
recorded at the lower of cost or estimated fair value at date of acquisition and
subsequently carried at the lower of such initially recorded amount or estimated
fair value less estimated costs to sell. Costs incurred in developing or
preparing properties for sale are capitalized. Expenses of holding properties
and income from operating properties are recorded in operations as incurred or
earned. Gains and losses from sales of such properties are recognized as
incurred.
Real estate held for investment is carried at cost less accumulated
depreciation. Income and expense of operating the property are recorded in
operations.
Premises and equipment
Premises and equipment are comprised of land, at cost, and buildings, building
improvements, leaseholds and furnishings and equipment, at cost, less
accumulated depreciation and amortization. Significant renewals and betterments
are charged to the property and equipment account. Maintenance and repairs are
expensed in the year incurred. Rental income is netted against occupancy expense
in the consolidated statements of income.
Income taxes
The Corporation, Savings Bank and Service Corp. file a consolidated federal
income tax return. Income taxes are allocated to the Corporation, Savings Bank
and Service Corp. based on their respective income or loss included in the
consolidated income tax return. Separate state income tax returns are filed by
the Corporation, Savings Bank and Service Corp.
Federal and state income taxes have been provided on the basis of reported
income. The amounts reflected on the Corporation's and subsidiaries' tax returns
differ from these provisions due principally to temporary differences in the
reporting of certain items for financial reporting and income tax reporting
purposes.
Deferred income tax expense or benefit is determined by recognizing deferred tax
assets and liabilities for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences
<PAGE>
Notes to Consolidated Financial Statements, continued
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in earnings in the period
that includes the enactment date. The realization of deferred tax assets is
assessed and a valuation allowance provided, when necessary, for that portion of
the asset which is not likely to be realized. Management believes, based upon
current facts, that it is more likely than not that there will be sufficient
taxable income in future years to realize the deferred tax assets.
Interest-rate risk
The Savings Bank is principally engaged in the business of attracting deposits
from the general public and using these deposits, together with borrowings and
other funds, to invest in securities, to make loans secured by real estate and,
to a lesser extent, make consumer loans. The potential for interest-rate risk
exists as a result of the generally shorter duration of the Savings Bank's
interest-sensitive liabilities compared to the generally longer duration of its
interest-sensitive assets. In a rising interest rate environment, liabilities
will reprice faster than assets, thereby reducing net interest income. For this
reason, management regularly monitors the maturity structure of the Savings
Bank's assets and liabilities in order to measure its level of interest-rate
risk and to plan for future volatility.
Disclosures about fair value of financial instruments
The following methods and assumptions were used in estimating the fair value of
its financial instruments:
Cash and cash equivalents and interest receivable: The carrying amounts reported
in the consolidated financial statements for cash and cash equivalents and
interest receivable approximate their fair values.
Securities: The fair value of securities, as well as commitments to purchase
securities, is determined by reference to quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Loans receivable: For certain homogeneous categories of loans, such as
residential mortgages, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics. For other types of loans, fair value is estimated by
discounting the future cash flows, using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities, of such loans.
Deposits: The carrying amounts reported in the consolidated financial statements
for non-interest-bearing demand, NOW, Money Market, savings and club accounts
approximates their fair values. For fixed-maturity certificates of deposit, fair
value is estimated using the rates currently offered for deposits of similar
remaining maturities.
Advances from Federal Home Loan Bank of New York and other borrowed money: Fair
value is estimated using rates currently offered for liabilities of similar
remaining maturities, or when available, quoted market prices.
Commitments to extend credit: The fair value of commitments is estimated using
the fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
Excess of cost over assets acquired
The cost in excess of the fair value of net assets (goodwill) acquired through
the acquisition of certain assets and assumption of certain liabilities of
branch offices is being amortized to expense over a ten year period by use of
the straight-line method.
Net income per common share
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.
Comprehensive income
Effective January 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS
No. 130 requires the reporting of comprehensive income in addition to net income
from operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. As
required, the provisions of SFAS No. 130 have been retroactively applied to
previously reported periods. The application of SFAS No. 130 had no material
effect on the Corporation's consolidated financial condition or operations.
<PAGE>
Notes to Consolidated Financial Statements, continued
Impact of recent accounting standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. SFAS
No. 133 supersedes SFAS No. 80, "Accounting for Futures Contracts", SFAS No.
105, "Disclosure of Information about Financial Instruments with Off-Balance-
Sheet Risk and Financial Instruments with Concentrations of Credit Risk", and
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments".
It amends SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
to include in SFAS No. 107 the disclosure provisions about concentrations of
credit risk from SFAS No. 105. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. As the Corporation does not have
any derivative instruments or similar contracts, the adoption of SFAS No. 133
will have no impact on the Corporation's financial condition or results of
operations.
Reclassification
Certain amounts for periods have been reclassified to conform to the current
period's presentation.
2. Securities Available for Sale
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------------------
Gross Unrealized
Amortized --------------------------------- Carrying
Value Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due after one year through five years $ 1,999,000 $ 16,620 $ - $ 2,015,620
After ten years 1,000,000 1,920 - 1,001,920
- -----------------------------------------------------------------------------------------------------------------------------------
2,999,000 18,540 - 3,017,540
Mortgage-backed securities 7,712,311 18,925 153,928 7,577,308
Mutual funds 1,114,418 4,289 - 1,118,707
Equity security 7,020 128,627 - 135,647
- -----------------------------------------------------------------------------------------------------------------------------------
$ 11,832,749 $ 170,381 $ 153,928 $11,849,202
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------
Gross Unrealized
Amortized --------------------------------- Carrying
Value Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due in one year or less $ 1,999,632 $ 17,248 $ - $ 2,016,880
Mortgage-backed securities 6,400,494 8,767 102,056 6,307,205
Mutual funds 1,182,251 6,024 1,176,227
Equity security 7,020 144,180 - 151,200
- -----------------------------------------------------------------------------------------------------------------------------------
$ 9,589,397 $ 170,195 $ 108,080 $ 9,651,512
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales of securities available for sale during the years ended
December 31, 1996 and 1998. Proceeds from the sales of securities available for
sale during the year ended December 31, 1997 totalled $3,992,226. Gross gains of
$32,399 and gross losses of $26,880 were realized on those sales.
<PAGE>
Notes to Consolidated Financial Statements, continued
3. Investment Securities Held To Maturity
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------------
Gross Unrealized
Amortized --------------------------------- Estimated Fair
Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due after ten years $ 1,998,142 $ - $ 17 $ 1,998,125
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales of investment securities held to maturity during the years
ended December 31, 1996, 1997 and 1998.
4. Mortgage-Backed Securities Held To Maturity
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------
Gross Unrealized
Amortized --------------------------------- Estimated Fair
Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation $ 91,984,480 $ 1,184,211 $ 91,719 $ 93,076,972
Federal National Mortgage Association 25,991,878 511,087 32,940 26,470,025
Government National Mortgage Association 8,132,556 98,617 1,378 8,229,795
- ------------------------------------------------------------------------------------------------------------------------------------
$126,108,914 $ 1,793,915 $ 126,037 $127,776,792
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1998
--------------------------------------------------------------------------
Gross Unrealized
Amortized --------------------------------- Estimated Fair
Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation $ 91,292,670 $ 1,223,045 $ 66,695 $ 92,449,020
Federal National Mortgage Association 23,856,520 311,870 31,897 24,136,493
Government National Mortgage Association 5,251,001 83,732 - 5,334,733
- ------------------------------------------------------------------------------------------------------------------------------------
$120,400,191 $ 1,618,647 $ 98,592 $121,920,246
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales of mortgage-backed securities during the years ended
December 31, 1996 and 1998. During the year ended December 31, 1997, proceeds
from the sales of mortgage-backed securities held to maturity totalled
$3,640,635 and resulted in gross gains and losses of $115,069 and $9,005,
respectively. The securities sold had an outstanding principal balance of less
than fifteen percent of their original principal balances and, as provided for
in SFAS No. 115, were permitted to be sold out of the held to maturity
portfolio.
<PAGE>
Notes to Consolidated Financial Statements, continued
5. Loans Receivable
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate mortgage:
One-to-four family $120,344,198 $138,885,292
Multi-family 32,872,720 33,717,925
Commercial 21,323,826 21,259,215
FHA insured and
VA guaranteed 1,085,808 761,245
- -----------------------------------------------------------------------------------------------
175,626,552 194,623,677
- -----------------------------------------------------------------------------------------------
Real estate construction 2,031,948 5,073,807
- -----------------------------------------------------------------------------------------------
Land 605,862 2,184,263
- -----------------------------------------------------------------------------------------------
Consumer:
Passbook or certificate 431,303 458,476
Home improvement 440,314 508,026
Equity and second mortgage 33,586,539 39,184,421
Student education 752,973 53,604
Automobile 1,210,292 1,273,202
Personal 1,444,871 2,033,009
- -----------------------------------------------------------------------------------------------
37,866,292 43,510,738
- -----------------------------------------------------------------------------------------------
Total 216,130,654 245,392,485
- -----------------------------------------------------------------------------------------------
Less:
Loans in process 570,700 2,408,762
Allowance for loan losses 2,475,000 2,300,000
Deferred loan fee and discounts 1,928,859 1,673,733
- -----------------------------------------------------------------------------------------------
4,974,559 6,382,495
- -----------------------------------------------------------------------------------------------
$211,156,095 $239,009,990
- -----------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, 1997 and 1998, loans serviced by the Savings Bank for the
benefit of others totalled approximately $7,593,000, $4,943,000 and $3,772,000,
respectively.
At December 31, 1996, 1997 and 1998, nonaccrual loans for which interest has
been discontinued totalled approximately $6,928,000, $5,041,000 and $3,446,000,
respectively. During the years ended December 31, 1996, 1997 and 1998, the
Savings Bank recognized interest income of approximately $172,000, $144,000 and
$97,000, respectively, on these loans. Interest income that would have been
recorded, had the loans been on accrual status, would have amounted to
approximately $665,000, $491,000 and $333,000 for the years ended December 31,
1996, 1997 and 1998, respectively. The Savings Bank is not committed to lend
additional funds to the borrowers whose loans have been placed on nonaccrual
status.
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning $2,725,000 $2,800,000 $ 2,475,000
Provisions charged to operations 644,466 585,555 291,856
Recoveries credited to allowance 68,906 17,144 16,773
Loan losses charged to allowance (638,372) (927,699) (483,629)
- -----------------------------------------------------------------------------------------------------------------------------
$2,800,000 $2,475,000 $ 2,300,000
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Recorded investment in impaired loans:
With recorded allowances $1,490,362 $1,172,293
Without recorded allowances 3,361,451 2,277,547
- -------------------------------------------------------------------------------------------------
Total impaired loans 4,851,813 3,449,840
- -------------------------------------------------------------------------------------------------
Related allowance for loan losses 616,349 671,110
- -------------------------------------------------------------------------------------------------
Net impaired loans $4,235,464 $2,778,730
- -------------------------------------------------------------------------------------------------
</TABLE>
The activity with respect to loans to directors, officers and associates of such
persons, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning $2,939,661 $3,341,861 $ 3,121,209
Loans originated 1,034,065 522,580 1,314,400
Collection of principal (631,865) (743,232) (1,376,837)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, ending $3,341,861 $3,121,209 $ 3,058,772
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, continued
6. Premises and Equipment
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 701,625 $ 701,625
- ---------------------------------------------------------------------------------------------------------------------------
Buildings and improvements 2,988,834 2,996,805
Less accumulated depreciation 1,242,349 1,348,149
- ---------------------------------------------------------------------------------------------------------------------------
1,746,485 1,648,656
- ---------------------------------------------------------------------------------------------------------------------------
Leasehold improvements 413,741 1,578,184
Less accumulated depreciation 8,382 96,807
- ---------------------------------------------------------------------------------------------------------------------------
405,359 1,481,377
- ---------------------------------------------------------------------------------------------------------------------------
Furnishings and equipment 4,100,874 4,635,642
Less accumulated amortization 3,472,165 3,771,860
- ---------------------------------------------------------------------------------------------------------------------------
628,709 863,782
- ---------------------------------------------------------------------------------------------------------------------------
$3,482,178 $4,695,440
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1997 and 1998
totalled approximately $311,000, $335,000 and $509,000, respectively.
Depreciation charges are computed on the straight-line method over the following
estimated useful lives:
Buildings and improvements 10 to 50 years
Leasehold improvements 10 years
Furnishings and equipment 3 to 10 years
7. Interest Receivable
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Loans, net of allowance
for uncollected interest
of approximately $281,000
and $204,000, respectively $1,580,275 $1,506,519
Mortgage-backed securities 829,217 789,271
Investments and other
interest-earning assets 85,708 68,550
- ------------------------------------------------------------------------------
$2,495,200 $2,364,340
- ------------------------------------------------------------------------------
</TABLE>
8. Deposits
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1997 1998
----------------------------------------------------------------------------------
Weighted Weighted
Average Rate Amount Percent Average Rate Amount Percent
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand:
Non-interest-bearing demand 0.00% $ 14,855,660 4.83 0.00% $ 17,379,472 5.33
NOW 2.00% 19,917,411 6.48 2.00% 22,373,617 6.86
- ------------------------------------------------------------------------------------------------------------------------
34,773,071 11.31 39,753,089 12.19
Money Market 2.75% 22,213,618 7.22 3.00% 22,853,641 7.01
Savings and club 2.84% 109,475,872 35.61 2.25% 111,715,515 34.27
Certificates of deposit 4.96% 141,009,439 45.86 5.02% 151,663,038 46.53
- ------------------------------------------------------------------------------------------------------------------------
3.61% $307,472,000 100.00 3.46% $325,985,283 100.00
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, continued
The scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
December 31,
(In Thousands) -----------------------------
Maturity Period 1997 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
One year or less $ 117,901 $ 127,627
After one to three years 20,183 20,219
After three years 2,925 3,817
- -----------------------------------------------------------------------------------------------------
$ 141,009 $ 151,663
- -----------------------------------------------------------------------------------------------------
Certificates of deposit of $100,000 or more
by the time remaining until maturity are as follows:
<CAPTION>
December 31,
(In Thousands) -----------------------------
Maturity Period 1997 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Three months or less $ 7,160 $ 9,094
After three through six months 8,096 6,110
After six through twelve months 6,611 10,387
After twelve months 4,551 3,991
- -----------------------------------------------------------------------------------------------------
$ 26,418 $ 29,582
- -----------------------------------------------------------------------------------------------------
A summary of interest on deposits follows:
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1997 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Demand $ 1,078,983 $ 993,986 $ 1,045,139
Savings and club 3,166,105 3,077,839 2,834,378
Certificates of deposit 6,939,953 7,002,181 7,437,359
- ------------------------------------------------------------------------------------------------
11,185,041 11,074,006 11,316,876
Less penalties for
early withdrawal
of certificates of
deposit (10,346) (11,898) (13,342)
- ------------------------------------------------------------------------------------------------
$11,174,695 $ 11,062,108 $11,303,534
- ------------------------------------------------------------------------------------------------
</TABLE>
9. Advances From Federal Home Loan Bank of New York
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1997 1998
------------------------------------------------
Weighted Weighted
Maturing Average Average
by Interest Interest
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, Rate Amount Rate Amount
1999 6.47% $ 3,000,000 6.47% $ 3,000,000
2000 6.27% 5,000,000 6.27% 5,000,000
2001 5.10% 243,100 5.10% 243,100
2002 6.51% 5,000,000 6.51% 5,000,000
2003 4.62% 340,000 5.36% 15,340,000
6.34% $13,583,100 5.83% $28,583,100
</TABLE>
At December 31, 1997 and 1998, the advances were secured by pledges of the
Savings Bank's investments in the capital stock of the Federal Home Loan Bank of
New York totalling $2,979,400 and $3,097,200, respectively, mortgage-backed
securities with carrying values of $12,876,000 and $9,784,000, respectively, and
a blanket assignment of the Savings Bank's unpledged qualifying mortgage loans,
mortgage-backed securities and investment securities portfolios.
10. Other Borrowed Money
December 31,
---------------------------------------------------------
1997 1998
---------------------------------------------------------
Interest Interest
Rate Amount Rate Amount
- -----------------------------------------------------------------------
Mortgage loan 8.00% $ 273,623 8.00% $ 252,535
- -----------------------------------------------------------------------
The mortgage loan is payable in 144 equal monthly installments of $3,518 through
February 1, 2007 and is secured by premises with a carrying value of $399,000
and $393,000 at December 31, 1997 and 1998, respectively.
11. Stock Repurchase Program
During the years ended December 31, 1996 and 1997, the Corpo-ration repurchased
294,036 and 318,900 shares, respectively, of its own common stock, at prices
ranging from $18.75 to $23.50 per common share, at a total cost of $6,179,188
and $7,369,153, respectively, under stock repurchase programs approved by the
Corporation's Board of Directors.
<PAGE>
Notes to Consolidated Financial Statements, continued
12. Regulatory Capital
For the purpose of granting to eligible account holders a priority in the event
of future liquidation, the Savings Bank, at the time of conversion, established
a special account in an amount equal to its total retained earnings of $18.4
million at June 30, 1989. In the event of a future liquidation of the converted
Savings Bank (and only in such event), an eligible account holder who continues
to maintain his deposit account shall be entitled to receive a distribution from
the special account. The total amount of the special account is decreased (but
never increased) in an amount proportionately corresponding to decreases in the
deposit account balances of eligible account holders as of each subsequent year
end. After conversion, no dividends may be paid to stockholders if such
dividends would reduce the retained earnings of the converted Savings Bank below
the amount required by the special account.
The Savings Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Savings Bank. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Savings Bank must meet
specific capital guidelines that involve quantitative measures of the Savings
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Savings Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Savings Bank to maintain minimum amounts and ratios of Total and
Tier 1 capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier 1 capital to assets (as defined). The following tables
levels at the dates presented:
<TABLE>
<CAPTION>
December 31,
-----------------------
(In thousands) 1997 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
GAAP capital $45,395 $42,948
Less: Investment in and advances to
non-includable subsidiary (1,305) (1,315)
Excess of cost over assets acquired (303) (182)
Unrealized gain on securities
available for sale (10) (40)
- ------------------------------------------------------------------------------------
Core and tangible capital 43,777 41,411
Add: general valuation allowance,
as limited 1,856 1,609
- ------------------------------------------------------------------------------------
Total regulatory capital $45,633 $43,020
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, continued
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------
To Be Well Capitalized
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
-----------------------------------------------------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets) $ 45,633 25.15% $ 14,513 8.00% $ 18,142 10.00%
Tier 1 Capital
(to risk-weighted assets) 43,777 24.13% - - 10,885 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 43,777 11.67% 15,005 4.00% 18,756 5.00%
Tangible Capital
(to adjusted total assets) 43,777 11.67% 5,627 1.50% - -
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------
To Be Well Capitalized
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
-----------------------------------------------------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets) $ 43,020 21.23% $ 16,214 8.00% $ 20,267 10.00%
Tier 1 Capital
(to risk-weighted assets) 41,411 20.43% - - 12,160 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 41,411 10.05% 16,481 4.00% 20,601 5.00%
Tangible Capital
(to adjusted total assets) 41,411 10.05% 6,181 1.50% - -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of August 7, 1998, the most recent notification from the New Jersey
Department of Banking and Insurance, the Savings Bank was categorized as well
capitalized under the regulatory framework for prompt corrective action. There
are no conditions existing or events which have occurred since notification that
management believes have changed the institution's category.
13. Benefit Plans
Pension Plan ("Plan")
The Savings Bank has a non-contributory defined benefit pension plan covering
all eligible employees. The benefits are based on years of service and
employees' compensation. The Savings Bank's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. The Plan's assets consist primarily of mutual funds and bank deposits.
<PAGE>
Notes to Consolidated Financial Statements, continued
The following tables set forth the Plan's funded status and components of net
periodic pension cost:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value
of benefit obligation
including vested
benefits of $2,522,509 (1997)
and $2,508,543 (1998) $ 2,581,863 $ 2,567,569
- ----------------------------------------------------------------------------------------------------------
Projected benefit obligation $ (3,275,432) $ (3,257,298)
Plan assets at fair value 3,120,434 3,211,549
- ----------------------------------------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (154,998) (45,749)
Unrecognized net loss 129,314 27,815
- ----------------------------------------------------------------------------------------------------------
Accrued pension cost
included in other liabilities $ (25,684) $ (17,934)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 165,174 $ 175,878 $ 198,522
Interest cost 202,020 225,244 243,409
Actual return on
plan assets (116,162) (201,209) (255,023)
Net amortization
and deferral (8,606) 36,391 -
- --------------------------------------------------------------------------------------------------
Net periodic pension cost $ 242,426 $ 236,304 $ 186,908
- --------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used in the accounting for the Plan are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1997 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.50% 7.50% 7.50%
Rate of increase in compensation 4.00% 4.00% 4.00%
Long-term rate of return on
plan assets 8.00% 8.00% 8.00%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Savings and Investment Plan ("SIP")
The Savings Bank sponsors a SIP pursuant to Section 401(k) of the Internal
Revenue Code, for all eligible employees. Employees may elect to save up to 10%
of their compensation of which the Savings Bank will match 50% of the employee's
contribution. The SIP expense amounted to approximately, $109,000, $103,000 and
$113,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
Supplemental Executive Retirement Plan ("SERP")
The Savings Bank has an unfunded non-qualified deferred retirement plan for
certain employees. A participant who retires at age 65, (the "Normal Retirement
Age") is entitled to an annual retirement benefit equal to 75% of his
compensation reduced by his retirement plan annual benefits. Participants
retiring before the Normal Retirement Age receive the same benefits reduced by a
percentage based on years of service to the Savings Bank and the number of years
prior to the Normal Retirement Age that participant retires. The SERP expense
amounted to approximately $76,000, $174,000 and $174,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
Stock option plan ("SOP")
The following table summarizes the transactions in the SOP:
<TABLE>
<CAPTION>
Number Price
of Shares Per Share
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Balance - December 31, 1995 62,790 $5.75 - $6.375
Exercised 56,930 5.75 - 6.375
Balance - December 31, 1996 5,860 5.75 - 6.375
Exercised 5,860 5.75 - 6.375
Balance - December 31, 1997
and 1998 - -
- -------------------------------------------------------------------------------------------
</TABLE>
14. Income Taxes
The Savings Bank qualifies as a savings institution under the provisions of the
Internal Revenue Code and was therefore, prior to January 1, 1996, permitted to
deduct from taxable income an allowance for bad debts based upon eight percent
of taxable income before such deduction, less certain adjustments. Retained
earnings at December 31, 1998, include approximately $6,900,000 of such bad
debt, which, in accordance with SFAS No. 109, "Accounting for Income Taxes," is
considered a permanent difference between the book and income tax basis of loans
receivable, and for which income taxes have not been provided. If such amount is
used for purposes other than for bad debt losses, including distributions in
liquidation, it will be subject to income tax at the then current rate.
Refundable income taxes of approximately $323,000 and $413,000 at December 31,
1997 and 1998, respectively, are reflected in the consolidated statements of
financial condition under the caption "Other Assets".
<PAGE>
Notes to Consolidated Financial Statements, continued
The tax effects of existing temporary differences which give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
Deferred tax assets 1997 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses $ 638,125 $ 647,743
Deferred loan fees 512,087 388,234
Depreciation 13,631 22,224
Reserve for uncollected interest 100,634 73,232
Benefit plans 110,670 128,593
Other 644 -
- ----------------------------------------------------------------------------------
1,375,791 1,260,026
- ----------------------------------------------------------------------------------
Deferred tax liabilities
- ----------------------------------------------------------------------------------
Unrealized gain on securities
available for sale 5,900 22,400
- ----------------------------------------------------------------------------------
Net deferred tax assets $1,369,891 $1,237,626
- ----------------------------------------------------------------------------------
<CAPTION>
The components of income taxes are summarized as follows:
Year Ended December 31,
---------------------------------------
1996 1997 1998
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $1,027,417 $2,754,147 $2,327,712
Deferred 131,066 5,023 115,765
- ----------------------------------------------------------------------------------
$1,158,483 $2,759,170 $2,443,477
- ----------------------------------------------------------------------------------
<CAPTION>
The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:
Year Ended December 31,
-----------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax $1,401,939 $2,662,327 $2,324,981
Increases (reductions)
in income taxes
resulting from:
Exercise of non-
statutory stock
options (315,680) (86,391) -
New Jersey savings
institution tax,
net of federal
income tax effect 83,714 158,661 137,242
Other items, net (11,490) 24,573 (18,746)
- --------------------------------------------------------------------------------------
Effective income tax $1,158,483 $2,759,170 $2,443,477
- --------------------------------------------------------------------------------------
</TABLE>
15. Legislative Matter
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAIF") member institutions, including the Savings Bank, to recapitalize the
SAIF and spread the obligation for payment of Financial Corporation ("FICO")
bonds across all SAIF and Bank Insurance Fund ("BIF") members. The special
assessment levied amounted to 65.7 basis points on SAIF assessable deposits held
as of March 31, 1995. The special assessment was recognized in the third quarter
of 1996 and is tax deductible. The Savings Bank took a charge of $2,023,000 as a
result of the special assessment. This legislation will eliminate the
substantial disparity between the amount that BIF and SAIF members had been
paying for deposit insurance premiums. Currently, the FDIC has estimated that,
in addition to normal deposit insurance premiums, BIF members will pay a portion
of the FICO payment equal to 1.3 basis points on BIF-insured deposits compared
to 6.4 basis points by SAIF members on SAIF-insured deposits.
The FDIC has lowered SAIF assessments to a range comparable to that of BIF
members, although SAIF members must also make the FICO payments described above.
Management cannot predict the precise level of FDIC insurance assessments on an
ongoing basis.
16. Commitments and Contingencies
The Savings Bank is party to financial instruments with off- balance sheet risk
in the normal course of business primarily to meet the financing needs of its
customers. These financial instruments are commitments to originate loans. The
commitments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated statement of
financial condition. The Savings Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit is represented by the contractual notional amount of those
instruments. The Savings Bank uses the same credit policies in making
commitments as it does for on-balance sheet instruments.
Commitments to originate loans are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require
<PAGE>
Notes to Consolidated Financial Statements, continued
payment of a fee. Since commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
The Savings Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Savings
Bank, upon extension of credit is based on management's credit evaluation of the
counterparty. Collateral held varies but primarily includes residential real
estate and income-producing commercial properties.
The Savings Bank had loan commitments outstanding as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
To originate loans $ 9,674,000 $ 11,583,000
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, all the outstanding commitments to originate loans are at
fixed interest rates which range from 6.125% to 10.0%. All commitments are due
to expire within ninety days.
At December 31, 1998, undisbursed funds from approved lines of credit under a
homeowners' equity lending program amounted to approximately $1,523,000. Unless
they are specifically cancelled by notice from the Savings Bank, these funds
represent firm commitments available to the respective borrowers on demand. The
interest rate charged for any month on funds disbursed under this program is
1.75% above the prime rate.
Rental expenses related to the occupancy of premises totalled $70,000, $98,000
and $280,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
At December 31, 1998, minimum non-cancellable obligations under lease agreements
with original terms of more than one year are as follows:
<TABLE>
<CAPTION>
December 31, Amount
- --------------------------------------------------------------------------------
<S> <C>
1999 $ 257,000
2000 260,000
2001 263,000
2002 284,000
2003 230,000
Thereafter 1,196,000
- --------------------------------------------------------------------------------
$ 2,490,000
- --------------------------------------------------------------------------------
</TABLE>
The Savings Bank is also a party to litigation which arises primarily in the
ordinary course of business. In the opinion of management, the ultimate
disposition of such litigation should not have a material effect on the
consolidated financial position of the Savings Bank or the Corporation.
17. Fair Values of Financial Instruments
The carrying amounts and fair value of the Corporation's financial instruments
are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1997 1998
----------------------------------------------------------------
(In Thousands) Carrying Value Fair Value Carrying Value Fair Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 13,307 $ 13,307 $ 28,047 $ 28,047
Securities available for sale 11,849 11,849 9,652 9,652
Investment securities held to maturity - - 1,998 1,998
Mortgage-backed securities held to maturity 126,109 127,777 120,400 121,920
Loans receivable 211,156 216,349 239,010 246,848
Interest receivable 2,495 2,495 2,364 2,364
Financial Liabilities
Deposits 307,472 308,345 325,985 326,826
Advances and other borrowed money 13,857 13,980 28,836 28,372
Commitments
To originate loans 9,674 9,674 11,583 11,583
Unused lines of credit 761 761 1,523 1,523
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, continued
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. Further, the foregoing estimates may not reflect the actual
amount that could be realized if all or substantially all of the financial
instruments were offered for sale.
In addition, the fair value estimates were based on existing on-and-off balance
sheet financial instruments without attempting to value anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets and liabilities include mortgage servicing rights,
premises and equipment and advances from borrowers for taxes and insurance. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.
18. Parent Corporation Financial Information
The following condensed financial statements of the Corporation should be read
in conjunction with the Notes to Consolidated Financial Statements.
Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 2,933,564 $ 6,667,981
Investment in subsidiary 45,394,268 42,947,572
Refundable income taxes 184,216 72,878
Other assets 108,622 169,972
- -----------------------------------------------------------------------------------
Total assets $ 48,620,670 $ 49,858,403
- -----------------------------------------------------------------------------------
Liabilities and stockholders' equity
Liabilities
Other liabilities $ 87,555 $ 85,498
- -----------------------------------------------------------------------------------
Total liabilities 87,555 85,498
- -----------------------------------------------------------------------------------
Stockholders' equity
Common stock 34,500 34,500
Paid-in-capital in excess of par value 18,906,768 18,906,768
Retained earnings - substantially restricted 43,017,781 44,257,571
Treasury stock, at cost (13,425,934) (13,425,934)
- -----------------------------------------------------------------------------------
Total stockholders' equity 48,533,115 49,772,905
- -----------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 48,620,670 $ 49,858,403
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, continued
<TABLE>
<CAPTION>
Statements of Income
Year Ended December 31,
-----------------------------------------
1996 1997 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiary $ 8,400,000 $ 7,000,000 $ 7,000,000
Interest income 305,752 65,885 5,587
- -------------------------------------------------------------------------------------------------
Total income 8,705,752 7,065,885 7,005,587
Expenses 663,855 411,584 207,704
- -------------------------------------------------------------------------------------------------
8,041,897 6,654,301 6,797,883
Equity in undistributed earnings of subsidiary (5,485,098) (1,767,114) (2,475,858)
- -------------------------------------------------------------------------------------------------
Income before income taxes (benefit) 2,556,799 4,887,187 4,322,025
Income taxes (benefit) (408,069) (184,016) (72,678)
- -------------------------------------------------------------------------------------------------
Net income $ 2,964,868 $ 5,071,203 $ 4,394,703
- -------------------------------------------------------------------------------------------------
Statements of Cash Flows
Year Ended December 31,
-----------------------------------------
1996 1997 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,964,868 $ 5,071,203 $ 4,394,703
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of subsidiary 5,485,098 1,767,114 2,475,858
(increase) decrease in refundable income taxes (408,219) 340,834 111,338
(Increase) in other assets (31,649) (23,778) (61,350)
Increase (decrease) in other liabilities 94 25,410 (2,057)
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,010,192 7,180,783 6,918,492
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease in loans receivable 3,000,000 3,000,000 -
- -------------------------------------------------------------------------------------------------
Net cash provided by investing activities 3,000,000 3,000,000 -
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends paid (3,318,121) (2,919,723) (3,184,075)
Purchase of treasury stock (6,179,188) (7,369,153) -
Sale of treasury stock 327,973 34,339 -
- -------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (9,169,336) (10,254,537) (3,184,075)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,840,856 (73,754) 3,734,417
Cash and cash equivalents - beginning 1,166,462 3,007,318 2,933,564
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents - ending $ 3,007,318 $ 2,933,564 $ 6,667,981
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, continued
19. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(In Thousands, except for per share amounts) First Second Third Fourth
Year Ended December 31, 1997 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $6,937 $7,134 $7,134 $7,191
Interest expense 2,796 2,976 3,026 3,064
- -----------------------------------------------------------------------------------
Net interest income 4,141 4,158 4,108 4,127
Provision for loan losses 150 150 150 136
Non-interest income 397 284 373 620
Non-interest expenses 2,313 2,281 2,401 2,797
Income taxes 762 751 665 581
- -----------------------------------------------------------------------------------
Net income $1,313 $1,260 $1,265 $1,233
- -----------------------------------------------------------------------------------
Basic earnings per common share $ 0.42 $ 0.44 $ 0.44 $ 0.44
- -----------------------------------------------------------------------------------
Diluted earnings per common share $ 0.42 $ 0.44 $ 0.44 $ 0.44
- -----------------------------------------------------------------------------------
Dividends per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25
- -----------------------------------------------------------------------------------
<CAPTION>
(In Thousands, except for per share amounts) First Second Third Fourth
Year Ended December 31, 1998 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $7,207 $7,105 $7,248 $7,411
Interest expense 3,034 3,037 3,090 3,267
- -----------------------------------------------------------------------------------
Net interest income 4,173 4,068 4,158 4,144
Provision for loan losses 75 75 75 67
Non-interest income 339 303 362 395
Non-interest expenses 2,616 2,671 2,730 2,795
Income taxes 666 585 623 569
- -----------------------------------------------------------------------------------
Net income $1,155 $1,040 $1,092 $1,108
- -----------------------------------------------------------------------------------
Basic earnings per common share $ 0.41 $ 0.36 $ 0.38 $ 0.40
- -----------------------------------------------------------------------------------
Diluted earnings per common share $ 0.41 $ 0.36 $ 0.38 $ 0.40
- -----------------------------------------------------------------------------------
Dividends per common share $ 0.28 $ 0.28 $ 0.28 $ 0.28
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
Independent Auditors' Report
To The Board of Directors and Stockholders
Pamrapo Bancorp, Inc.
We have audited the consolidated statements of financial condition of Pamrapo
Bancorp, Inc. (the "Corporation") and Subsidiaries as of December 31, 1997 and
1998 and the related consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the above mentioned consolidated financial statements present
fairly, in all material respects, the financial position of Pamrapo Bancorp,
Inc. and Subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Radice & Co., LLC
February 8, 1999
<PAGE>
Pamrapo Bancorp, Inc. and Subsidiaries
Selected Consolidated Financial Condition and Other Data
of the Corporation
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
(Dollars in thousands) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Condition data:
Total amount of:
Assets $384,085 $371,365 $362,910 $376,714 $413,474
Loans receivable 222,472 218,140 207,405 211,156 239,010
Securities available for sale 19,471 28,427 22,232 11,849 9,652
Mortgage-backed securities 114,032 96,565 96,727 126,109 120,400
Investment securities 2,096 99 - - 1,998
Deposits 305,910 298,901 300,785 307,472 325,985
Advances and other borrowed money 17,930 8,043 3,876 13,857 28,836
Stockholders' equity 55,372 59,375 53,509 48,533 49,773
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating data:
Interest income $ 30,466 $ 29,571 $ 28,035 $ 28,396 $ 28,971
Interest expense 10,626 11,456 11,381 11,862 12,428
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 19,840 18,115 16,654 16,534 16,543
Provision for loan losses 495 411 644 586 292
Non-interest income 785 735 649 1,674 1,399
Non-interest expenses 9,116 9,808 12,536 9,792 10,812
Income taxes 3,836 3,003 1,158 2,759 2,443
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 7,178 $ 5,628 $ 2,965 $ 5,071 $ 4,395
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per share
Basic $ 2.21 $ 1.67 $ 0.90 $ 1.74 $ 1.55
Diluted 2.12 1.65 0.90 1.74 1.55
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends per share $ .485 $ .80 $ .90 $ 1.00 $ 1.12
- -----------------------------------------------------------------------------------------------------------------------------------
Dividend payout ratio 21.97% 48.33% 100.28% 57.58% 72.45%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios:
Return on average assets 1.82% 1.49% 0.81% 1.37% 1.13%
Return on average equity 13.43% 9.71% 5.27% 10.34% 8.96%
Average equity/average assets 13.55% 15.40% 15.33% 13.28% 12.64%
Interest rate spread 4.86% 4.51% 4.23% 4.17% 3.91%
Net yield on average interest-earning
assets 5.30% 5.10% 4.81% 4.72% 4.49%
Non-interest expenses to average assets 2.31% 2.61% 3.41% 2.65% 2.79%
Equity/total assets 14.42% 15.99% 14.74% 12.88% 12.04%
Capital ratios:
Tangible 11.56% 13.69% 12.59% 11.67% 10.05%
Core 11.56% 13.69% 12.59% 11.67% 10.05%
Risk-based 24.59% 28.53% 26.35% 25.15% 21.23%
Non-performing loans to total assets 3.34% 2.93% 2.89% 1.84% 1.11%
Non-performing loans to loans receivable 5.77% 4.98% 5.06% 3.27% 1.92%
Non-performing assets to total assets 3.63% 3.32% 3.44% 2.20% 1.40%
Allowance for loan losses to
non-performing loans 28.45% 25.09% 26.69% 36.23% 50.00%
Average interest-earning assets/average
interest-bearing liabilities 1.16x 1.18x 1.17x 1.16x 1.17x
Net interest income after provision for
loan losses to non-interest expenses 2.12x 1.81x 1.28x 1.63x 1.50x
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Pamrapo Bancorp, Inc. and Subsidiaries
Stockholder Information
Market for Common Stock and Related Matters
Pamrapo Bancorp, Inc.'s common stock is presently quoted on the National
Association of Securities Dealers Automated Quotation's National Market System
under the symbol "PBCI." At March 11, 1999, 2,842,924 shares of the
Corporation's outstanding common stock were held by approximately 2,100 persons
or entities.
The following table sets forth the high and low closing sales price per
common share for the periods indicated. Such prices do not necessarily reflect
retail markups, markdowns or commissions.
- ---------------------------------------------------
Closing Prices
Quarter Ended High Low
- ---------------------------------------------------
March 31,1997 $23.75 $19.00
June 30,1997 21.00 18.50
September 30, 1997 25.50 19.75
December 31,1997 27.25 21.00
March 31, 1998 28.75 22.75
June 30, 1998 30.00 26.75
September 30, 1998 33.63 22.75
December 31, 1998 26.75 22.13
- ---------------------------------------------------
Dividends were paid as follows:
- ---------------------------------------------------
March, 1997 $ .25
June, 1997 .25
September, 1997 .25
December, 1997 .25
March, 1998 .28
June, 1998 .28
September, 1998 .28
December, 1998 .28
- ---------------------------------------------------
Future dividend policy will be determined by the Board of Directors
after giving consideration to the Corporation's financial condition, results of
operations, tax status, industry standards, economic conditions and other
factors. Dividends will also depend upon dividend payments by the Bank to the
Corporation, which is its primary source of income. The Board may also consider
the payment of stock dividends from time to time, in addition to, or in lieu of
cash dividends.
Under federal regulations, the Bank may not declare or pay a cash
dividend on any of its common stock if the effect thereof would cause the Bank's
regulatory capital to be reduced below the amount required for the liquidation
account or the regulatory capital requirements imposed by the Office of Thrift
Supervision ("OTS"). The Bank must provide at least 30 days advance notice to
the OTS before declaring a dividend.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference into the Registration
Statement on Form S-8 of Pamrapo Bancorp, Inc. (the "Company") of our report
dated February 8, 1999, included in the 1998 annual report to stockholders of
the Company, which is incorporated by reference in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
/s/ RADICS & CO., LLC
------------------------
RADICS & CO., LLC
March 29, 1999
Pine Brook, New Jersey
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,547,045
<INT-BEARING-DEPOSITS> 15,500,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,651,512
<INVESTMENTS-CARRYING> 120,400,191
<INVESTMENTS-MARKET> 121,920,246
<LOANS> 241,309,990
<ALLOWANCE> 2,300,000
<TOTAL-ASSETS> 413,474,157
<DEPOSITS> 325,985,283
<SHORT-TERM> 28,835,635
<LIABILITIES-OTHER> 8,880,334
<LONG-TERM> 0
0
0
<COMMON> 34,500
<OTHER-SE> 49,738,405
<TOTAL-LIABILITIES-AND-EQUITY> 413,474,157
<INTEREST-LOAN> 19,380,581
<INTEREST-INVEST> 8,611,942
<INTEREST-OTHER> 978,661
<INTEREST-TOTAL> 28,971,184
<INTEREST-DEPOSIT> 11,303,534
<INTEREST-EXPENSE> 12,427,930
<INTEREST-INCOME-NET> 16,543,254
<LOAN-LOSSES> 291,856
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,812,376
<INCOME-PRETAX> 6,838,180
<INCOME-PRE-EXTRAORDINARY> 6,838,180
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,394,703
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
<YIELD-ACTUAL> 7.86
<LOANS-NON> 3,446,000
<LOANS-PAST> 1,108,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,244,000
<ALLOWANCE-OPEN> 2,475,000
<CHARGE-OFFS> 483,629
<RECOVERIES> 16,773
<ALLOWANCE-CLOSE> 2,300,000
<ALLOWANCE-DOMESTIC> 691,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,609,000
</TABLE>
