<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________________________________
Commission File Number 0-18014
-------
PAMRAPO BANCORP, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-2984813
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
611 Avenue C, Bayonne, New Jersey 07002
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 201-339-4600
including area code -----------------------------------------------
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ________
---
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date July 31, 1999.
-------------
$.01 par value common stock - 2,742,924 shares outstanding
<PAGE>
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
--------------
<S> <C>
Consolidated Statements of Financial Condition
at June 30, 1999 and December 31, 1998 (Unaudited) 1
Consolidated Statements of Income for the
Three Months and Six Months Ended
June 30, 1999 and 1998 (Unaudited) 2
Consolidated Statements of Comprehensive Income
for the Three Months and Six Months Ended
June 30, 1999 and 1998 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998 (Unaudited) 4 - 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 13
Item 3: Quantitative and Qualitative Disclosure About Market Risk 14 - 15
PART II - OTHER INFORMATION 16 - 17
SIGNATURES 18
</TABLE>
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
- ------ -------------- -------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 10,780,250 $ 12,547,045
Interest-bearing deposits in other banks 13,200,000 15,500,000
-------------- --------------
Total cash and cash equivalents 23,980,250 28,047,045
Securities available for sale 8,843,056 9,651,512
Investment securities held to maturity; estimated
fair value of $3,835,000 (1999) and $1,998,000 (1998) 3,995,766 1,998,142
Mortgage-backed securities held to maturity; estimated
fair value of $120,270,000 (1999) and $121,920,000 (1998) 121,257,156 120,400,191
Loans receivable 262,445,707 239,009,990
Foreclosed real estate 668,224 1,237,097
Investment in real estate 263,154 270,539
Premises and equipment 4,625,773 4,695,440
Federal Home Loan Bank stock, at cost 3,243,200 3,097,200
Interest receivable 2,450,298 2,364,340
Excess of cost over assets acquired 121,299 181,949
Other assets 2,674,418 2,520,712
-------------- --------------
Total assets $ 434,568,301 $ 413,474,157
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $ 349,301,951 $ 325,985,283
Advances from Federal Home Loan Bank of New York 28,583,100 28,583,100
Other borrowed money 241,343 252,535
Advance payments by borrowers for taxes and insurance 2,923,897 2,911,061
Other liabilities 5,638,557 5,969,273
-------------- --------------
Total liabilities 386,688,848 363,701,252
-------------- --------------
Stockholders' equity:
Preferred stock; authorized 3,000,000 shares;
issued and outstanding - none - -
Common stock; par value $.01; authorized 7,000,000 shares;
3,450,000 shares issued; 2,742,924 shares and 2,842,924
shares, respectively, outstanding 34,500 34,500
Paid-in capital in excess of par value 18,906,768 18,906,768
Retained earnings - substantially restricted 44,779,635 44,217,856
Unrealized (loss) gain on securities available for sale (40,516) 39,715
Treasury stock, at cost; 707,076 shares and 607,076
shares, respectively (15,800,934) (13,425,934)
-------------- --------------
Total stockholders' equity 47,879,453 49,772,905
-------------- --------------
Total liabilities and stockholders' equity $ 434,568,301 $ 413,474,157
============== ==============
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 5,380,044 $ 4,754,454 $ 10,469,004 $ 9,495,858
Mortgage-backed securities 2,096,554 2,089,683 4,146,624 4,320,866
Investments and other interest-earning assets 344,897 260,962 673,836 495,337
-------------- -------------- --------------- --------------
Total interest income 7,821,495 7,105,099 15,289,464 14,312,061
-------------- -------------- --------------- --------------
Interest expense:
Deposits 2,935,295 2,815,053 5,724,009 5,628,778
Advances and other borrowed money 423,697 222,313 842,903 442,427
-------------- -------------- --------------- --------------
Total interest expense 3,358,992 3,037,366 6,566,912 6,071,205
-------------- -------------- --------------- --------------
Net interest income 4,462,503 4,067,733 8,722,552 8,240,856
Provision for loan losses 75,000 75,000 150,000 150,000
-------------- -------------- --------------- --------------
Net interest income after provision for loan losses 4,387,503 3,992,733 8,572,552 8,090,856
-------------- -------------- --------------- --------------
Non-interest income:
Fees and service charges 264,721 215,497 510,203 417,584
Miscellaneous 173,129 87,972 295,690 224,518
-------------- -------------- --------------- --------------
Total non-interest income 437,850 303,469 805,893 642,102
-------------- -------------- --------------- --------------
Non-interest expenses:
Salaries and employee benefits 1,540,110 1,369,977 3,081,899 2,769,450
Net occupancy expense of premises 283,726 269,067 575,075 505,935
Equipment 267,830 255,820 536,929 498,776
Advertising 78,120 37,078 132,370 69,338
Loss on foreclosed real estate 23,222 50,081 28,097 67,565
Federal insurance premium 49,127 52,736 97,463 100,193
Amortization of intangibles 30,325 30,325 60,650 60,650
Miscellaneous 632,563 606,202 1,242,149 1,215,517
-------------- -------------- --------------- --------------
Total non-interest expenses 2,905,023 2,671,286 5,754,632 5,287,424
-------------- -------------- --------------- --------------
Income before income taxes 1,920,330 1,624,916 3,623,813 3,445,534
Income taxes 702,680 585,377 1,316,456 1,251,010
-------------- -------------- --------------- --------------
Net income $ 1,217,650 $ 1,039,539 $ 2,307,357 $ 2,194,524
============== ============== =============== ==============
Net income per common share:
Basic/diluted $ 0.44 $ 0.36 $ 0.82 $ 0.77
============== ============== =============== ==============
Dividends per common share $ 0.3125 $ 0.28 $ 0.6250 $ 0.56
============== ============== =============== ==============
Weighted average number of common shares and common
stock equivalents outstanding:
Basic/diluted 2,770,397 2,842,924 2,806,460 2,842,924
============== ============== =============== ==============
</TABLE>
See notes to financial statements.
-2-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net income $ 1,217,650 $ 1,039,539 $ 2,307,357 $ 2,194,524
-------------- -------------- --------------- --------------
Other comprehensive (loss) income, net of income taxes:
Gross unrealized holding (loss) gain on
securities available for sale (82,472) 37,252 (125,431) 62,066
Deferred income taxes 29,700 (13,500) 45,200 (22,400)
-------------- -------------- --------------- --------------
Other comprehensive (loss) income (52,772) 23,752 (80,231) 39,666
-------------- -------------- --------------- --------------
Comprehensive income $ 1,164,878 $ 1,063,291 $ 2,227,126 $ 2,234,190
=============== ============== =============== ==============
</TABLE>
-3-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,307,357 $ 2,194,524
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation of premises and equipment and investment in real estate 305,321 228,249
Accretion of deferred fees, premiums and discounts, net (21,600) (98,838)
Provision for loan losses 150,000 150,000
Provision for losses on foreclosed real estate 50,000 22,000
(Gain) on sales of foreclosed real estate (39,177) (18,185)
(Increase) decrease in interest receivable (85,958) 189,621
(Increase) decrease in other assets (108,506) 583,788
(Decrease) increase in other liabilities (330,716) 2,180,320
Amortization of intangibles 60,650 60,650
------------- -------------
Net cash provided by operating activities 2,287,371 5,492,129
------------- -------------
Cash flow from investing activities:
Proceeds from calls and maturities of securities available for sale - 1,000,000
Principal repayments on securities available for sale 694,204 542,803
Purchases of securities available for sale (31,105) (35,509)
Purchases of investment securities held to maturity (1,997,500) -
Principal repayments on mortgage-backed securities held to maturity 18,116,460 15,402,224
Purchases of mortgage-backed securities held to maturity (19,098,971) (5,033,763)
Purchases of loans (131,000) (108,000)
Proceeds from sales of student loans 83,982 82,612
Net change in loans receivable (23,061,251) (12,512,448)
Proceeds from sales of foreclosed real estate 247,550 301,350
Additions to premises and equipment and investment in real estate (228,269) (674,064)
Purchase of Federal Home Loan Bank of New York stock (146,000) (117,800)
------------- -------------
Net cash (used in) investing activities (25,551,900) (1,152,595)
------------- -------------
Cash flows from financing activities:
Net increase in deposits 23,316,668 14,607,961
Net (decrease) in other borrowed money (11,192) (10,334)
Net increase in payments by borrowers for taxes and insurance 12,836 136,441
Purchase of treasury stock (2,375,000) -
Cash dividends paid (1,745,578) (1,592,037)
------------- -------------
Net cash provided by financing activities 19,197,734 13,142,031
------------- -------------
Net (decrease) increase in cash and cash equivalents (4,066,795) 17,481,565
Cash and cash equivalents - beginning 28,047,045 13,306,794
------------- -------------
Cash and cash equivalents - ending $ 23,980,250 $ 30,788,359
============= =============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Supplemental information:
Transfer of loans receivable to foreclosed real estate $ 45,000 $ 465,248
========== ==========
Loans to facilitate sales of foreclosed real estate $ 355,500 $ 126,000
========== ==========
Unrealized (loss) gain on securities available for sale $ (80,231) $ 39,666
========== ==========
Cash paid during the period for:
Income taxes $1,061,654 $1,134,309
========== ==========
Interest on deposits and borrowings $6,566,912 $6,071,205
========== ==========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. PRINCIPLES OF CONSOLIDATION
- -------------------------------
The consolidated financial statements include the accounts of Pamrapo Bancorp,
Inc. (the "Corporation") and its wholly owned subsidiaries, Pamrapo Savings
Bank, SLA (the "Bank") and Pamrapo Service Corp, Inc. The Corporation's
business is conducted principally through the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
2. BASIS OF PRESENTATION
- -------------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and regulations S-X and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements have
been included. The results of operations for the three and six months ended June
30, 1999, are not necessarily indicative of the results which may be expected
for the entire fiscal year.
3. NET INCOME PER COMMON SHARE
- -------------------------------
Basic net income per common share is based on the weighted average number of
common shares actually outstanding. Diluted net income per share is calculated
by adjusting the weighted average number of shares of common stock outstanding
to include the effect of stock options, if dilutive, using the treasury stock
method.
-6-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Changes in Financial Condition
The Corporation's assets at June 30, 1999 totalled $434.6 million, which
represents an increase of $21.1 million or 5.10% as compared with $413.5
million at December 31, 1998.
Securities available for sale at June 30, 1999 decreased $809,000 or 8.38% to
$8.8 million when compared with $9.7 million at December 31, 1998. The decrease
during the six months ended June 30, 1999, resulted primarily from repayments on
securities available for sale of $694,000 along with net unrealized losses of
$125,000.
Investment securities held to maturity increased $2.0 million to $4.0 million at
June 30, 1999 when compared with $2.0 million at December 31, 1998, resulting
from the purchase of a $2.0 million FHLMC obligation. Mortgage-backed
securities held to maturity increased $857,000 or .71% to $121.3 million at June
30, 1999 when compared to $120.4 million at December 31, 1998. The increase
during six months ended June 30, 1999, resulted primarily from purchases of
$19.1 million, which were sufficient to offset principal repayments of $18.1
million.
Net loans amounted to $262.4 million at June 30, 1999 as compared to $239.0
million at December 31, 1998, which represents an increase of $23.4 million or
9.79%. The increase, during the six months ended June 30, 1999, resulted
primarily from loan originations exceeding principal repayments.
Foreclosed real estate totalled $668,000 and $1.2 million at June 30, 1999 and
December 31, 1998, respectively. During the six months ended June 30, 1999,
four foreclosed real estate properties with a combined book value of $564,000
were sold. At June 30, 1999, foreclosed real estate consisted of ten
properties, five of which are under contract for sale.
Total deposits at June 30, 1999 totalled $349.3 million as compared with $326.0
million at December 31, 1998, representing an increase of $23.3 million or
7.15%.
Advances from the Federal Home Loan Bank ("FHLB") amounted to $28.6 million at
June 30, 1999 and December 31, 1998.
Stockholders' equity totalled $47.9 million and $49.8 million at June 30, 1999
and December 31, 1998, respectively. In April 1999, the Corporation repurchased
100,000 of its outstanding common stock at a price of $23.75 per share, or
$2,375,000 in the aggregate.
Comparison of Operating Results for the Three Months Ended June 30, 1999 and
1998
Net income increased $178,000 or 17.12% to $1.2 million for the three months
ended June 30, 1999 compared with $1.0 million for the same 1998 period. The
increase in net income during the 1999 period resulted from increases in total
interest income and non-interest income, which were partially offset by
increases in total interest expense, non-interest expense and income taxes.
-7-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Three Months Ended June 30, 1999 and
1998 (Cont'd.)
Interest income on loans increased by $626,000 or 13.17% to $5.4 million during
the three months ended June 30, 1999 when compared with $4.8 million for the
same 1998 period. The increase during the 1999 period resulted from an increase
of $35.6 million in the average balance of loans outstanding sufficient to
offset a twenty-four basis point decrease in the yield earned on the loan
portfolio. During the three months ended June 30, 1999, the Bank recovered
approximately $150,000 in interest on loans which were on non-accrual status.
Interest on mortgage-backed securities remained unchanged at $2.1 million during
the three months ended June 30, 1999 and 1998. During the 1999 period, a
decrease of twenty-five basis points in the yield earned on the mortgage-backed
securities was offset by an increase of $5.4 million in the average balance of
such portfolio outstanding. Interest earned on investments and other interest-
earning assets increased by $84,000 or 32.18% to $345,000 during the three
months ended June 30, 1999, when compared to $261,000 during the same 1998
period primarily due to an increase of $7.0 million in the average balance of
such assets outstanding, which more than offset a fifty-two basis point decrease
in the yield earned on such portfolio.
Interest expense on deposits increased $120,000 or 4.26% to $2.9 million during
the three months ended June 30, 1999 when compared to $2.8 million during the
same 1998 period. Such increase was primarily attributable to an increase of
$29.2 million in the average balance of interest-bearing deposits sufficient to
offset a decrease of nineteen basis points in the cost of interest-bearing
deposits. Interest expense on advances and other borrowed money increased by
$202,000 or 90.99% to $424,000 during the three months ended June 30, 1999 when
compared with $222,000 during the same 1998 period, primarily due to an increase
of $15.2 million in the average balance of advances outstanding from the FHLB
sufficient to offset a sixty-seven basis point decrease in the cost of advances
and other borrowed money.
Net interest income increased $395,000 or 9.71% during the three months ended
June 30, 1999 when compared with the same 1998 period. Such increase was due to
an increase in total interest income of $717,000, sufficient to offset an
increase in total interest expense of $322,000. The Bank's net interest rate
spread decreased to 3.87% in 1999 from 3.96% in 1998. The decrease in the
interest rate spread resulted from a decrease of twenty-two basis points in the
yield earned on interest-earning assets partially offset by a thirteen basis
point decrease in the cost of interest-bearing liabilities.
During the three months ended June 30, 1999 and 1998, the Bank provided $75,000
each as a provision for loan losses. The allowance for loan losses is based on
management's evaluation of the risk inherent in its loan portfolio and gives due
consideration to the changes in general market conditions and in the nature and
volume of the Bank's loan activity. The Bank intends to continue to provide for
loan losses based on its periodic review of the loan portfolio and general
market conditions. At June 30, 1999, December 31, 1998 and June 30, 1998, the
Bank's non-performing loans, which were delinquent ninety days or more, totalled
$4.5 million or 1.04% of total assets, $4.6 million or 1.11% of total assets and
$5.2 million or 1.31% of total assets, respectively. At June 30, 1999, $1.4
million of non-performing loans were accruing interest and $3.1 million were on
non-accrual status. The non-performing loans primarily consist of one-to-four
family mortgage loans. During the three months ended June 30, 1999 and 1998,
the Bank charged off loans aggregating $355,000 and $177,000, respectively. The
allowance for loan losses amounted to $2.1 million at June 30, 1999,
representing 0.78% of total loans and 46.7% of loans delinquent ninety days or
more and $2.3 million at December 31, 1998, representing 0.94% of total loans
and 50.0% of loans delinquent ninety days or more.
-8-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Three Months Ended June 30, 1999 and
1998 (Cont'd.)
Non-interest income increased $135,000 or 44.6% to $438,000 during the three
months ended June 30, 1999 from $303,000 during the same 1998 period. The
increase resulted from increases in fees and service charges of $50,000, and
miscellaneous income of $85,000.
Non-interest expenses increased by $234,000 or 8.76% to $2.9 million during the
three months ended June 30, 1999 when compared with $2.7 million during the same
1998 period. Salaries and employee benefits, net occupancy expense, equipment,
advertising and miscellaneous increased $170,000, $15,000, $12,000, $41,000 and
$27,000, respectively, which was sufficient to offset decreases in loss on
foreclosed real estate and federal insurance premium of $27,000 and $4,000,
respectively, during the 1999 period when compared with the same 1998 period.
The 1999 non-interest expenses include increased operating costs resulting from
opening a new branch office in Jamesburg, New Jersey in October 1998.
Income taxes totalled $703,000 and $585,000 during the three months ended June
30, 1999 and 1998, respectively. The increase during the 1999 period resulted
from an increase in pre-tax income.
Comparison of Operating Results for the Six Months Ended June 30, 1999 and 1998
Net income increased $112,000 or 5.10% to $2.3 million for the six months ended
June 30, 1999 compared with $2.2 million for the same 1998 period. The increase
in net income during the 1999 period resulted from increases in total interest
income and non-interest income, which were partially offset by increases in
total interest expense, non-interest expense and income taxes.
Interest income on loans increased by $973,000 or 10.25% to $10.5 million during
the six months ended June 30, 1999 when compared with $9.5 million for the same
1998 period. The increase during the 1999 period resulted from an increase of
$33.0 million in the average balance of loans outstanding sufficient to offset a
thirty-eight basis point decrease in the yield earned on the loan portfolio.
Interest on mortgage-backed securities decreased $174,000 or 4.03% to 4.1
million during the six months ended June 30, 1999 when compared with $4.3
million for the same 1998 period. The decrease during the 1999 period resulted
primarily from a decrease of twenty-eight basis points in the yield earned on
the mortgage-backed securities. Interest earned on investments and other
interest-earning assets increased by $179,000 or 36.16% to $674,000 during the
six months ended June 30, 1999, when compared to $495,000 during the same 1998
period primarily due to an increase of $8.5 million in the average balance of
such assets outstanding sufficient to offset a seventy-nine basis point decrease
in the yield earned on such portfolio.
Interest expense on deposits increased $95,000 or 1.69% to $5.7 million during
the six months ended June 30, 1999 when compared to $5.6 million during the same
1998 period. Such increase was primarily attributable to an increase of $24.0
million in the average balance of interest-bearing deposits sufficient to offset
a twenty-three basis point decline in cost of interest-bearing deposits.
Interest expense on advances and other borrowed money increased by $401,000 or
90.72% to $843,000 during the six months ended June 30, 1999 when compared with
$442,000 during the same 1998 period, primarily due to an increase of $15.2
million in the average balance of advances outstanding from the FHLB sufficient
to offset a sixty-six basis point decrease in the cost of advances and other
borrowed money.
-9-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Comparison of Operating Results for the Six Months Ended June 30, 1999 and 1998
(Cont'd.)
Net interest income increased $482,000 or 5.85% during the six months ended June
30, 1999 when compared with the same 1998 period. Such increase was due to an
increase in total interest income of $977,000, sufficient to offset an increase
in total interest expense of $496,000. The Bank's net interest rate spread
decreased to 3.83% in 1999 from 4.00% in 1998. The decrease in the interest
rate spread resulted from a decrease of thirty-three basis points in the yield
earned on interest-earning assets sufficient to offset a sixteen basis point
decrease in the cost of interest-bearing liabilities.
During the six months ended June 30, 1999 and 1998, the Bank provided $150,000
each as a provision for loan losses. The allowance for loan losses is based on
management's evaluation of the risk inherent in its loan portfolio and gives due
consideration to the changes in general market conditions and in the nature and
volume of the Bank's loan activity. The Bank intends to continue to provide for
loan losses based on its periodic review of the loan portfolio and general
market conditions. At June 30, 1999, December 31, 1998 and June 30, 1998, the
Bank's non-performing loans, which were delinquent ninety days or more, totalled
$4.5 million or 1.04% of total assets, $4.6 million or 1.11% of total assets and
$5.2 million or 1.31% of total assets, respectively. At June 30, 1999, $1.4
million of non-performing loans were accruing interest and $3.1 million were on
non-accrual status. The non-performing loans primarily consist of one-to-four
family mortgage loans. During the six months ended June 30, 1999 and 1998, the
Bank charged off loans aggregating $356,000 and $310,000, respectively. The
allowance for loan losses amounted to $2.1 million at June 30, 1999,
representing 0.78% of total loans and 46.7% of loans delinquent ninety days or
more and $2.3 million at December 31, 1998, representing 0.94% of total loans
and 50.0% of loans delinquent ninety days or more.
Non-interest income increased $164,000 or 25.55% to $806,000 during the six
months ended June 30, 1999 from $642,000 during the same 1998 period. The
increase resulted from increases in fees and service charges of $93,000 and
miscellaneous income of $71,000.
Non-interest expenses increased by $468,000 or 8.85% to $5.8 million during the
six months ended June 30, 1999 when compared with $5.3 million during the same
1998 period. Salaries and employee benefits, net occupancy expense, equipment,
advertising and miscellaneous increased $313,000, $69,000, $38,000, $63,000, and
$26,000 respectively, which was sufficient to offset decreases in loss on
foreclosed real estate and federal insurance premium of $39,000 and $3,000,
respectively, during the 1999 period when compared with the same 1998 period.
The 1999 non-interest expenses include increased operating costs resulting from
opening a new branch office in Jamesburg, New Jersey in October 1998.
Income taxes totalled $1.32 million and $1.25 million during the six months
ended June 30, 1999 and 1998, respectively. The increase during the 1999 period
resulted from an increase in pre-tax income.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision (the "OTS") regulations. This requirement,
which may vary from time to time, depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
required ratio currently is 4%. The Bank's liquidity averaged 7.83% during the
month of June 1999. The Bank adjusts its liquidity levels in order to meet
funding needs for deposit outflows,
-10-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources (Cont'd.)
payment of real estate taxes from escrow accounts on mortgage loans, repayment
of borrowings, when applicable, and loan funding commitments. The Bank also
adjusts its liquidity level as appropriate to meet its asset/liability
objectives.
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities principal, FHLB advances, maturities of
investment securities and funds provided from operations. While scheduled loan
and mortgage-backed securities amortization and maturing investment securities
are a relatively predictable source of funds, deposit flow and loan and
mortgage-backed securities prepayments are greatly influenced by market interest
rates, economic conditions and competition. The Bank invests its excess funds
in federal funds and overnight deposits with the FHLB, which provides liquidity
to meet lending requirements. Interest-bearing deposits at June 30, 1999
amounted to $13.2 million.
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operating, investing and financing activities. These activities are
summarized below:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1999 1998
------------- -------------
(In Thousands)
<S> <C> <C>
Cash and cash equivalents - beginning $ 28,047 $ 13,307
-------- --------
Operating activities:
Net income 2,307 2,195
Adjustments to reconcile net income to
net cash provided by operating activities (20) 3,297
-------- --------
Net cash provided by operating activities 2,287 5,492
Net cash (used in) investing activities (25,552) (1,153)
Net cash provided by financing activities 19,198 13,142
-------- --------
Net (decrease) increase in cash and cash equivalents (4,067) 17,481
-------- --------
Cash and cash equivalents - ending $ 23,980 $ 30,788
======== ========
</TABLE>
Cash was generated by operating activities during the six months ended June 30,
1999. The primary source of cash was net income. Cash dividends paid during the
six months ended June 30, 1999 and 1998 amounted to $1.7 million and $1.6
million, respectively.
The primary sources of investing activity of the Bank are lending and the
purchase of mortgage-backed securities. Net loans amounted to $262.4 million and
$239.0 million at June 30, 1999 and December 31, 1998, respectively. Mortgage-
backed securities held to maturity totalled $121.3 million
-11-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources (Cont'd.)
and $120.4 million at June 30, 1999 and December 31, 1998, respectively. In
addition to funding new loan production and mortgage-backed securities purchases
through operating and financing activities, such activities were funded by
principal repayments on existing loans and mortgage-backed securities.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds and interest-bearing deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB which provide an additional source of funds. At June 30, 1999,
advances from the FHLB amounted to $28.6 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At June 30, 1999, the Bank has outstanding
commitments to originate mortgage loans of $11.1 million. Certificates of
deposit scheduled to mature in one year or less at June 30, 1999, totalled
$145.7 million. Management believes that, based upon its experience and the
Bank's deposit flow history, a significant portion of such deposits will remain
with the Bank.
Under OTS regulations, three separate measurements of capital adequacy (the
"Capital Rule") are required. The Capital Rule requires each savings
institution to maintain tangible capital equal to at least 1.5% and core capital
equal to 4.0% of its adjusted total assets. The Capital rule further requires
each savings institution to maintain total capital equal to at least 8.0% of its
risk-weighted assets.
The following table sets forth the Bank's capital position at June 30, 1999, as
compared to the minimum regulatory capital requirements:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
------------------------- ------------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets) $ 45,490 20.99% $ 17,340 8.00% $ 21,675 10.00%
Tier 1 Capital
(to risk-weighted assets) $ 43,852 20.23% - - $ 13,005 6.00%
Core (Tier 1) Capital
(to adjusted total assets) $ 43,852 10.12% $ 17,331 4.00% $ 21,664 5.00%
Tangible Capital
(to adjusted total assets) $ 43,852 10.12% $ 6,499 1.50% - -
</TABLE>
-12-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Thrift Rechartering Legislation
From time to time, legislation regarding elimination of or changes to the
federal thrift charter and related issues is brought before Congress. The Bank,
whose deposits are insured by Savings Associations Insurance Fund ("SAIF"), is
unable to predict whether such legislation will be enacted, the extent to which
the legislation would restrict or disrupt its operations or whether the Bank
Insurance Fund ("BIF") or SAIF funds will eventually merge.
Supervisory Examination
The Bank's financial statements are periodically examined by the OTS, the
Federal Deposit Insurance Corporation ("FDIC") and the New Jersey Department of
Banking and Insurance, as part of their regulatory oversight of the thrift
industry. As a result of these examinations, the regulators can direct that the
Bank make adjustments to its financial statements based on their findings.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Bank's
computer programs that would have date sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions, or engage in
similar normal business activities.
Based on an internal assessment, the Bank determined that it would be required
to modify or replace portions of its software so that its computer systems would
properly utilize dates beyond December 31, 1999. These modifications and
replacements are substantially complete and tested. Should the system fail to
perform adequately on January 1, 2000 or thereafter, such failure may have a
material impact on the operations of the Bank.
The Bank has conducted formal communications with all or its significant
suppliers and vendors to determine the extent to which the Bank is vulnerable to
those third parties failure to remediate their own Year 2000 Issues. The Bank
utilized both internal and external resources to reprogram, or replace, and test
the software for year 2000 modifications. To date, the Bank has incurred costs
of approximately $325,000 related to the assessment of and preliminary efforts
in connection with its Year 2000 project and the development of a remediation
plan. It is anticipated that additional costs related to Y2K compliance will
not exceed $25,000. The Bank has completed general and branch operating
contingency plans in the event of unforeseen problems. In the event that any of
the Bank's major customers, significant suppliers, or other vendors do not
successfully achieve Year 2000 compliance in a timely manner, the Bank's
business or operations could be adversely affected. There can be no assurances,
however, that such plans or the performances by any of the Bank's suppliers and
vendors will be effective to remedy all potential problems.
-13-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Management of Interest Rate Risk. The ability to maximize net interest income
is largely dependent upon the achievement of a positive interest rate spread
that can be sustained during fluctuations in prevailing interest rates.
Interest rate sensitivity is a measure of the difference between amounts of
interest-earning assets and interest-bearing liabilities which either reprice or
mature within a given period of time. The difference, or the interest rate
repricing "gap", provides an indication of the extent to which an institution's
interest rate spread will be affected by changes in interest rates. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
the amount of interest-rate sensitive liabilities, and is considered negative
when the amount of interest rate sensitive liabilities exceeds the amount of
interest-rate sensitive assets. Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely affect net
interest income, while a positive gap within shorter maturities would result in
an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would result
in a decrease in net interest income.
Because the Bank's interest-bearing liabilities which mature or reprice within
short periods exceed its interest-earning assets with similar characteristics,
material and prolonged increases in interest rates generally would adversely
affect net interest income, while material and prolonged decreases in interest
rates generally would have a positive effect on net interest income.
The Bank's current investment strategy is to maintain an overall securities
portfolio that provides a source of liquidity and that contributes to the Bank's
overall profitability and asset mix within given quality and maturity
considerations. The securities portfolio is concentrated in U.S. Treasury and
federal government agency securities providing high asset quality to the overall
balance sheet mix. Securities classified as available for sale provide
management with the flexibility to make adjustments to the portfolio given
changes in the economic or interest rate environment, to fulfill unanticipated
liquidity needs, or to take advantage of alternative investment opportunities.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored by
management through the use of the OTDS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV
is the present value of expected cash flows from assets, liabilities, and off-
balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. The OTS produces its analysis based upon data submitted on the
Bank's quarterly Thrift Financial Reports. The following table sets forth the
Bank's NPV as of March 31, 1999, the most recent date the Bank's NPV was
calculated by the OTS.
-14-
<PAGE>
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
<TABLE>
<CAPTION>
NPV as
Change in Percent of Portfolio
Interest Rates Net Portfolio Value Value of Assets
------------------------------------------ ---------------------------
In Basis Points Dollar Percent NPV Change
(Rate Shock) Amount Change Change Ratio Basis Points
------------------- -------- ---------- ---------- --------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
300 $ 35,518 $ (22,265) (39) 8.58 % (456)
200 43,787 (13,996) (24) 10.34 (280)
100 51,480 (6,302) (11) 11.91 (123)
Static 57,783 - - 13.13 -
-100 63,619 5,836 10 14.22 109
-200 68,908 11,126 19 15.17 204
-300 75,179 17,397 30 16.27 313
</TABLE>
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV
model presented assumes that the composition of the Bank's interest sensitive
assets and liabilities existing at the beginning of a period remains constant
over the period being measured and also assumes that a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration to maturity or repricing of specific assets and liabilities.
Accordingly, although the NPV measurements and net interest income models
provide an indication of the Bank's interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income and will differ from actual results.
-15-
<PAGE>
PAMRAPO BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
Neither the Corporation nor the Bank are involved in any pending legal
proceedings other than routine legal proceedings occurring in the
ordinary course of business, which involve amounts in the aggregate
believed by management to be immaterial to the financial condition of the
Corporation and the Bank.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
This information was reported in the Corporation's Form 10-Q for the
quarter ended March 31, 1999.
ITEM 5. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Pamrapo Bancorp, Inc.*
3.2 By-Laws of Pamrapo Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith).
27.0 Financial data schedule (filed herewith).
* Incorporated herein by reference to Form S-1,
Registration Statement, as amended, filed on
August 11, 1989, Registration Number 33-30370.
(b) Reports on Form 8-K
NONE
-16-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PAMRAPO BANCORP, INC.
Date: August 15, 1999 By: /s/ William J. Campbell
------------------------ ---------------------------------------
William J. Campbell
President and Chief Executive Officer
Date: August 15, 199 By: /s/ Gary J. Thomas
------------------------ ---------------------------------------
Gary J. Thomas
Vice President, Chief Financial Officer
-17-
<PAGE>
Exhibit 11.0
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
-----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
-------------------- ------------------
<S> <C> <C>
Net income $ 1,217,650 $ 2,307,357
============= =============
Weighted average shares outstanding - basic and diluted 2,770,397 2,806,460
============= =============
Basic and diluted earnings per share $ 0.44 $ 0.82
============= =============
</TABLE>
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,780,250
<INT-BEARING-DEPOSITS> 13,200,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,843,056
<INVESTMENTS-CARRYING> 125,252,922
<INVESTMENTS-MARKET> 124,105,000
<LOANS> 264,541,482
<ALLOWANCE> 2,095,775
<TOTAL-ASSETS> 434,568,301
<DEPOSITS> 349,301,951
<SHORT-TERM> 28,824,443
<LIABILITIES-OTHER> 8,562,454
<LONG-TERM> 0
0
0
<COMMON> 34,500
<OTHER-SE> 47,844,953
<TOTAL-LIABILITIES-AND-EQUITY> 434,568,301
<INTEREST-LOAN> 10,469,004
<INTEREST-INVEST> 4,146,624
<INTEREST-OTHER> 673,836
<INTEREST-TOTAL> 15,289,464
<INTEREST-DEPOSIT> 5,724,009
<INTEREST-EXPENSE> 6,566,912
<INTEREST-INCOME-NET> 8,722,552
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,754,632
<INCOME-PRETAX> 3,623,813
<INCOME-PRE-EXTRAORDINARY> 3,623,813
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,307,357
<EPS-BASIC> .82
<EPS-DILUTED> .82
<YIELD-ACTUAL> 7.68
<LOANS-NON> 3,133,000
<LOANS-PAST> 1,360,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,592,049
<ALLOWANCE-OPEN> 2,300,000
<CHARGE-OFFS> 356,231
<RECOVERIES> 2,006
<ALLOWANCE-CLOSE> 2,095,775
<ALLOWANCE-DOMESTIC> 457,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,638,775
</TABLE>
