-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VYV833ubLObkS6h0Z74Q8fZXNSDkirV6nywsXlEfbo20a4x3kENQ8SS4dvdlYPOy gOqDsBEUvoHUpzLq13jQUA== 0000912057-00-015906.txt : 20000404 0000912057-00-015906.hdr.sgml : 20000404 ACCESSION NUMBER: 0000912057-00-015906 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000403 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAMRAPO BANCORP INC CENTRAL INDEX KEY: 0000854071 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 222984813 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-18014 FILM NUMBER: 592643 BUSINESS ADDRESS: STREET 1: 611 AVE C CITY: BAYONNE STATE: NJ ZIP: 07002 BUSINESS PHONE: 2013394600 MAIL ADDRESS: STREET 2: 611 AVENUE C CITY: BAYONNE STATE: NY ZIP: 07002 10-K/A 1 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 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 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 incorporation or organization) Identification No.) 611 AVENUE C, BAYONNE, NEW JERSEY 07002 (Address and zip code 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. [ X ] 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 $41,555,981 and is based upon the last sales price as quoted on The Nasdaq Stock Market for March 10, 2000. The Registrant had 2,647,924 shares of Common Stock outstanding as of March 10, 2000. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1999 ARE INCORPORATED BY REFERENCE INTO PARTS I AND II OF THIS FORM 10-K. PORTIONS OF THE PROXY STATEMENT FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K. SIGNATURES Pursuant to the requirements of Section 13 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. BY: /s/ William J. Campbell -------------------------------- William J. Campbell President DATED: April 3, 2000 EX-13 2 EX-13 PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF - -------------------------------------------------------------------------------- FINANCIAL CONDITION - --------------------------------------------------------------------------------
December 31, Note(s) 1998 1999 - -------------------------------------------------------------------------------------------------------- Assets Cash and amounts due from depository institutions $ 12,547,045 $ 11,862,080 Interest-bearing deposits in other banks 15,500,000 19,200,000 ------------ ------------ ------------ Total cash and cash equivalents 1 and 16 28,047,045 31,062,080 Securities available for sale 1,2,9 and 16 9,651,512 6,428,631 Investment securities held to maturity 1,3,9 and 16 1,998,142 7,995,941 Mortgage-backed securities held to maturity 1,4,9 and 16 120,400,191 120,823,781 Loans receivable 1,5,9 and 16 239,009,990 268,280,380 Foreclosed real estate 1 1,237,097 456,196 Investment in real estate 1 270,539 255,769 Premises and equipment 1,6 and 10 4,695,440 4,471,586 Federal Home Loan Bank of New York stock 9 3,097,200 3,243,200 Interest receivable 1,7 and 16 2,364,340 2,553,908 Deferred tax asset 1 and 14 1,237,626 1,313,012 Excess of cost over assets acquired 1 181,949 60,649 Other assets 14 1,283,086 1,075,318 ------------ ------------ ------------ Total assets $413,474,157 $448,020,451 ============ ============ ============ Liabilities and stockholders' equity Liabilities Deposits 8 and 16 $325,985,283 $361,924,668 Advances from Federal Home Loan Bank of New York 9 and 16 28,583,100 30,583,100 Other borrowed money 10 and 16 252,535 229,696 Advance payments by borrowers for taxes and insurance 2,911,061 2,946,639 Other liabilities 13 5,969,273 4,082,384 ------------ ------------ ------------ Total liabilities 363,701,252 399,766,487 ------------ ------------ ------------ Commitments and contingencies 15 and 16 - - 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; 2,842,924 shares and 2,727,924 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 44,217,856 45,474,883 Accumulated other comprehensive income - unrealized gain (loss) on securities available for sale, net 39,715 (46,874) Treasury stock, at cost; 607,076 shares and 722,076 shares, respectively (13,425,934) (16,115,313) ------------ ------------ ------------ Total stockholders' equity 49,772,905 48,253,964 ------------ ------------ ------------ Total liabilities and stockholders' equity $413,474,157 $448,020,451 ============ ============ ============
See notes to consolidated financial statements. -16- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Year Ended December 31, Note(s) 1997 1998 1999 - ----------------------------------------------------------------------------------------------------------- Interest income: Loans 1 and 5 $18,699,348 $19,380,581 $ 21,452,872 Mortgage-backed securities 1 8,572,270 8,388,483 8,250,602 Investments 1 507,895 223,459 494,074 Other interest-earning assets 616,023 978,661 1,055,161 -------- ----------- ----------- -------------- Total interest income 28,395,536 28,971,184 31,252,709 -------- ----------- ----------- -------------- Interest expense: Deposits 8 11,062,108 11,303,534 11,953,248 Advances and other borrowed money 799,585 1,124,396 1,688,590 -------- ----------- ----------- -------------- Total interest expense 11,861,693 12,427,930 13,641,838 -------- ----------- ----------- -------------- Net interest income 16,533,843 16,543,254 17,610,871 Provision for loan losses 1 and 5 585,555 291,856 298,531 -------- ----------- ----------- -------------- Net interest income after provision for loan losses 15,948,288 16,251,398 17,312,340 -------- ----------- ----------- -------------- Non-interest income: Fees and service charges 841,389 920,465 1,001,162 Gain on sale of mortgage-backed securities 2 and 4 111,583 - - Gain on sale of fixed assets 246,652 - - Miscellaneous 474,674 478,693 563,658 -------- ----------- ----------- -------------- Total non-interest income 1,674,298 1,399,158 1,564,820 -------- ----------- ----------- -------------- Non-interest expenses: Salaries and employee benefits 13 4,893,655 5,567,768 6,075,920 Net occupancy expense of premises 6 and 15 859,895 1,102,791 1,107,805 Equipment 6 866,005 1,031,297 1,088,113 Advertising 189,779 358,144 202,425 Federal insurance premium 193,368 189,879 199,446 Loss on foreclosed real estate 1 207,389 122,736 33,297 Amortization of intangibles 1 121,300 121,301 121,300 Miscellaneous 2,460,822 2,318,460 2,635,983 -------- ----------- ----------- -------------- Total non-interest expenses 9,792,213 10,812,376 11,464,289 -------- ----------- ----------- -------------- Income before income taxes 7,830,373 6,838,180 7,412,871 Income taxes 1 and 14 2,759,170 2,443,477 2,695,937 -------- ----------- ----------- -------------- Net income $ 5,071,203 $ 4,394,703 $ 4,716,934 ======== =========== =========== ============== Basic/diluted earnings per common share 1 $ 1.74 $ 1.55 $ 1.70 ======== =========== =========== ============== Dividends per common share 1 $ 1.00 $ 1.12 $ 1.25 ======== =========== =========== ==============
See notes to consolidated financial statements. -17- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF - -------------------------------------------------------------------------------- COMPREHENSIVE INCOME - --------------------------------------------------------------------------------
Year Ended December 31, 1997 1998 1999 - ---------------------------------------------------------------------------------------------- Net income $ 5,071,203 $ 4,394,703 $ 4,716,934 Other comprehensive income, net of income taxes: Unrealized holding gain (loss) on securities available for sale, net of income tax expense (benefit) of $123,638, $16,500 and ($48,800) respectively 210,965 29,162 (86,589) Less reconciliation adjustment for realized gains, net of income tax expense (benefit) of ($2,038) (3,477) -- -- ----------- ----------- ----------- Other comprehensive income (loss) 207,488 29,162 (86,589) ----------- ----------- ----------- Comprehensive income $ 5,278,691 $ 4,423,865 $ 4,630,345 =========== =========== ===========
See notes to consolidated financial statements. -18- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF - -------------------------------------------------------------------------------- CHANGES IN STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
Accumulated Other Comprehensive Income - Unrealized Paid-in Retained Gain (Loss) Capital in Earnings - on Securities Common Excess of Substantially Available Treasury Stock Par Value Restricted For Sale, Met Stock Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1996 $ 34,500 $ 18,906,768 $ 40,944,218 $ (196,935) $ (6,179,590) $ 53,508,961 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 Net income for the year ended December 31, 1999 -- -- 4,716,934 -- -- 4,716,934 Purchase of treasury stock -- -- -- -- (2,689,379) (2,689,379) Increase in unrealized loss on securities available for sale, net of income taxes -- -- -- (86,589) -- (86,589) Cash dividends -- -- (3,459,907) -- -- (3,459,907) ------------ ------------ ------------ ---------- ------------ ------------ Balance - December 31, 1999 $ 34,500 $ 18,906,768 $ 45,474,883 $ (46,874) $(16,115,313) $ 48,253,964 ============ ============ ============ ========== ============ ============
See notes to consolidated financial statements. -19- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Year Ended December 31, 1997 1998 1999 - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 5,071,203 $ 4,394,703 $ 4,716,934 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of premises and equipment and investment in real estate 350,147 508,690 616,523 Amortization of deferred fees, premiums and discounts, net (185,294) (151,141) (25,364) Provision for loan losses 585,555 291,856 298,531 Provision for losses on foreclosed real estate 144,747 73,206 60,000 Gain on sale of foreclosed real estate (46,433) (57,254) (44,966) Gain on sale of fixed assets (246,652) -- -- Gain on sale of securities available for sale (5,519) -- -- Gain on sale of mortgage-backed securities held to maturity (106,064) -- -- Deferred income taxes 5,023 115,765 (26,586) Decrease (increase) in interest receivable 181,843 130,860 (189,568) (Increase) decrease in other assets (124,106) 740,495 207,768 Amortization of intangibles 121,300 121,301 121,300 Increase (decrease) in other liabilities 872,689 1,954,785 (1,886,889) ------------ ------------ ------------ Net cash provided by operating activities 6,618,439 8,123,266 3,847,683 ============ ============ ============ Cash flows from investing activities: Proceeds from maturities and calls of securities available for sale 5,000,000 1,000,000 2,000,000 Proceeds from repayments of securities available for sale 1,718,879 1,270,255 1,113,012 Purchases of securities available for sale (65,220) (67,833) (64,604) Proceeds from sale of securities available for sale 3,992,226 -- -- Proceeds from maturities of investment securities held to maturity -- -- 2,000,000 Purchases of investment securities held to maturity -- (1,998,125) (7,997,500) Principal repayments on mortgage-backed securities held to maturity 16,228,312 32,197,982 29,377,328 Purchases of mortgage-backed securities held to maturity (49,297,672) (26,725,908) (30,035,520) Proceeds from sale of mortgage-backed securities held to maturity 3,640,635 -- -- Proceeds from sale of student loans 685,386 817,555 104,919 Purchases of mortgage loans (391,550) (1,785,275) (131,000) Net change in loans receivable (3,976,415) (27,236,899) (28,782,339) Proceeds from sale of foreclosed real estate 798,889 588,869 304,117 Additions to premises and equipment (755,387) (1,707,181) (377,899) Proceeds from sale of fixed assets 315,312 -- -- Purchase of Federal Home Loan Bank of of New York Stock -- (117,800) (146,000) ------------ ------------ ------------ Net cash used in investing activities (22,106,605) (23,764,360) (32,635,486) ============ ============ ============
See notes to consolidated financial statements. -20-
Year Ended December 31, 1997 1998 1999 - ------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits $ 6,686,580 $ 18,513,283 $ 35,939,385 Advances from Federal Home loan Bank of New York 14,000,000 15,000,000 5,000,000 Repayment of advances from Federal Home Loan Bank of New York (4,000,000) -- (3,000,000) Repayment of other borrowings (19,471) (21,088) (22,839) Increase in advance payments by borrowers for taxes and insurance 1,239,732 73,225 35,578 Cash dividends paid (2,919,723) (3,184,075) (3,459,907) Purchase of treasury stock (7,369,153) -- (2,689,379) Proceeds from sales of treasury stock 34,339 -- -- ------------ ------------ ------------ Net cash provided by financing activities 7,652,304 30,381,345 31,802,838 ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (7,835,862) 14,740,251 3,015,035 Cash and cash equivalents-beginning 21,142,656 13,306,794 28,047,045 ------------ ------------ ------------ Cash and cash equivalents-ending $ 13,306,794 $ 28,047,045 $ 31,062,080 ============ ============ ============ Supplemental information: Unrealized gain (loss) on securities available for sale, net $ 207,488 $ 29,162 $ (86,589) ============ ============ ============ Transfer from loans receivable to foreclosed real estate $ 1,419,449 $ 992,471 $ 205,000 ============ ============ ============ Loans to facilitate sale of foreclosed real estate $ 1,163,700 $ 504,900 $ 666,750 ============ ============ ============ Mortgage loan in connection with sale of building $ 500,000 $ - $ - ============ ============ ============ Cash paid during the period for: Income taxes $ 2,034,382 $ 2,434,309 $ 2,457,745 ============ ============ ============ Interest on deposits and borrowings $ 11,781,550 $ 12,245,397 $ 13,666,460 ============ ============ ============
See notes to consolidated financial statements. -21- 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 requent 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 -22- 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. 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. -23- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- 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 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. -24- 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. IMPACT OF RECENT ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statements of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. -25- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- At the date of initial application of SFAS No. 133, an entity may transfer any held-to-maturity security into the available-for-sale category or the trading category. An entity will then be able in the future to designate a security transferred into the available-for-sale category as the hedged item, or its variable interest payments as the cash flow hedged transaction, in a hedge of the exposure to changes in market interest rates, changes in foreign currency exchange rates, or changes in the overall fair value. (SFAS No. 133 precludes a held-to-maturity security from being designated as the hedged item in a fair value hedge of market interest rate risk or the risk of changes in its overall fair value and precludes the variable cash flows of a held-to-maturity security from being designated as the hedged transaction in a cash flow hedge of market interest rate risk). SFAS No. 133 provides that such transfers from the held-to-maturity category at the date of initial adoption shall not call into question an entity's intent to hold other debt securities to maturity in the future. SFAS No. 133 is effective for the quarter ended March 31, 2001 for the Savings Bank. Initial application shall be as of the beginning of an entity's fiscal quarter. Earlier application of all of the provisions of SFAS No. 133 is permitted only as of the beginning of a fiscal quarter. Earlier application of selected provisions or retroactive application of provisions of SFAS No. 133 are not permitted. Management of the Savings Bank has not yet determined when SFAS No. 133 will be implemented, but does not believe the ultimate implementation of SFAS No. 133 will have a material impact on the Savings Bank's financial position or results of operations. RECLASSIFICATION Certain amounts for prior periods have been reclassified to conform to the current period's presentation. 2. SECURITIES AVAILABLE FOR SALE
December 31, 1998 Amortized Gross Unrealized Carrying ------------------ Value Gains Losses Value - --------------------------------------------------------------------------------------------- U.S. Government (including agencies): Due in one year or less $1,999,632 $ 17,248 $ -- $2,016,880 Mortgage-backed securites 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 ========== ========== ========== ==========
December 31, 1999 Amortized Gross Unrealized Carrying ------------------- Value Gains Losses Value - --------------------------------------------------------------------------------- Mortgage-backed securites $5,248,030 $ 274 $ 183,837 $5,064,467 Mutual Funds 1,246,855 -- 15,779 1,231,076 Equity security 7,020 126,068 -- 133,088 ---------- ---------- ---------- ---------- $6,501,905 $ 126,342 $ 199,616 $6,428,631 ========== ========== ========== ==========
There were no sales of securities available for sale during the years ended December 31, 1998 and 1999. 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. -26- 3. INVESTMENT SECURITIES HELD TO MATURITY
December 31, 1998 Carrying Gross Unrealized Estimated ------------------ Value Gains Losses Fair Value - ------------------------------------------------------------------------------------------------ U.S. Government (including agencies): Due after five years $1,998,142 $ -- $ 17 $1,998,125 ========== ========= ========== ==========
December 31, 1999 Carrying Gross Unrealized Estimated ------------------ Value Gains Losses Fair Value - ------------------------------------------------------------------------------------------------ U.S. Government (including agencies): Due after five years $7,995,941 $ -- $ 410,316 $7,585,625 ========== ========= ========== ==========
There were no sales of investment securities held to maturity during the years ended December 31, 1997, 1998 and 1999. 4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
December 31, 1998 Carrying Gross Unrealized Estimated -------------------- Value Gains Losses Fair Value - ---------------------------------------------------------------------------------------------------- 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 ============ ============ ============ ============
December 31, 1999 Carrying Gross Unrealized Estimated -------------------- Value Gains Losses Fair Value - ---------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation $ 95,231,872 $ 83,202 $ 1,950,192 $ 93,364,882 Federal National Mortgage Association 22,158,563 20,482 602,398 21,576,647 Government National Mortgage Association 3,433,346 -- 50,921 3,382,425 ------------ ------------ ------------ ------------ $120,823,781 $ 103,684 $ 2,603,511 $118,323,954 ============ ============ ============ ============
There were no sales of mortgage-backed securities held to maturity during the years ended December 31, 1998 and 1999. 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. -27- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- 5. LOANS RECEIVABLE
December 31, 1998 1999 - ----------------------------------------------------------- Real estate mortgage: One-to-four family $138,885,292 $160,129,840 Multi-family 33,717,925 36,419,637 Commercial 21,259,215 20,379,469 FHA insured and VA guaranteed 761,245 601,699 ------------ ------------ 194,623,677 217,530,645 ------------ ------------ Real estate construction 5,073,807 6,954,673 ------------ ------------ Land 2,184,263 1,914,130 ------------ ------------ Consumer: Passbook or certificate 458,476 511,084 Home improvement 508,026 560,115 Equity and second mortgage 39,184,421 43,226,572 Student education 53,604 57,685 Automobile 1,273,202 1,162,263 Personal 2,033,009 1,869,040 Other -- 61,000 ------------ ------------ 43,510,738 47,447,759 ------------ ------------ Total 245,392,485 273,847,207 ------------ ------------ Less: Loans in process 2,408,762 2,216,494 Allowances for loan losses 2,300,000 2,000,000 Deferred loan fees and discounts 1,673,733 1,350,333 ------------ ------------ 6,382,495 5,566,827 ------------ ------------ $239,009,990 $268,280,380 ============ ============
At December 31, 1997, 1998 and 1999, loans serviced by the Savings Bank for the benefit of others totalled approximately $4,943,000, $3,772,000, and $2,919,000, respectively. At December 31, 1997, 1998 and 1999, nonaccrual loans for which interest has been discontinued totalled approximately $5,040,000, $3,450,000, and $3,130,000, respectively. During the years ended December 31, 1997, 1998 and 1999, the Savings Bank recognized interest income of approximately $144,000, $97,000, and $115,000, respectively, on these loans. Interest income that would have been recorded, had the loans been on the accrual status, would have amounted to approximately $491,000, $333,000, and $297,000 for the years ended December 31, 1997, 1998 and 1999, 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:
Year Ended December 31, 1997 1998 1999 ---------------------------------------------------------------- Balance, beginning $ 2,800,000 $ 2,475,000 $ 2,300,000 Provisions charged to operations 585,555 291,856 298,531 Recoveries credited to allowance 17,144 16,773 5,062 Loan losses charged to allowance (927,699) (483,629) (603,593) ----------- ----------- ----------- Balance, ending $ 2,475,000 $ 2,300,000 $ 2,000,000 =========== =========== ===========
Impaired loans and related amounts recorded in the allowance for loan losses are summarized as follows:
December 31, 1998 1999 - ---------------------------------------------------------------- Recorded investment in impaired loans: With recorded allowances $1,172,293 $ 650,571 Without recorded allowances 2,277,547 2,946,336 ---------- ---------- Total impaired loans 3,449,840 3,596,907 Related allowances for loan losses 671,110 322,436 ---------- ---------- Net impaired loans $2,778,730 $3,274,471 ========== ==========
-28- 5. LOANS RECEIVABLE (CONT'D) The activity with respect to loans to directors, officers and associates of such persons, is as follows:
Year Ended December 31, 1997 1998 1999 - --------------------------------------------------------------------- Balance, beginning $ 3,341,861 $ 3,121,209 $ 3,058,772 Loans orginated 522,580 1,314,400 175,000 Collection of principal (743,232) (1,376,837) (586,590) ----------- ----------- ----------- Balance, ending $ 3,121,209 $ 3,058,772 $ 2,647,182 x =========== =========== ===========
6. PREMISES AND EQUIPMENT
December 31, 1998 1999 - ------------------------------------------------------- Land $ 701,625 $ 701,625 ---------- ---------- Building and improvements 2,996,805 3,099,246 Less accumulated depreciation 1,348,149 1,453,335 ---------- ---------- 1,648,656 1,645,911 ---------- ---------- Leasehold improvements 1,578,184 1,589,555 Less accumulated depreciation 96,807 255,478 ---------- ---------- 1,481,377 1,334,077 ---------- ---------- Furnishings and equipment 4,635,642 4,899,729 ---------- ---------- Less accumulated amortization 3,771,860 4,109,756 ---------- ---------- 863,782 789,973 ---------- ---------- $4,695,440 $4,471,586 ========== ==========
Depreciation expense for the years ended December 31, 1997, 1998 and 1999 totalled approximately $335,000, $494,000, and $602,000, 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
December 31, 1998 1999 - -------------------------------------------------------- Loans, net of allowance for uncollected interest of approximately $204,000 and $200,000, respectively $1,506,519 $1,622,521 Mortgage-backed securities 789,271 806,773 Investments and other interest-earning assets 68,550 124,614 ---------- ---------- $2,364,340 $2,553,908 ========== ==========
-29- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- 8. DEPOSITS
December 31, 1998 1999 Weighted Weighted Average Average Rate Amount Percent Rate Amount Percent - --------------------------------------------------------------------------------------------------------------------- Demand: Non-interest-bearing demand 0.00% $ 17,379,472 5.33 0.00% $ 22,482,750 6.21 Now 2.00% 22,373,617 6.86 2.00% 25,612,187 7.08 ---- ------------ ------ ---- ------------ ------ 39,753,089 12.19 48,094,937 13.29 Money Market 3.00% 22,853,641 7.01 3.00% 26,131,228 7.22 Savings and club 2.25% 111,715,515 34.27 2.25% 113,284,264 31.30 Certificates of deposit 5.02% 151,663,038 46.53 5.00% 174,414,239 48.19 ---- ------------ ------ ---- ------------ ------ 3.46% $325,985,283 100.00 3.47% $361,924,668 100.00 ==== ============ ====== ==== ============ ======
The scheduled maturities of certificates of deposit are as follows:
(in thousands) December 31, Maturity Period 1998 1999 - ---------------------------------------------- One year or less $127,627 $147,756 After one to three years 20,219 21,758 After three years 3,817 4,900 -------- -------- $151,663 $174,414 ======== ========
Certificates of deposit of $100,000 or more by the time remaining until maturity are as follows:
(in thousands) December 31, Maturity Period 1998 1999 - ----------------------------------------------------- Three months or less $ 9,094 $11,991 After three through six months 6,110 8,434 After six through twelve months 10,387 12,142 After twelve months 3,991 6,731 ------- ------- $29,582 $39,298 ======= =======
A summary of interest on deposits follows:
Year Ended December 31, 1997 1998 1999 - ------------------------------------------------------------------------- Demand $ 993,986 $ 1,045,139 $ 1,139,879 Savings and club 3,077,839 2,834,378 2,535,030 Certificates of deposit 7,002,181 7,437,359 8,290,513 ------------ ------------ ------------ 11,074,006 11,316,876 11,965,422 Less penalties for early withdrawal of certificates of deposit (11,898) (13,342) (12,174) ------------ ------------ ------------ $ 11,062,108 $ 11,303,534 $ 11,953,248 ============ ============ ============
-30- 9. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK
December 31, 1998 1999 Weighted Weighted Maturing Average Average By Interest Interest December 31, Rate Amount Rate Amount - ------------------------------------------------------------------------ 1999 6.47% $ 3,000,000 - $ - 2000 6.27% 5,000,000 6.03% 10,000,000 2001 5.10% 243,100 5.10% 243,100 2002 6.51% 5,000,000 6.51% 5,000,000 2003 5.36% 15,340,000 5.36% 15,340,000 ---- ----------- ---- ----------- 5.83% $28,583,100 5.76% $30,583,100 ==== =========== ==== ===========
At December 31, 1998 and 1999, 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 $3,097,200 and $3,243,200, 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, 1998 1999 Interest Interest Rate Amount Rate Amount - --------------------------------------------------------- Mortgage Loan 8.00% $252,535 8.00% $229,696 - ---------------------------------------------------------
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 $409,000 and $403,000 at December 31, 1998 and 1999, respectively. 11. STOCK REPURCHASE PROGRAM During the years ended December 31, 1997 and 1999, the Corporation repurchased 318,900 and 115,000 shares, respectively, of its own common stock, at prices ranging from $19.50 to $23.75 per common share, at a total cost of $7,369,153 and $2,689,379, respectively, under stock repurchase programs approved by the Corporation's Board of Directors. -31- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- 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 present a reconciliation of capital per generally accepted accounting principles ("GAAP") and regulatory capital and information as to the Savings Bank's capital levels at the dates presented:
December 31, 1998 1999 - ----------------------------------------------------------------- GAAP capital $ 42,948 $ 42,859 Less: Investment in and advances to non-includable subsidiary (1,315) (1,291) Excess of cost over assets acquired (182) (61) Unrealized (loss) gain on securities (40) 47 -------- -------- Core and tangible capital 41,411 41,554 Add: general valuation allowance 1,609 1,601 -------- -------- Total regulatory capital $ 43,020 $ 43,155 ======== ========
-32- 12. REGULATORY CAPITAL (CONT'D)
To Be Well Capitalized Under Prompt Minimum Capital Corrective Actual Requirements Action Provisions --------------------------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio --------------------------------------------------------------------------- December 31, 1998: (Dollars in Thousands) - ------------------------------------------------------------------------------------------------------------ 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% -- -- ------- ----- ------- ---- ------- ----- December 31, 1999: Total Capital (to risk-weighted assets) $43,155 19.52% $17,683 8.00% $22,103 10.00% ------- ----- ------- ---- ------- ----- Tier 1 Capital (to risk-weighted assets) 41,554 18.80% -- -- 13,262 6.00% ------- ----- ------- ---- ------- ----- Core (Tier 1) Capital (to adjusted total assets) 41,554 9.30% 17,864 4.00% 22,330 5.00% ------- ----- ------- ---- ------- ----- Tangible Capital (to adjusted total assets) 41,554 9.30% 6,699 1.50% -- -- ------- ----- ------- ---- ------- -----
As of October 25, 1999, the most recent notification from the Office of Thrift Supervision, 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. -33- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- 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 the maximum amount that can be deducted for federal income tax purposes. The Plan's assets consist primarily of mutual funds and bank deposits. The following tables set forth the Plan's funded status and components of net periodic pension cost:
December 31, 1998 1999 - --------------------------------------------------------------- Change in Benefit Obligation Benefit obligation at beginning of year $ 3,275,432 $ 3,257,298 Service cost 198,522 178,622 Interest cost 243,409 265,272 Actuarial (gain) loss (14,461) 282,866 Benefits paid (445,604) (508,540) ----------- ----------- Benefit obligation at end of year $ 3,257,298 $ 3,475,518 =========== =========== Change in Plan Assets Fair value of assets at beginning of year $ 3,120,434 $ 3,211,549 Actual return on plan assets 342,061 264,827 Employer contributions 194,658 -- Benefits paid (445,604) (508,540) ----------- ----------- Fair value of assets at end of year $ 3,211,549 $ 2,967,836 =========== =========== Reconciliation of Funded Status Vested benefit obligation $ 2,508,543 $ 2,725,934 Accumulated benefit obligation $ 2,567,569 $ 2,746,289 =========== =========== Projected benefit obligation $ 3,257,298 $ 3,475,518 Fair value of assets (3,211,549) (2,967,836) ----------- ----------- Funded status 45,749 507,682 Unrecognized net (loss) (27,815) (308,258) ----------- ----------- Accrued expense included in other liabilities $ 17,934 $ 199,424 =========== ===========
Year Ended December 31, 1997 1998 1999 - ----------------------------------------------------------- Net Periodic Pension Expense Service cost $ 175,878 $ 198,522 $ 178,622 Interest cost 225,244 243,409 265,272 Expected return on assets (201,209) (255,023) (262,404) Net amortization and deferral 36,391 -- -- --------- --------- --------- Total pension expense $ 236,304 $ 186,908 $ 181,490 ========= ========= =========
Assumptions used in the accounting for the Plan are as follows:
Year Ended December 31, 1997 1998 1999 - --------------------------------------------------------------------------- Discount rate 7.50% 7.50% 8.00% Long-term rate of return on plan assets 8.00% 8.00% 8.00% Rate of increase in compensation 4.00% 4.00% 5.00% - ---------------------------------------------------------------------------
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, $103,000, $113,000 and $116,000 for the years ended December 31, 1997, 1998 and 1999, 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 -34- 13. BENEFIT PLANS (CONT'D) years of service to the Savings Bank and the number of years prior to the Normal Retirement Age that participant retires. The following tables set forth the SERP's funded status and components of net periodic SERP cost:
December 31, 1998 1999 - ---------------------------------------------------------------- Actuarial present value of benefit obligation including vested benefits of $1,929,826 (1998) and $1,841,628 (1999) $ 1,929,826 $ 1,841,628 =========== =========== Projected benefit obligation $ 2,075,411 $ 1,947,825 Plan assets at fair value -- -- ----------- ----------- Projected benefit obligation in excess of plan assets 2,075,411 1,947,825 Unrecognized net loss (851,075) (588,465) Unrecognized past service liability (836,995) (772,612) ----------- ----------- Accrued SERP cost included in other liabilities $ 387,341 $ 586,748 =========== ===========
Year Ended December 31, 1997 1998 1999 - ---------------------------------------------------------------------------- Net periodic SERP cost included the following components: Service cost $ 31,675 $ - $ - Interest cost 75,680 128,419 132,727 Net amortization 64,384 142,774 133,581 -------- -------- -------- Net periodic SERP cost $171,739 $271,193 $266,308 ======== ======== ======== Contributions made $ - $ 57,382 $ 66,901 Payments $ - $ 57,382 $ 66,901 - ----------------------------------------------------------------------------
Assumptions used in the accounting for the SERP are as follows:
Year Ended December 31, 1997 1998 1999 - --------------------------------------------------------------------- Discount rate 7.50% 6.50% 8.00% Rate of increase in compensation 4.00% 4.50% 5.50% Amortization period (in years) 9.30 9.30 9.30 - ---------------------------------------------------------------------
STOCK OPTION PLAN ("SOP") The balance of 5,860 shares at December 31, 1996 under SOP were exercised during the year ended December 31, 1997 at a price ranging from $5.75 to $6.375 per share. 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, 1999, 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 $413,000 and $147,657 at December 31, 1998 and 1999, respectively, are reflected in the consolidated statements of financial condition under the caption "Other Assets". -35- 14. INCOME TAXES (CONT'D) The tax effects of existing temporary differences which give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:
December 31, 1998 1999 Deferred tax assets: Allowance for loan losses $ 647,743 $ 669,860 Deferred loan fees 388,234 297,519 Depreciation 22,224 47,748 Reserve for uncollected interest 73,232 72,017 Benefit plans 128,593 199,468 Unrealized loss on securities available for sale -- 26,400 ---------- ---------- 1,260,026 1,313,012 Deferred tax liabilities: Unrealized gain on securities available for sale 22,400 -- ---------- ---------- Net deferred tax assets $1,237,626 $1,313,012 ========== ==========
The components of income taxes are summarized as follows:
Year Ended December 31, 1997 1998 1999 - --------------------------------------------------- Current $ 2,754,147 $ 2,327,712 $ 2,722,523 Deferred 5,023 115,765 (26,586) ----- ------- ------- $ 2,759,170 $ 2,443,477 $ 2,695,937 =========== =========== ===========
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, 1997 1998 1999 - ------------------------------------------------------------------ Federal income tax $ 2,662,327 $ 2,324,981 $ 2,520,376 Increases (reductions) in income taxes resulting from: Exercise of non-statutory stock options (86,391) -- -- New Jersey savings institution tax, net of federal income tax effect 158,661 137,242 153,467 Other items, net 24,573 (18,746) 22,094 ----------- ----------- ----------- Effective income tax $ 2,759,170 $ 2,443,477 $ 2,695,937 =========== =========== ===========
15. 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 include commitments to originate loans and purchase securities. 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 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 -36- 15. COMMITMENTS AND CONTINGENCIES (CONT'D) 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:
December 31, 1998 1999 - -------------------------------------------------- To originate loans $11,583,000 $11,228,000 - --------------------------------------------------
At December 31, 1999, all the outstanding commitments to originate loans are at fixed interest rates which range from 7.0% to 10.0%. All commitments are due to expire within ninety days. At December 31, 1999, undisbursed funds from approved lines of credit under a homeowners' equity lending program amounted to approximately $2,288,000. 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 $98,000, $280,000, and $305,000 for the years ended December 31, 1997, 1998 and 1999, respectively. At December 31, 1999, minimum non-cancellable obligations under lease agreements with original terms of more than one year are as follows:
December 31, Amount - ------------------------------ 2000 $ 253,000 2001 257,000 2002 260,000 2003 238,000 2004 223,000 Thereafter 1,035,000 ---------- $2,266,000 ==========
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 Corporation. 16. FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts and fair value of the financial instruments are as follows:
December 31, 1998 1999 Carrying Fair Carrying Fair (In Thousands) Value Value Value Value - ---------------------------------------------------------------------------------------- Financial Assets Cash and cash equivalents $ 28,047 $ 28,047 $ 31,062 $ 31,062 Securities available for sale 9,652 9,652 6,429 6,429 Investment securities held to maturity 1,998 1,998 7,996 7,586 Mortgage-backed securities held to maturity 120,400 121,920 120,824 118,324 Loans receivable 239,010 246,848 268,280 268,876 Interest receivable 2,364 2,364 2,554 2,554 Financial Liabilities Deposits 325,985 326,826 361,925 362,819 Advances and other borrowed money 28,836 28,372 30,813 29,745 Commitments To originate loans 11,583 11,583 11,228 11,228 Unused lines of credit 1,523 1,523 2,288 2,288 - ----------------------------------------------------------------------------------------
-37- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- 16. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONT'D) 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. 17. 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
December 31, 1998 1999 - --------------------------------------------------------------------- Assets Cash and cash equivalents $ 6,667,981 $ 5,504,745 Investment in subsidiary 42,947,572 42,858,257 Refundable income taxes 72,878 118,550 Other assets 169,972 168,978 ----------- ------------ Total assets $49,858,403 $48,650,530 =========== =========== Liabilities and stockholders' equity Liabilities Other liabilities $ 85,498 $ 396,566 ----------- ------------ Total liabilities 85,498 396,566 ----------- ------------ 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 44,257,571 45,428,009 Treasury stock, at cost (13,425,934) (16,115,313) ----------- ------------ Total stockholders' equity 49,772,905 48,253,964 ----------- ------------ Total liabilities and stockholders' equity $ 49,858,403 $ 48,650,530 ============ ============
-38- 17. PARENT CORPORATION FINANCIAL INFORMATION (CONT'D) STATEMENTS OF INCOME
Year Ended December 31, 1997 1998 1999 - ------------------------------------------------------------------------------------------ Dividends from subsidiary $ 7,000,000 $ 7,000,000 $ 5,000,000 Interest income 65,885 5,587 5,427 ----------- ----------- ----------- Total income 7,065,885 7,005,587 5,005,427 Expenses 411,584 207,704 404,117 ----------- ----------- ----------- 6,654,301 6,797,883 4,601,310 Equity in undistributed earnings of subsidiary (1,767,114) (2,475,858) (2,726) ----------- ----------- ----------- Income before income taxes (benefit) 4,887,187 4,322,025 4,598,584 Income taxes (benefit) (184,016) (72,678) (118,350) ----------- ----------- ----------- Net income $ 5071,203 $ 4,394,703 $ 4,716,934 ========== =========== ===========
STATEMENTS OF CASH FLOWS
Year Ended December 31, 1997 1998 1999 - ----------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 5,071,203 $ 4,394,703 $ 4,716,934 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiary 1,767,114 2,475,858 2,726 Decrease (increase) in refundable income taxes 340,834 111,338 (45,672) (Increase) decrease in other assets (23,778) (61,350) 994 Increase (decrease) in other liabilities 25,410 (2,057) 311,068 ------------ ------------ ------------ Net cash provided by operating activities 7,180,783 6,918,492 4,986,050 ------------ ------------ ------------ Cash flows from investing activities: Decrease in loans receivable 3,000,000 -- -- ------------ ------------ ------------ Net cash provided by investing activities 3,000,000 -- -- ------------ ------------ ------------ Cash flows from financing activities: Cash dividends paid (2,919,723) (3,184,075) (3,459,907) Purchase of treasury stock (7,369,153) -- (2,689,379) Sale of treasury stock 34,339 -- -- ------------ ------------ ------------ Net cash (used in) financing activities (10,254,537) (3,184,075) (6,149,286) ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (73,754) 3,734,417 (1,163,236) Cash and cash equivalents - beginning 3,007,318 2,933,564 6,667,981 ------------ ------------ ------------ Cash and cash equivalents - ending $ 2,933,564 $ 6,667,981 $ 5,504,745 ============ ============ ============
-39- PAMRAPO BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands, except for per share amounts) First Second Third Fourth Year Ended December 31, 1998 Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------- 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/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 ======= ======= ======= =======
(In Thousands, except for per share amounts) First Second Third Fourth Year Ended December 31, 1999 Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------- Interest income $ 7,468 $ 7,821 $ 7,912 $ 8,052 Interest expense 3,208 3,359 3,476 3,599 ------- ------- ------- ------- Net interest income 4,260 4,462 4,436 4,453 Provision for loan losses 75 75 75 74 Non-interest income 368 438 382 377 Non-interest expenses 2,850 2,905 2,797 2,912 Income taxes 613 702 709 672 ------- ------- ------- ------- Net income $ 1,090 $ 1,218 $ 1,237 $ 1,172 ======= ======= ======= ======= Basic/diluted earnings per common share $ 0.38 $ 0.44 $ 0.45 $ 0.43 ======= ======= ======= ======= Dividends per common share $0.3125 $0.3125 $0.3125 $0.3125 ======= ======= ======= =======
-40- - -------------------------------------------------------------------------------- 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, 1998 and 1999 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, 1999. 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, 1998 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ Radics & Co., LLC February 4, 2000 Pine Brook, New Jersey -41- EX-23 3 EX-23 Exhibit 23 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 4, 2000, included in the 1999 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, 1999. /s/ RADICS & Co., LLC -------------------------- RADICS & CO., LLC March 29, 2000 Pine Brook, New Jersey -----END PRIVACY-ENHANCED MESSAGE-----