-----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, M+RydbVn2marDQRZJ0H0gayC9V1JMjX2oatyzENMu3K3qETrNisAujUBW8mhZVfe Nv+7InCoBa3CO7X5xPwZBw== 0000928385-03-001003.txt : 20030331 0000928385-03-001003.hdr.sgml : 20030331 20030331161252 ACCESSION NUMBER: 0000928385-03-001003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-18014 FILM NUMBER: 03630926 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 1 d10k.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 2002 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) NEW JERSEY 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. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes___ No X The aggregate market value, based upon the last sales price as quoted on The Nasdaq Stock Market for June 28, 2002, of the voting stock held by non-affiliates of the registrant, i.e., persons other than directors and executive officers of the registrant, is approximately $59,150,000. The aggregate market value, based upon the last sales price as quoted on The Nasdaq Stock Market for March 10, 2003, of the voting stock held by non-affiliates of the registrant is $71,884,725. The Registrant had 5,145,986 shares of Common Stock outstanding as of March 10, 2003. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 2002 are incorporated by reference into Parts I and II of this Form 10-K. Portions of the Proxy Statement for the 2003 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. INDEX
PAGE ---- PART I Item 1. Business............................................................................1 Item 2. Properties.........................................................................36 Item 3. Legal Proceedings..................................................................37 Item 4. Submission of Matters to a Vote of Security Holders................................37 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................................................37 Item 6. Selected Financial Data............................................................37 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................37 Item 8. Consolidated Financial Statements and Supplementary Data...........................37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................37 PART III Item 10. Directors and Executive Officers of the Registrant.................................38 Item 11. Executive Compensation.............................................................38 Item 12. Security Ownership of Certain Beneficial Owners....................................38 Item 13. Certain Relationships and Related Transactions.....................................38 Item 14. Controls and Procedures............................................................38 PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................................39 SIGNATURES....................................................................................................41
PART I ITEM 1. BUSINESS. Pamrapo Bancorp, Inc. (also referred to as the "Company" or the "Registrant") was incorporated under Delaware law on June 26, 1989 and changed its state of incorporation from Delaware to New Jersey on March 29, 2001. On November 10, 1989, the Registrant acquired Pamrapo Savings Bank, S.L.A. (the "Bank" or "Pamrapo") as a part of the Bank's conversion from a New Jersey chartered savings association in mutual form to a New Jersey chartered stock savings association. The Registrant is a savings and loan holding company and is subject to regulation by the Office of Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC") and the Securities and Exchange Commission ("SEC"). Currently, the Registrant does not transact any material business other than through its sole subsidiary, the Bank. Pamrapo was organized in 1887 as Pamrapo Building and Loan Association. On October 6, 1952, it changed its name to Pamrapo Savings and Loan Association, a New Jersey chartered savings and loan association in mutual form, and in 1988 it changed its name to Pamrapo Savings Bank, S.L.A. The Bank's principal office is located in Bayonne, New Jersey. Its deposits are insured up to applicable limits by the Savings Association Insurance Fund (the "SAIF") which is administered by the FDIC. At December 31, 2002, the Bank had total assets of $588.4 million, deposits of $452.3 million and stockholders' equity of $43.8 million before elimination of intercompany accounts with the Company. As a community-oriented institution, the Bank is principally engaged in attracting retail deposits from the general public and investing those funds in fixed-rate one- to four-family residential mortgage loans and, to a lesser extent, in multi-family residential mortgage loans, commercial real estate loans, home equity and second mortgage loans, consumer loans and mortgage-backed securities. The Bank's revenues are derived principally from interest on loans and mortgage-backed securities, interest and dividends on investment securities and short-term investments, and other fees and service charges. The Bank's primary sources of funds are deposits and, to a lesser extent, Federal Home Loan Bank of New York ("FHLB-NY") advances and other borrowings. MARKET AREA The Bank, which is headquartered in Bayonne, New Jersey, conducts its business through nine retail banking offices, six of which are located in Bayonne, New Jersey, one in Hoboken, New Jersey, one in Fort Lee, New Jersey, and one in Monroe, New Jersey. The Bank's deposit base is located primarily in Hudson County, with a large concentration in Bayonne, an older, stable, residential community of one-family and two-family residences and middle income families who have lived in the area for many years. The communities in which the Bank's branches are located are strategically located in the New York City metropolitan area and many residents of these communities commute to Manhattan to work on a daily basis. The Bank's lending activities have also been concentrated in Hudson County and to a lesser extent in Bergen, Monmouth, Middlesex and Ocean Counties, areas which have had a high level of new development in recent years. 1 LENDING ACTIVITIES General. Pamrapo principally originates fixed-rate mortgage loans on one- to four-family residential dwellings for retention in its own portfolio. The Bank also originates acquisition, development and construction loans in addition to multi-family and commercial real estate loans. At December 31, 2002 the Bank's total gross loans outstanding amounted to $394.1 million, of which $295.8 million consisted of loans secured by one- to four-family residential properties, $9.8 million consisted of construction and land loans, and $84.8 million consisted of loans secured by multi-family and commercial real estate. Substantially all of the Bank's real estate loan portfolio consists of conventional mortgage loans, of which $186,000 are either insured by the Federal Housing Administration ("FHA") or partially guaranteed by the Veterans Administration ("VA"). 2 LOAN PORTFOLIO COMPOSITION The following table sets forth the composition of the Bank's loan and mortgage-backed securities portfolios in dollar amounts and in percentages at the dates indicated:
AT DECEMBER 31, ----------------------------------------------------------------------------------------- 1998 1999 2000 2001 ------------------------------------------------------------------------------------------ AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT --------- -------- ---------- -------- --------- ------- ---------- --------- (DOLLARS IN THOUSANDS) REAL ESTATE MORTGAGE LOANS: Permanent: Fixed-rate...................... $ 189,478 79.27% $ 212,435 79.19% $ 242,327 78.40% $ 300,492 81.38% Adjustable rate................. 4,385 1.84 4,493 1.67 3,900 1.26 2,757 .75 Construction(1)................... 7,258 3.04 8,869 3.31 10,594 3.43 8,471 2.29 Guaranteed by VA or insured by FHA................... 761 .32 602 .22 442 .14 286 .08 --------- -------- ---------- -------- --------- ------- ---------- --------- Total mortgage loans................ 201,882 84.47 226,399 84.39 257,263 83.23 312,006 84.50 --------- -------- ---------- -------- --------- ------- ---------- --------- COMMERCIAL LOANS - - 61 .02 928 .30 1,263 .34 --------- -------- ---------- -------- --------- ------- ---------- --------- CONSUMER LOANS: Passbook or certificate........... 459 .19 511 .19 691 .22 689 .19 Home improvement.................. 508 .21 560 .21 561 .18 576 .16 Equity and second mortgages....... 39,184 16.40 43,227 16.11 52,255 16.91 56,958 15.42 Education......................... 54 .02 58 .02 - - - - Automobile........................ 1,273 .53 1,162 .44 1,545 .50 1,484 .40 Personal.......................... 2,033 .85 1,869 .70 1,785 .58 1,294 .35 --------- -------- ---------- -------- --------- ------- ---------- --------- Total consumer loans................ 43,511 18.20 47,387 17.67 56,837 18.39 61,001 16.52 --------- -------- ---------- -------- --------- ------- ---------- --------- Total loans......................... 245,393 102.67 273,847 102.08 315,028 101.92 374,270 101.36 --------- -------- ---------- -------- --------- ------- ---------- --------- Less: Allowance for loan losses......... 2,300 .96 2,000 .83 1,950 .63 2,150 .58 Loans in process.................. 2,409 1.01 2,217 .75 2,925 .94 2,272 .62 Deferred loan fees (costs) and discounts........................ 1,674 .70 1,350 .50 1,071 .35 609 .16 --------- -------- ---------- -------- --------- ------- ---------- --------- Total............................... 6,383 2.67 5,567 2.08 5,946 1.92 5,031 1.36 --------- -------- ---------- -------- --------- ------- ---------- --------- Total net loans..................... $ 239,010 100.00% $ 268,280 100.00% $ 309,082 100.00% $ 369,239 100.00% ========= ======== ========== ======== ========= ======= ========== ========= MORTGAGE-BACKED SECURITIES: GNMA (2).......................... $ 5,169 4.08% $ 3,366 2.67% $ 2,768 2.25% $ 2,046 1.63% FHLMC (3)(6)...................... 95,209 75.14 98,506 78.25 93,218 75.81 81,581 64.98 FNMA (4)(6)....................... 25,676 20.26 23,712 18.84 26,864 21.85 41,649 33.17 CMO (5)........................... - - - - - - - - --------- -------- ---------- -------- --------- ------- ---------- --------- Total mortgage-backed securities.... 126,054 99.48 125,584 99.76 122,850 99.91 125,276 99.78 ADD/LESS: Premiums (discounts), net (6)..... 746 .59 489 .39 205 .17 234 .18 Unrealized (loss) gain on securities available for sale............................ (93) (.07) (184) (.15) (91) (.08) 46 .04 --------- -------- ---------- -------- --------- ------- ---------- --------- Net mortgage-backed securities...... $ 126,707 100.00% $ 125,889 100.00% $ 122,964 100.00% $ 125,556 100.00% ========= ======== ========== ======== ========= ======= ========== ========= AT DECEMBER 31, -------------------------- 2002 -------------------------- AMOUNT PERCENT (DOLLARS IN THOUSANDS) REAL ESTATE MORTGAGE LOANS: Permanent: Fixed-rate...................... $ 320,529 82.21% Adjustable rate................. 2,137 .55 Construction(1)................... 7,893 2.02 Guaranteed by VA or insured by FHA................... 186 .05 ----------- ---------- Total mortgage loans................ 330,745 84.83 ----------- ---------- COMMERCIAL LOANS 658 .17 ----------- ---------- CONSUMER LOANS: Passbook or certificate........... 552 .14 Home improvement.................. 336 .09 Equity and second mortgages....... 59,234 15.19 Education......................... - - Automobile........................ 1,243 .32 Personal.......................... 1,298 .33 ----------- ---------- Total consumer loans................ 62,663 16.07 ----------- ---------- Total loans......................... 394,066 101.07 ----------- ---------- Less: Allowance for loan losses......... 2,550 .65 Loans in process.................. 1,882 .48 Deferred loan fees (costs) and discounts........................ (231) (.06) ----------- ---------- Total............................... 4,201 1.07 ----------- ---------- Total net loans..................... $ 389,865 100.00% =========== ========== MORTGAGE-BACKED SECURITIES: GNMA (2).......................... 1,214 .82% FHLMC (3)(6)...................... 99,981 67.38 FNMA (4)(6)....................... 38,846 26.18 CMO (5)........................... 7,670 5.17 ----------- ---------- Total mortgage-backed securities.... 147,711 99.55% ADD/LESS: Premiums (discounts), net (6)..... 617 .41 Unrealized (loss) gain on securities available for sale............................ 58 .04 ----------- ---------- Net mortgage-backed securities...... $ 148,386 100.00% =========== ==========
3 - ---------- (1) Includes acquisition, development and land loans. (2) Government National Mortgage Association ("GNMA"). (3) Federal Home Loan Mortgage Corporation ("FHLMC"). (4) Federal National Mortgage Association ("FNMA"). (5) Collateralized Mortgage Obligations. (6) Includes available for sale securities having a principal balance of $6,228,000 and a net premium of $172,000 for 1998, a principal balance of $5,115,000 and a net premium of $134,000 for 1999, a principal balance of $4,165,000 and a net premium of $98,000 for 2000, a principal balance of $3,084,000 and a net premium of $9,000 for 2001, and a principal balance of $2,188,000 and a net premium of $2,000 for 2002. 4 The following table sets forth the composition of the Bank's gross loan portfolio by type of security at the dates indicated.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2000 2001 2002 ------------------------------------------------------------------------ (DOLLARS IN THOUSANDS) ------------------------------------------------------------------------ AMOUNT PERCENT PERCENT PERCENT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL --------- --------- ---------- --------- ---------- --------- One-to four-family.................. $ 221,797 70.41% $ 275,056 73.49% $ 295,781 75.06% Multi-family........................ 47,769 15.16 51,498 13.76 46,224 11.73 Commercial real estate.............. 29,306 9.30 33,863 9.05 38,526 9.78 Construction and land............... 11,208 3.56 9,123 2.44 9,782 2.48 Commercial.......................... 928 .30 1,262 .34 658 .17 Consumer-secured and unsecured...... 4,020 1.27 3,468 .92 3,095 .78 --------- --------- ---------- --------- ---------- --------- Total gross loans................ $ 315,028 100.00% $ 374,270 100.00% $ 394,066 100.00% ========= ========= ========== ========= ========== =========
ORIGINATION, PURCHASE AND SALE OF LOANS AND MORTGAGE-BACKED SECURITIES. The following table sets forth the Bank's loan originations, purchases, sales and principal repayments for the periods indicated.
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 2000 2001 2002 ----------- ------------ ------------- (DOLLARS IN THOUSANDS) Mortgage Loans (gross): At beginning of period........... $ 226,399 $ 257,263 $ 312,006 ----------- ------------ ------------- Mortgage loans originated: One- to four-family residential 39,439 107,471 113,096 Multi-family residential....... 14,357 13,210 16,221 Commercial..................... 3,886 5,209 5,368 Construction(1)................ 3,889 4,757 4,693 ----------- ------------ ------------- Total mortgage loans originated.................. 61,571 130,647 139,378 ----------- ------------ ------------- Loans purchased.................. 1,676 - - ----------- ------------ ------------- Transfer to REO.................. 222 33 - Charge-offs...................... 235 65 143 Repayments....................... 31,926 75,806 120,496 ----------- ------------ ------------- Total mortgage repayments and other reductions............. 32,383 75,904 120,639 ----------- ------------ ------------- At end of period................. $ 257,263 $ 312,006 $ 330,745 =========== ============ ============= Commercial Loans (gross): At beginning of period........... $ 61 $ 928 $ 1,263 Commercial loans originated...... 1,035 1,152 275 Charge-offs...................... - 25 - Repayments....................... 168 792 880 ----------- ------------ ------------- At end of period $ 928 $ 1,263 $ 658 =========== ============ ============= Consumer Loans (gross): At beginning of period........... $ 47,387 $ 56,837 $ 61,001 Consumer loans originated........ 25,196 32,716 32,962 Consumer loans sold.............. 117 - 148 Charge-offs...................... 33 183 101 Repayments....................... 15,596 28,369 31,051 ----------- ------------ ------------- At end of period $ 56,837 $ 61,001 $ 62,663 =========== ============ ============= Mortgage-backed securities (gross): At beginning of period........... $ 125,584 $ 122,850 $ 125,276 Mortgage-backed securities purchased....................... 16,217 34,156 68,422 Repayments....................... 18,951 31,730 45,987 ----------- ------------ ------------- At end of period................. $ 122,850 $ 125,276 $ 147,711 =========== ============ =============
- ---------- (1) Includes acquisition, development and land loans. 5 LOAN MATURITY. The following table sets forth the maturity of the Bank's gross loan portfolio at December 31, 2002. The table does not include prepayments or scheduled principal repayments. Prepayments and scheduled principal repayments on loans totaled $47.7 million, $105.0 million, and $152.4 million for the years ended December 31, 2000, 2001 and 2002 respectively.
ONE- TO FOUR- MULTI-FAMILY FAMILY RESIDENTIAL AND COMMERCIAL CONSTRUCTION CONSUMER-SECURED MORTGAGE LOANS(1) REAL ESTATE LOANS(1) LOANS (2) AND UNSECURED LOANS ------------------ -------------------- ------------ ------------------- (IN THOUSANDS) Amounts due: Within 1 year................. $ 1,080 $ 336 $ 6,586 $ 176 ------------------ -------------------- ------------ ------------------- After 1 year: 1 to 3 years.................. 1,587 910 330 1,000 3 to 5 years.................. 5,093 1,646 12 867 5 to 10 years................. 23,400 12,481 45 530 10 to 20 years................ 107,480 66,411 1,505 522 Over 20 years................. 157,141 2,966 1,304 - ------------------ -------------------- ------------ ------------------- Total due after 1 year........ 294,701 84,414 3,196 2,919 ------------------ -------------------- ------------ ------------------- Total amounts due................ $ 295,781 $ 84,750 $ 9,782 $ 3,095 ================== ==================== ============ =================== Less: Allowance for loan losses..... Loans in process.............. Deferred loan fees (costs) and discounts................ Total......................... COMMERCIAL LOANS TOTAL ------------------ -------------------- (IN THOUSANDS) Amounts due: Within 1 year................. $ 658 $ 8,836 ------------------ -------------------- After 1 year: 1 to 3 years.................. 3 to 5 years.................. - 3,827 5 to 10 years................. - 7,618 10 to 20 years................ - 36,456 Over 20 years................. - 175,918 - 161,411 ------------------ -------------------- Total due after 1 year........ - 385,230 ------------------ -------------------- Total amounts due................ $ 658 $ 394,066 ================== Less: Allowance for loan losses..... 2,550 Loans in process.............. 1,882 Deferred loan fees (costs) and discounts............... (231) -------------------- Total......................... $ 389,865 ====================
- ---------- (1) Includes equity, second mortgage and home improvement loans. (2) Includes acquisition, development and land loans. 6 The following table sets forth at December 31, 2002, the dollar amount of all mortgage, consumer and construction loans, due after December 31, 2003, which have fixed interest rates or adjustable interest rates:
DUE AFTER DECEMBER 31, 2003 ----------------------------------------------------------------- FIXED FLOATING OR ADJUSTABLE TOTAL DUE RATES RATES AFTER ONE YEAR ---------- ---------------------- -------------- (IN THOUSANDS) One- to four-family residential (1). $ 290,232 $ 4,469 $ 294,701 Construction loans.................. 1,703 1,493 3,196 Multi-family and commercial real estate (1)......................... 81,744 2,670 84,414 Consumer-secured and unsecured loans.............................. 2,406 513 2,919 ---------- ---------------------- -------------- Totals $ 376,085 $ 9,145 $ 385,230 ========== ====================== ==============
- ---------- (1) Includes equity, second mortgage and home improvement loans. Residential Mortgage Lending. Pamrapo presently originates first mortgage loans, equity loans, second mortgage loans and improvement loans secured by one- to four-family residences, multi-family residences and commercial real estate. As of December 31, 2002, 97.7% of the gross loan portfolio were fixed-rate loans and 2.3% were ARMs, and were originated for the Bank's portfolio. Residential loan originations are generally obtained from existing or past customers and members of the local community. As of December 31, 2002, $342.0 million or 86.8% of the Bank's total gross loan portfolio consisted of one- to four-family and multi-family residential mortgage loans. Of this amount $295.8 million were one- to four-family and $46.2 million were multi-family. The one- to four-family residential loans originated by the Bank are primarily fixed-rate mortgages, generally with terms of 15 or 25 years. Typically, such homes in the Bayonne area are one- or two-family owner-occupied dwellings. The Bank generally makes one- to four-family residential mortgage loans in amounts up to 80% of the appraised value of the secured property. The Bank will originate loans with loan-to-value ratios up to 90% within the local community, provided that private mortgage insurance on the amount in excess of such 80% ratio is obtained. Mortgage loans in the Bank's portfolio generally include due-on-sale clauses, which provide the Bank with the contractual right to demand the loan immediately due and payable in the event that the borrower transfers ownership of the property that is subject to the mortgage. It is the Bank's policy to enforce due-on-sale provisions. As of December 31, 2002, the interest rate for one- to four-family residential fixed-rate mortgages offered by the Bank was 5.75% on 15-year loans and 6.00% on 25-year loans. The Bank also originates loans on multi-family residences. Such residences generally consist of 6 to 24 units. Such loans are generally fixed-rate loans with interest rates ranging from 1.0% to 1.5% higher than those offered on one- to four-family residences. The Bank generally makes multi family residential loans in amounts up to 75% of the appraised value of the secured property. Such appraisals are based primarily on the income producing ability of the property. The terms of multi-family residential loans range from 10 to 15 years. As of December 31, 2002, $46.2 million or 11.7% of the Bank's total gross loan portfolio consisted of multi-family residential loans. 7 Upon receipt of an application for a mortgage loan from a prospective borrower, a credit report is ordered to verify information relating to the applicant's employment, income and credit standing. A preliminary inspection of the subject premises is made by at least one member of the Executive Committee. The report of that inspection is brought before the Executive Committee or the full Board of Directors to approve the amount of the loan and the terms. Approval is given subject to a report of value from an independent appraiser and credit approval. Approval of credit is given by the Bank's president or loan officer. It is the Bank's policy to obtain title insurance on all real estate loans. Borrowers also must obtain hazard insurance and flood insurance, if required, prior to closing. The Bank generally requires borrowers to advance funds on a monthly basis together with each payment of principal and interest to a tax escrow account from which the Bank can make disbursements for items such as real estate taxes and certain insurance premiums, if any, as they become due. Acquisition, Development, Construction and Land Lending. The Bank originates loans to finance the construction of one- to four-family dwellings, multi-family dwellings and, to a lesser extent, commercial real estate. It also originates loans for the acquisition and development of unimproved property to be used principally for residential purposes in cases where the Bank is to provide the construction funds to improve the properties. The interest rates and terms of the construction and land development loans vary, depending upon market conditions, the size of the construction or development project and negotiations with the borrower. Advances are generally made to the borrower to cover actual construction costs incurred. On larger constructions loans, the Bank requires the project to be built out in phases. Advancement of funds is dependent upon completion of the project stages. The Bank generally limits its exposure to 75% of the projected market value of the completed project. The amount of the loans are generally determined as follows: (i) land acquisition loans with no immediate plans for construction are limited to 65% of the appraised value of the land; (ii) acquisition and development loans are limited to 65% of appraised value of the improved lot not to exceed 150% of the original acquisition cost; (iii) in addition to the disbursement for acquisition and development, in an acquisition, development and construction loan, the Bank will not advance more than 90% of the construction costs; and (iv) loans secured by previously owned vacant land are limited to 65%. Prior to making any disbursements, the Bank requires that the projects securing the construction and development loans be inspected. The Bank will finance the construction of properties without a prospective buyer or without permanent take-out financing in place at the time of origination. The underwriting criteria used by the Bank are designed to evaluate and minimize the risks of each construction loan. Among other things, the Bank generally considers an appraisal of the project, the reputation of the borrower and the contractor, the amount of the borrower's equity in the project, independent valuations and review of cost estimates, plans and specifications, preconstruction sale and leasing information, current and expected economic conditions in the area of the project, cash flow projections of the borrower, and, to the extent available, guarantees by the borrower and/or third parties. All of the Bank's acquisition, development and construction loan portfolio is secured by real estate properties located in northern and central New Jersey. Acquisition, development and construction lending is generally considered to involve a higher level of risk than one- to four-family permanent residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on development projects, real estate developers and managers. In addition, the nature of these loans is 8 such that they are generally less predictable and more difficult to evaluate and monitor. As of December 31, 2002, the Bank's acquisition, development, construction and land loans varied in size from $12,000 to $675,000, net of loans in process, and represented 2.5% of total gross loans. Commercial Real Estate Lending. Loans secured by commercial real estate totaled $38.5 million, or 9.8% of the Bank's total gross loan portfolio, at December 31, 2002. Commercial real estate loans are generally originated in amounts up to 70% of the appraised value of the property. Such appraised value is determined by an independent appraiser previously approved by the Bank. The Bank's commercial real estate loans are secured by improved property such as office buildings, retail stores, warehouses and other non-residential buildings. Once the loan has been determined to be creditworthy and of sufficient property value, in the case of corporate borrowers, the Bank obtains a personal guaranty from third party principals of the corporate borrower as supplemental security on the loan. This enables the Bank to proceed against the guarantor in the event of default without first exhausting remedies against the borrower. Inquiry as to collectibility pursuant to such third party guarantees may be made by means of review of other properties secured by the Bank, personal interviews with the applicants, review of the applicant's personal financial statements and income tax returns and review of credit bureau reports. Borrowers must personally guarantee loans made for commercial real estate. Commercial real estate loans have terms ranging from 5 to 15 years and are generally fixed-rate loans. Loans secured by commercial real estate properties are generally larger and involve a greater degree of risk than residential mortgage loans. Because payments on loans secured by commercial real estate properties are often dependent on successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. Emphasis is placed on the income producing capability of the collateral rather than on management-intensive projects. Consumer and Commercial Lending. The Bank offers various other secured and unsecured consumer loan products such as automobile loans, personal loans and passbook loans, as well as commercial loans. At December 31, 2002, the balance of such loans was $3.8 million, or 1.0% of the Bank's total gross loan portfolio. Loan Review. The Bank has a formalized loan review program, providing for detailed post-closing reviews for loans selected from all categories. After review, reports are made to the mortgage and loan officers and the Board of Directors. Classification determination is presently the responsibility of the Asset Classification Committee. See "Classification of Assets." The purpose of these procedures is to enhance the Bank's ability to properly document the loans it originates and to improve the performance of such loans. Lending Authority. The Bank's Executive Committee has the authority to approve loans up to $750,000, with the stipulation that loans approved in excess of $500,000 must be reported at the next Board of Directors meeting. The Bank's Vice President and Loan Officer has the authority to approve consumer and equity loans of up to $150,000. Loan Servicing. The Bank originated all of the loans it has sold and services those loans for other investors. Pamrapo receives fees for these servicing activities, which include collecting and remitting loan payments, inspecting the properties and making certain insurance and tax payments are made 9 on behalf of the borrowers. At December 31, 2002, the Bank was servicing $1.1 million of loans for others. Loan Origination Fees and Other Fees. Loan origination fees and certain related direct loan origination costs are deferred and the resulting net amount is amortized over the life of the related loan as an adjustment to the yield of such loans. In addition, commitment fees are required to be offset against related direct costs and the resulting net amount generally is recognized over the life of the related loans as an adjustment of yield or if the commitment expires unexercised, recognized upon expiration of the commitment. The Bank had $231,000 in net deferred origination costs at December 31, 2002. NON-PERFORMING ASSETS When a borrower fails to make a required payment by the fifteenth day of the month in which the payment is due, the Bank sends a late notice advising the borrower that the payment has not been received. In most cases delinquencies are cured promptly; however, if a loan has been delinquent for more than 60 days, the Bank reviews the loan status more closely and, where appropriate, appraises the condition of the property and the financial circumstances of the borrower. Based upon the results of any such investigation, the Bank (1) may accept a repayment program for the arrearage from the borrower; (2) may seek evidence, in the form of a listing contract, of efforts by the borrower to sell the property if the borrower has stated that he is attempting to sell; (3) may request a deed in lieu of foreclosure or (4) generally will initiate foreclosure proceedings when a loan payment is delinquent for more than three monthly installments. The following table sets forth information regarding non-accrual loans, loans which are 90 days or more delinquent, but on which the Bank is accruing interest and other real estate owned held by the Bank at the dates indicated:
AT DECEMBER 31, ------------------------------------------------------------- 1998 1999 2000 2001 2002 -------- --------- ---------- --------- --------- (DOLLARS IN THOUSANDS) One- to four-family residential real estate loans (1): Non-accrual loans........................ $ 2,064 $ 2,204 $ 1,723 $ 1,552 $ 984 Accruing loans 90 days overdue........... 764 736 1,217 641 633 -------- --------- ---------- --------- --------- Total.................................. 2,828 2,940 2,940 2,193 1,617 -------- --------- ---------- --------- --------- Multi-family residential and commercial real estate loans (1): Non-accrual loans........................ 863 834 862 662 468 Accruing loans 90 days overdue........... 335 321 28 362 440 -------- --------- ---------- --------- --------- Total.................................. 1,198 1,155 890 1,024 908 -------- --------- ---------- --------- --------- Construction loans (2): Non-accrual loans........................ 185 - - - - Accruing loans 90 days overdue........... - - 114 - - -------- --------- ---------- --------- --------- Total.................................. 185 - 114 - - -------- --------- ---------- --------- --------- Commercial loans: Non-accrual loans........................ - - 25 - - Accruing loans 90 days overdue........... - - - - 137 -------- --------- ---------- --------- --------- Total.................................. - - 25 - 137 -------- --------- ---------- --------- ---------
10 (Table of non-accrual loans, continued)
AT DECEMBER 31, ------------------------------------------------------------- 1998 1999 2000 2001 2002 -------- --------- ---------- --------- --------- (DOLLARS IN THOUSANDS) Consumer loans: Non-accrual loans........................ 334 92 93 42 33 Accruing loans 90 days overdue........... 9 6 23 1 6 -------- --------- ---------- --------- --------- Total.................................. 343 98 116 43 39 -------- --------- ---------- --------- --------- Total non-performing loans: Non-accrual loans........................ 3,446 3,130 2,703 2,256 1,485 Accruing loans 90 days overdue........... 1,108 1,063 1,382 1,004 1,216 -------- --------- ---------- --------- --------- Total.................................. $ 4,554 $ 4,193 $ 4,085 $ 3,260 $ 2,701 ======== ========= ========== ========= ========= Total foreclosed real estate, net of related reserves..................... $ 1,237 $ 456 $ 620 $ 238 $ 155 ======== ========= ========== ========= ========= Total non-performing loans and foreclosed real estate to total assets 1.40% 1.03% 1.00% 0.65% 0.49% ======== ========= ========== ========= =========
- ---------- (1) Includes equity and second mortgage loans. (2) Includes acquisition and development loans. At December 31, 2000, 2001, and 2002 nonaccrual loans for which interest has been discontinued totaled approximately $2.7 million, $2.3 million, and $1.5 million, respectively. During the years ended December 31, 2000, 2001, and 2002 the Bank recognized interest income of approximately $71,000, $88,000, and $24,000, respectively, on these loans. Interest income that would have been recorded, had the loans been on the accrual status, would have amounted to approximately $270,000, $230,000, and $151,000 for the years ended December 31, 2000, 2001, and 2002, respectively. The Bank is not committed to lend additional funds to the borrowers whose loans have been placed on nonaccrual status. 11 Delinquent Loans. At December 31, 2000, 2001, and 2002, respectively, delinquencies in the Bank's portfolio were as follows:
AT DECEMBER 31, 2000 AT DECEMBER 31, 2001 ------------------------------------------- ------------------------------------------ 60 - 89 DAYS 90 DAYS OR MORE 60 - 89 DAYS 90 DAYS OR MORE --------------------- ------------------- ------------------- -------------------- NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL OF BALANCE OF OF BALANCE OF OF BALANCE OF OF BALANCE OF LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS -------- ---------- ------ ---------- ------ ---------- ------ ----------- (DOLLARS IN THOUSANDS) Delinquent loans........... 26 $ 1,151 69 $ 4,085 28 $ 2,291 53 $ 3,260 As a percent of total gross loans............... 0.37% 1.30% 0.61% 0.87%
AT DECEMBER 31, 2002 ----------------------------------------- 60 - 89 DAYS 90 DAYS OR MORE ------------------- ------------------- NUMBER PRINCIPAL NUMBER PRINCIPAL OF BALANCE OF OF BALANCE OF LOANS LOANS LOANS LOANS ------ ---------- ------ ---------- Delinquent loans........... 35 $ 1,764 35 $ 2,701 As a percent of total gross loans............... 0.45% 0.69% 12 As of December 31, 2002, the Bank had 35 loans which were 90 days or more past due totaling $2.7 million. The average balance of such loans was approximately $77,000. Management is of the opinion that the Bank will not incur any additional substantial losses on such loans, giving consideration to existing loan loss reserves. Most of the loans are of moderate size; 4 of the loans have loan balances greater than $200,000, the largest of which is $241,000. All loans are within the Bank's lending areas. The Bank's level of non-performing loans 90 days or more delinquent decreased from $3.3 million at December 31, 2001 to $2.7 million at December 31, 2002. The total of such loans in the lower risk one- to four-family residential category decreased to $1.6 million or 59.9% of non-performing loans 90 days or more delinquent at December 31, 2001 when compared with $2.2 million or 67.3% of non-performing loans 90 days or more delinquent at December 31, 2001. Non-performing multi-family residential, commercial real estate and construction loans, loans normally having greater elements of risk decreased from $1.0 million at December 31, 2001 to $900,000 at December 31, 2002. Classified Assets. Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered to be of lesser quality as "substandard," "doubtful" or "loss" assets. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated "special mention" by management. A classification of either substandard or doubtful requires the establishment of general allowances for loan losses in an amount deemed prudent by management. Assets classified as "loss" require either a specific allowance for losses equal to 100% of the amount of the asset so classified or a charge off of such amount. A savings institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS which can order the establishment of additional general or specific loss allowances. The OTS, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation allowances. Generally, the policy statement requires that institutions have effective systems and controls to identify, monitor and address asset quality problems; have analyzed all significant factors that affect the collectibility of the portfolio in a reasonable manner; and have established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Management of the Bank has classified $2.9 million of its assets as substandard and approximately $33,000 as loss based upon its review of the Bank's loan and foreclosed real estate portfolios. Such review, among other things, takes into consideration the appraised value of underlying collateral, economic conditions and paying capacity of the borrowers. However, the Bank's Asset Classification Committee carefully monitors all of the Bank's delinquent loans to determine whether or not they should be classified. At a minimum, the Bank classifies all foreclosed real estate and non-performing loans 90 days or more delinquent as substandard assets. At December 31, 2002, the allowance for loan losses totaled $2.55 million. 13 Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risk inherent in its loan portfolio and changes in the nature and volume of its loan activity. Such evaluation, which includes a review of all loans of which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate loan loss allowance. During the years ended December 31, 2000, 2001, and 2002, gross charge-offs totaled $268,000, $273,000, and $244,000, respectively. The following table sets forth the activity of the Bank's allowance for loan losses at the dates indicated:
AT OR FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Balance at beginning of period...... $ 2,475 $ 2,300 $ 2,000 $ 1,950 $ 2,150 ---------- ---------- ---------- ---------- ---------- Provision for loan losses........... 292 299 208 459 634 ---------- ---------- ---------- ---------- ---------- Net charge-offs: Real estate mortgage loans....... 327 212 235 65 143 Consumer loans................... 157 392 33 183 101 Commercial loans................. - - - 25 - Recoveries....................... 17 5 10 14 10 ---------- ---------- ---------- ---------- ---------- Net charge-offs..................... 467 599 258 259 234 ---------- ---------- ---------- ---------- ---------- Balance at end of period............ $ 2,300 $ 2,000 $ 1,950 $ 2,150 $ 2,550 ========== ========== ========== ========== ========== Ratio of net charge offs during the period to average loans receivable during the period................ .21% .23% .09% .08% .06% Ratio of allowance for loan losses to total outstanding loans (gross) at the end of period................ .94% .73% .62% .57% .65% Ratio of allowance for loan losses to non-performing loans.......... 50.50% 47.62% 47.74% 65.95% 94.41%
14 The following table sets forth the breakdown of the allowance for loan losses by loan category for the periods indicated. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation to the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.
AT DECEMBER 31, ------------------------------------------------------- 1998 1999 2000 2001 2002 ------- ------- -------- -------- -------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT ------- ------- -------- -------- -------- (IN THOUSANDS) Real estate mortgage loans (1)...... $ 1,900 $ 1,800 $ 1,750 $ 1,980 $ 2,150 Consumer loans...................... 400 200 200 150 300 Commercial loans.................... - - - 20 100 ------- ------- -------- -------- -------- Total allowance.................. $ 2,300 $ 2,000 $ 1,950 $ 2,150 $ 2,550 ======= ======= ======== ======== ========
- ---------- (1) Includes equity and second mortgages. 15 Mortgage-Backed Securities. The Bank has significant investments in mortgage-backed securities and has, during periods when loan demand was low and the interest yields on alternative investments was minimal, utilized such investments as an alternative to mortgage lending. All of the securities in the portfolio were insured or guaranteed by GNMA, FNMA or FHLMC and have coupon rates as of December 31, 2002 ranging from 3.88% to 10.0%. At December 31, 2002, the unamortized principal balance of mortgage-backed securities, both held to maturity and available for sale, totaled $148.3 million or 25.2% of total assets. The carrying value of such securities amounted to $123.0 million, $125.6 million, and $148.4 million at December 31, 2000, 2001, and 2002, respectively, and the fair market value of such securities totaled approximately $123.5 million, $127.7 million, and $154.2 million at December 31, 2000, 2001, and 2002, respectively. The following table sets forth the contractual maturities of the Bank's gross mortgage-backed securities portfolio which includes available for sale and held to maturity at December 31, 2002.
CONTRACTUAL MATURITIES DUE IN YEAR(S) ENDED DECEMBER 31, --------------------------------------------------------------------------- 2003- 2005- 2007- 2012- 2022 AND 2004 2006 2011 2021 THEREAFTER TOTAL ------- ------- --------- ----------- ---------- --------- (IN THOUSANDS) Mortgage-backed securities: Held to maturity................. $ 603 $ 169 $ 11,857 $ 112,364 $ 20,530 $ 145,523 Available for sale............... - - - 1,587 601 2,188 ------- ------- --------- ----------- ---------- --------- Total.......................... $ 603 $ 169 $ 11,857 $ 113,951 $ 21,131 $ 147,711 ======= ======= ========= =========== ========== =========
Mortgage-backed securities are a low risk investment for the Bank. The Bank's substantial investment in mortgage-backed securities will significantly enhance the Bank's ability to meet risk based capital requirements as mortgage-backed securities are assigned a risk rating, generally from 0% to 20%. Based on historical experience, the Bank believes that the mortgage-backed securities will be repaid significantly in advance of the stated maturities reflected in the above table. INVESTMENT ACTIVITIES SAIF-insured savings institutions have the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements and federal funds. Subject to various restrictions, SAIF-insured savings institutions may also invest their assets in commercial paper, corporate debt securities and mutual funds whose assets conform to the investments that a SAIF-insured savings institution is otherwise authorized to make directly. The Board of Directors sets the investment policy of the Bank. This policy dictates that investments will be made based on the safety of the principal, liquidity requirements of the Bank and the return on the investment and capital appreciation. The Bank's Chief Executive Officer may make investments up to $10.0 million, subject to ratification by the Bank's Board of Directors. The Bank's conservative policy does not permit investment in junk bonds or speculative strategies based upon the rise and fall of interest rates. Pamrapo's goal, however, has always been to realize 16 the greatest possible return commensurate with its interest rate risk. Pamrapo has emphasized shorter term securities for their liquidity to increase sensitivity of its investment securities to changes in interest rates. As a member of the FHLB-NY, the Bank is required to maintain liquid assets which meet regulatory "safety and soundness" standards. See "Regulation Federal Home Loan Bank System." The average liquidity for the month of December 2002 was 10.92%. INVESTMENT PORTFOLIO The following table sets forth certain information regarding the Bank's investment portfolio, which includes available for sale securities carried at fair value and held to maturity, at the dates indicated:
AT DECEMBER 31, --------------------------------------------------------------------------- 2000 2001 2002 ---------------------- ------------------------ ----------------------- AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE COST VALUE --------- --------- ----------- --------- ---------- --------- (IN THOUSANDS) Investments: U.S. Government (including federal agencies) available for sale and held to maturity... $ 5,996 $ 5,901 $ 2,000 $ 2,013 $ - $ - Mutual Funds available for sale.. 1,328 1,326 1,398 1,397 1,442 1,442 Equity securities available for sale............................ 7 214 7 265 7 327 FHLB-NY stock.................... 3,496 3,496 3,796 3,796 4,403 4,403 Subordinated Notes............... 1,000 985 3,000 3,005 7,095 7,461 Trust originated preferred security........................ - - 500 503 500 525 Net unrealized gain on available for sale securities... 205 - 260 - 346 - --------- --------- ----------- --------- ---------- --------- Total investment securities.... $ 12,032 $ 11,922 $ 10,961 $ 10,979 $ 13,793 $ 14,158 ========= ========= =========== ========= ========== ========= Other interest-earning assets: Interest bearing deposits........ $ 1,700 $ 1,700 $ 17,872 $ 17,872 $ 17,685 $ 17,685 ========= ========= =========== ========= ========== ========= Total investment portfolio..... $ 13,732 $ 13,622 $ 28,833 $ 28,851 $ 31,478 $ 31,843 ========= ========= =========== ========= ========== =========
The Bank has no investments with any one issuer which exceed 10% of stockholders' equity. SOURCES OF FUNDS General. Deposits are the primary source of the Bank's funds for use in lending and for other general business purposes. In addition to deposits, the Bank obtains funds from advances from the FHLB-NY and other borrowings. Deposits. Pamrapo offers a variety of deposit accounts having a wide range of interest rates and terms. The Bank's deposits consist of regular savings, non-interest bearing demand, NOW and Super NOW, money market and certificate accounts. Pamrapo's deposits are obtained primarily from the Hudson County area. Pamrapo had acquired brokered deposits totaling $99,000 at December 31, 2002, as compared to $184,000 at December 31, 2001. The Bank relies primarily on customer service and long-standing relationships with customers to attract and retain deposits. 17 Deposits increased by $28.9 million or 6.9% from $416.6 million at December 31, 2001 to $445.5 million at December 31, 2002. During the month of September 2002, the Bank sold deposits of $21.8 million, furniture, fixtures and leasehold improvements of $221,000 and account loans of $148,000 at its two Brick, New Jersey, branch offices to another financial institution. As a result of the sale, the Bank recognized a net gain of $479,000. The flow of deposits is influenced significantly by general economic conditions, changes in the money market and prevailing interest rates and competition. 18 Deposit Portfolio. The following table sets forth the distribution and weighted average nominal interest rate of the Bank's deposit accounts at the dates indicated:
AT DECEMBER 31, ------------------------------------------------------------------------------------------------- 2000 2001 2002 ------------------------------ ------------------------------ ------------------------------- WEIGHTED WEIGHTED WEIGHTED % OF AVERAGE % OF AVERAGE % OF AVERAGE TOTAL NOMINAL TOTAL NOMINAL TOTAL NOMINAL AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE --------- -------- -------- --------- -------- ------- --------- -------- --------- (DOLLARS IN THOUSANDS) Passbook and club Accounts................... $ 114,433 30.16% 2.54% $ 137,113 32.92% 2.33% $ 155,431 34.89% 2.34% 0.00% demand................. 23,808 6.28 0.00 26,248 6.30 0.00 26,314 5.91 0.00 NOW 26,476 6.98 2.00 32,176 7.72 1.50 32,813 7.37 1.26 Super NOW.................... 118 .03 2.00 158 .04 1.50 387 .09 1.26 Money market demand.......... 25,682 6.77 3.00 28,293 6.79 2.22 32,594 7.31 2.11 --------- ------ --------- ------ --------- ------ Total passbook, club, NOW, and money market accounts.......... 190,517 50.22 2.21 223,988 53.77 1.92 247,539 55.57 1.92 --------- ------ --------- ------ --------- ------ Certificate accounts: 91-day money market........ 2,608 .69 5.43 1,582 .38 2.56 2,730 .61 2.14 26-week money market....... 27,633 7.28 5.66 29,538 7.09 3.43 26,300 5.90 2.55 12- to 30-month money market.................... 121,516 32.03 6.03 120,569 28.94 4.35 124,535 27.95 3.07 30- to 48-month money market.................... 8,849 2.33 5.68 11,735 2.82 5.26 13,054 2.93 4.77 IRA and KEOGH.............. 27,606 7.27 5.21 28,991 6.96 4.63 31,250 7.02 3.55 Negotiated rate............ 681 .18 6.39 184 .04 3.80 99 .02 2.25 --------- ------ --------- ------ --------- ------ Total certificates....... 188,893 49.78 5.83 192,599 46.23 4.29 197,968 44.43 3.18 --------- ------ --------- ------ --------- ------ Total deposits........... $ 379,410 100.00% 4.01% $ 416,587 100.00% 3.02% $ 445,507 100.00% 2.48% ========= ====== ======== ======= ========= ======S
19 The following table sets forth the deposit activity of the Bank for the periods indicated: YEAR ENDED DECEMBER 31, --------------------------------- 2000 2001 2002 --------------------------------- (IN THOUSANDS) Deposits net of withdrawals......... $ 3,724 $ 22,268 $ 17,438 Interest credited................... 13,761 14,909 11,483 -------- -------- -------- Net increase in deposits............ $ 17,485 $ 37,177 $ 28,921 ======== ======== ======== The following table sets forth, by various rate categories, the amount of certificate accounts outstanding as of the dates indicated and the periods to maturity of the certificate accounts outstanding at December 31, 2002.
AT DECEMBER 31, 2002, AT DECEMBER 31, MATURING IN --------------------------------- --------------------------------------------- ONE YEAR TWO THREE GREATER THAN 2000 2001 2002 OR LESS YEARS YEARS THREE YEARS --------- --------- --------- --------- -------- ------- ------------ (IN THOUSANDS) 2.99% or less....... $ 100 $ 12,798 $ 74,055 $ 66,172 $ 7,873 $ 10 $ - 3.00% to 4.99%...... 15,571 128,536 115,030 94,398 14,566 3,316 2,750 5.00% to 5.99%...... 88,157 39,479 6,049 2,480 1,578 1,144 847 6.00% to 6.99%...... 84,538 11,757 2,627 930 1,663 - 34 7.00% to 7.99%...... 527 29 207 207 - - - --------- --------- --------- --------- -------- ------- ------- Total............. $ 188,893 $ 192,599 $ 197,968 $ 164,187 $ 25,680 $ 4,470 $ 3,631 ========= ========= ========= ========= ======== ======= =======
At December 31, 2002, the Bank had outstanding $57.8 million in certificate accounts in amounts of $100,000 or more maturing as follows: AMOUNT ------ (IN THOUSANDS) Three months or less..................................... $ 11,880 Over three through six months............................ 12,107 Over six through twelve months........................... 24,510 Over twelve months....................................... 9,346 -------- Total............................................... $ 57,843 ======== Borrowings. Although deposits are the Bank's primary source of funds, the Bank utilizes borrowings when they are a less costly source of funds or can be invested at a positive rate of return. Pamrapo obtains advances from the FHLB-NY upon the security of its capital stock of the FHLB-NY and a blanket assignment of the Bank's unpledged qualifying mortgage loans, mortgage-backed securities and investment securities. Such advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. As of December 31, 2002, outstanding advances from the FHLB-NY amounted to $84.3 million. 20 The following table sets forth certain information regarding FHLB-NY advances, all of which are at fixed rates, at the dates indicated:
AT DECEMBER 31, ------------------------------ 2000 2001 2002 -------- -------- -------- (IN THOUSANDS) Maturity -------------- 5.10% due 2001.................................. $ 243 $ - $ - 6.51% due 2002.................................. 5,000 5,000 - 4.00% due 2002.................................. - 3,000 - 5.36% due 2003.................................. 15,340 15,340 15,340 7.15% due 2003.................................. 5,000 5,000 5,000 4.65% due 2003.................................. - 7,000 7,000 4.04% due 2004.................................. - 5,000 5,000 3.10% due 2004.................................. - - 7,000 4.54% due 2005.................................. - 5,000 5,000 3.64% due 2005.................................. - - 8,000 4.84% due 2006.................................. - 5,000 5,000 4.20% due 2006.................................. - - 7,000 3.50% due 2007.................................. - - 3,000 4.85% due 2008.................................. - 7,000 7,000 6.19% due 2010.................................. 10,000 10,000 10,000 -------- -------- -------- Total advances from the FHLB-NY............. $ 35,583 $ 67,340 $ 84,340 ======== ======== ========
The Bank has a mortgage loan of $325,000 in connection with the purchase of premises. The mortgage loan carries an interest rate of 8% and is amortized over a 12 year term. The unpaid mortgage loan balance at December 31, 2002 amounted to $149,000. COMPETITION Pamrapo has substantial competition for both loans and deposits. The New York City metropolitan area has a high density of financial institutions, many of which are significantly larger and have substantially greater financial resources than the Bank, and all of which are competitors of the Bank to varying degrees. The Bank faces significant competition both in making mortgage loans and in attracting deposits. The Bank's competition for loans comes principally from savings and loan associations, savings banks, mortgage banking companies, insurance companies, commercial banks and other institutional lenders. Its most direct competition for deposits has historically come from savings and loan associations, savings banks, commercial banks, credit unions and other financial institutions. The Bank faces additional competition for deposits from short-term money market funds and other corporate and government securities funds. The Bank faces increased competition among financial institutions for deposits. Competition also may increase as a result of the continuing reduction in the effective restrictions on the interstate operations of financial institutions and legislation authorizing the acquisition of thrifts by Banks. The Bank competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of services it provides borrowers and real estate brokers. It competes for deposits through pricing, service and by offering a variety of deposit accounts. New powers for thrift institutions provided by New Jersey and federal legislation enacted in recent years have resulted in increased competition between savings banks and other financial institutions for both deposits and loans. Management believes that implementation of new powers set forth in such recent legislation is expected to intensify this competition. 21 SUBSIDIARIES Pamrapo is generally permitted under New Jersey law and the regulations of the Commissioner of the New Jersey Department of Banking and Insurance (the "Commissioner") to invest an amount equal to 3% of its assets in subsidiary service corporations. As of December 31, 2002, Pamrapo had $2.2 million, or 0.4% of its assets invested in Pamrapo Service Corporation (the "Corporation"), a wholly owned subsidiary of the Bank. In the past, the Corporation has entered into real estate joint ventures for the principal purpose of land acquisition and development. However, the Corporation has disposed of all such real estate joint ventures. Currently, the Corporation's only investments are in bank premises and real estate held for investment. Under OTS regulation, investments in and loans to subsidiaries not engaged in activities permissible to national banks, such as the real estate investment activities previously entered into by the Bank, generally are required to be deducted from capital. Although the Bank will continue to consider joint venture opportunities, it will do so with the effects of the OTS regulations in mind. The Bank currently has no plans to enter into any joint ventures. YIELDS EARNED AND RATES PAID The Bank's earnings depend primarily on its net interest income. Net interest income is affected by (i) the volume of interest-earning assets and interest-bearing liabilities, (ii) rates of interest earned on interest-earning assets and rates paid on interest-bearing liabilities and (iii) the difference ("interest rate spread") between rates of interest earned on interest-earning assets and rates paid on interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. A large portion of the Bank's real estate loans are long-term, fixed-rate loans. Accordingly, the average yield recognized by the Bank on its total loan portfolio changes slowly and generally does not keep pace with changes in interest rates on deposit accounts and borrowings. At December 31, 2002, approximately 97.7% of the Bank's gross mortgage loan portfolio, excluding mortgage-backed securities, consisted of fixed-rate mortgage loans with original terms consisting primarily of 15 to 30 years. Accordingly, when interest rates rise, the Bank's yield on its loan portfolio increases at a slower pace than the rate by which its cost of funds increases, which may adversely impact the Bank's interest rate spread. 22 The following tables set forth for the periods indicated information regarding the average balances of interest-earning assets and interest-bearing liabilities, the dollar amount of interest income earned on such assets and the resultant yields, the dollar amount of interest expense paid on such liabilities and the resultant costs. The tables also reflect the interest rate spread for such periods, the net yield on interest-earning assets (i.e., net interest income as a percentage of average interest-earning assets) and the ratio of average interest-earning assets to average interest-bearing liabilities. Average balances are based on month-end amounts.
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2000 2001 ------------------------------ ------------------------------ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST COST BALANCE INTEREST COST --------- --------- ------ --------- --------- ------ (DOLLARS IN THOUSANDS) Interest-earning assets: Loans (1)............................................ $ 284,591 $ 23,540 8.27% $ 340,340 $ 27,480 8.07% Mortgage-backed securities........................... 125,750 8,114 6.45 121,596 7,925 6.52 Investments.......................................... 9,387 729 7.77 8,840 597 6.75 Other interest-earning assets........................ 13,190 780 5.91 11,841 623 5.26 --------- -------- --------- -------- Total interest-earning assets...................... 432,918 33,163 7.66 482,617 36,625 7.59 --------- -------- --------- -------- Non-interest-earning assets............................ 21,279 23,164 --------- --------- Total assets (1)................................... $ 454,197 $ 505,781 ========= ========= Interest-bearing liabilities: Passbook and club account............................ $ 113,381 2,629 2.32 $ 128,648 3,281 2.55 NOW and money market accounts........................ 51,791 1,225 2.37 57,742 1,148 1.99 Certificates of Deposits............................. 180,892 9,907 5.48 195,106 10,481 5.37 Advances and other borrowings........................ 29,578 1,737 5.87 45,548 2,635 5.79 --------- -------- --------- -------- Total interest-bearing liabilities................. 375,642 15,498 4.13 427,044 17,545 4.11 --------- -------- --------- -------- Non-interest-bearing liabilities: Non-interest-bearing demand accounts................. 23,519 21,604 Other................................................ 8,263 10,376 --------- --------- Total non-interest-bearing liabilities....................................... 31,782 31,980 --------- --------- Total liabilities.................................. 407,424 459,024 --------- Stockholders' equity................................... 46,773 46,757 --------- --------- Total liabilities and stockholders' equity......... $ 454,197 $ 505,781 ========= ========= Net interest income/interest rate spread............... $ 17,665 3.53% $ 19,080 3.48% ======== ==== ======== ==== Net interest-earning assets/net yield on Interest- earning assets............................. $ 57,276 4.08% $ 55,573 3.95% ========= ==== ========= ==== Ratio of average interest-earning assets to Average interest-bearing liabilities................. 1.15x 1.13x ==== ====
YEAR ENDED DECEMBER 31, ------------------------------ 2002 ------------------------------ AVERAGE YIELD/ BALANCE INTEREST COST --------- --------- ------ (DOLLARS IN THOUSANDS) Interest-earning assets: Loans (1)............................................ $ 384,671 $ 29,267 7.61% Mortgage-backed securities........................... 127,674 7,765 6.08 Investments.......................................... 7,163 518 7.23 Other interest-earning assets........................ 25,534 508 1.99 --------- -------- Total interest-earning assets...................... 545,042 38,058 6.98 --------- -------- Non-interest-earning assets............................ 18,397 --------- Total assets (1)................................... $ 563,439 ========= Interest-bearing liabilities: Passbook and club account............................ $ 145,051 3,428 2.36 NOW and money market accounts........................ 62,683 1,081 1.72 Certificates of Deposits............................. 193,654 6,974 3.60 Advances and other borrowings........................ 75,525 3,807 5.04 --------- -------- Total interest-bearing liabilities................. 476,913 15,290 3.21 --------- -------- Non-interest-bearing liabilities: Non-interest-bearing demand accounts................. 27,363 Other................................................ 10,120 --------- Total non-interest-bearing liabilities....................................... 37,483 --------- Total liabilities.................................. 514,396 --------- Stockholders' equity................................... 49,043 --------- Total liabilities and stockholders' equity......... $ 563,439 ========= Net interest income/interest rate spread............... $ 22,768 3.77% ======== ==== Net interest-earning assets/net yield on Interest- earning assets............................. $ 68,129 4.18% ========= ==== Ratio of average interest-earning assets to Average interest-bearing liabilities................. 1.14x ====
- ---------- (1) Non-accruing loans are part of the average balances of loans outstanding. 23 INTEREST RATE SENSITIVITY ANALYSIS The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring an institution's interest rate sensitivity "gap." An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2002, which are expected to reprice or mature in each of the future time periods shown. Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of the asset or liability. Loans and mortgage-backed securities that have adjustable rates are shown as being due in the period during which the interest rates are next subject to change. The Bank has assumed that its passbook savings and club accounts which totaled $155.4 million at December 31, 2002, are withdrawn at the following rates, 17.00%, 31.11%, 29.44%, 52.96%, 77.87% and 100.00% on the cumulative declining balance of such accounts during the periods shown. The Bank has further assumed that its money market accounts which totaled $32.6 million at December 31, 2002, are withdrawn at the following rates, 79.00%, 52.39%, 52.39%, 84.36%, 97.62% and 100.00% on the cumulative declining balance of such accounts during the periods shown. Additionally, the Bank has assumed that its non-interest bearing demand, NOW and Super NOW accounts which totaled $59.5 million at December 31, 2002, are withdrawn at the following rates, 37.00%, 53.76%, 31.11%, 60.62%, 84.47% and 100.00% on the cumulative declining balance of such accounts during the periods shown. 24
MORE THAN MORE THAN MORE THAN MORE THAN 1 YEAR 1 YEAR TO 3 YEARS TO 5 YEARS TO 10 YEARS TO MORE THAN OR LESS 3 YEARS 5 YEARS 10 YEARS 20 YEARS 20 YEARS TOTAL ---------- ---------- ---------- ---------- ----------- ---------- --------- (IN THOUSANDS) Interest-earning Assets: Loans............................... $ 8,836 $ 3,827 $ 7,618 $ 36,456 $ 175,918 $ 161,411 $ 394,066 Mortgage-backed securities (1)...... 222 414 265 21,130 109,550 16,130 147,711 Investments (1)(2).................. 1,449 - 1,000 6,095 500 - 9,044 Other interest-earning assets (3)... 4,403 - - - - - 4,403 ---------- ---------- ---------- ---------- ----------- ---------- --------- Total interest-earning assets..... 14,910 4,241 8,883 63,681 285,968 177,541 555,224 ---------- ---------- ---------- ---------- ----------- ---------- --------- Interest-bearing Liabilities: NOW and Super NOW accounts........................... 22,020 20,157 5,394 7,240 3,973 730 59,514 Money market accounts............... 25,749 3,586 1,707 1,309 237 6 32,594 Passbook and club accounts.......... 26,423 40,134 26,164 33,211 22,970 6,528 155,430 Certificate accounts................ 164,187 30,150 3,631 - - - 197,968 Advances and other borrowings....... 27,340 25,000 15,000 17,000 149 - 84,489 ---------- ---------- ---------- ---------- ----------- ---------- --------- Total interest-bearing liabilities........................ 265,719 119,027 51,896 58,760 27,329 7,264 529,995 ---------- ---------- ---------- ---------- ----------- ---------- --------- Interest sensitivity gap per period... $ (250,809) $ (114,786) $ (43,013) $ 4,921 $ 258,639 $ 170,277 $ 25,229 ========== ========== ========== ========== =========== ========== ========= Cumulative interest sensitivity gap... $ (250,809) $ (365,595) $ (408,608) $ (403,687) $ (145,048) $ 25,229 ========== ========== ========== ========== =========== ========== Cumulative gap as a percent of total assets......................... (42.61%) (62.11%) (69.41%) (68.58%) (24.64%) (4.29%) ========== ========== ========== ========== =========== ========== Cumulative interest-sensitive assets as a percent of interest-sensitive liabilities.......................... (5.61%) (4.98%) (6.42%) (18.51%) (72.25%) (104.76%) ========== ========== ========== ========== =========== ==========
- ---------- (1) Includes available for sale securities. (2) Includes $95,000 premium. (3) Includes FHLB-NY stock which has no stated maturity. RATE/VOLUME ANALYSIS Changes in net interest income are attributable to three factors: (i) a change in volume or amount of an interest-earning asset or interest-bearing liability, (ii) a change in interest rates or (iii) a change caused by a combination of changes in volume and interest rate. The table below sets forth certain information regarding changes in interest income and interest expense of the Bank for the periods indicated, reflecting the extent to which such changes are attributable to changes in volume and changes in rate. The amount attributable to a change in volume or amount is calculated by multiplying the average interest rate for the prior period by the increase (decrease) in the average balance of the related asset or liability. The amount attributable to a change in rate is calculated by multiplying the increase (decrease) in the average interest rate from the prior period by the average balance of the related asset or liability for the prior period. The rate/volume change represents a 25 change in rate multiplied by a change in volume and is allocated proportionately to volume and rate changes.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 2001 V. 2000 2002 V. 2001 -------------------------- ---------------------------- INCREASE (DECREASE) INCREASE (DECREASE) DUE TO DUE TO -------------------------- ---------------------------- VOLUME RATE NET VOLUME RATE NET ------- ------ ------- ------- -------- ------- (IN THOUSANDS) Interest income: Loans................................ $ 4,621 $ (681) $ 3,940 $ 3,557 $ (1,769) $ 1,787 Mortgaged-backed securities.......... (274) 85 (189) 401 (562) (160) Investments.......................... (42) (90) (132) (113) 34 (79) Other interest-earning assets........ (80) (77) (157) 720 (835) (115) ------- ------ -------- ------- -------- ------- Total interest income............ 4,225 (763) 3,462 4,565 (3,132) 1,433 ------- ------ ------- ------- -------- ------- Interest expense: Passbook and club accounts........... 356 296 652 422 (276) 147 NOW and money market accounts........ 142 (219) (77) 102 (169) (67) Certificates of deposit.............. 789 (215) 574 (79) (3,428) (3,507) Advance and other borrowings......... 934 (36) 898 1,739 (566) 1,172 ------- ------ ------- ------- -------- ------- Total interest expense........... 2,221 (174) 2,047 2,184 (4,439) (2,255) ------- ------ ------- ------- -------- ------- Net change in net interest.............. $ 2,004 $ (589) $ 1,415 $ 2,381 $ 1,307 $ 3,688 ======= ====== ======= ======= ======== =======
REGULATION AND SUPERVISION GENERAL The Company, as a savings and loan holding company, is required to file certain reports with, and otherwise comply with the rules and regulations of the Office of Thrift Supervision ("OTS") under the Home Owners' Loan Act, as amended (the "HOLA"). In addition, the activities of savings institutions, such as the Bank, are governed by the HOLA and the Federal Deposit Insurance Act ("FDI Act"). The Bank is subject to extensive regulation, examination and supervision by the OTS, as its primary federal regulator, and the Federal Deposit Insurance Corporation ("FDIC"), as the deposit insurer. The Bank is a member of the Federal Home Loan Bank ("FHLB") System and its deposit accounts are insured up to applicable limits by the Savings Association Insurance Fund ("SAIF") managed by the FDIC. The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other savings institutions. The OTS and/or the FDIC conduct periodic examinations to test the Bank's safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory 26 requirements and policies, whether by the OTS, the FDIC or the Congress, could have a material adverse impact on the Company, the Bank and their operations. Certain of the regulatory requirements applicable to the Bank and to the Company are referred to below or elsewhere herein. The description of statutory provisions and regulations applicable to savings institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Bank and the Company. HOLDING COMPANY REGULATION The Company is a nondiversified unitary savings and loan holding company within the meaning of the HOLA. As a unitary savings and loan holding company, the Company generally is not restricted under existing laws as to the types of business activities in which it may engage, provided that the Bank continues to be a qualified thrift lender ("QTL"). Upon any non-supervisory acquisition by the Company of another savings institution or savings bank that meets the QTL test and is deemed to be a savings institution by the OTS, the Company would become a multiple savings and loan holding company (if the acquired institution is held as a separate subsidiary) and would be subject to extensive limitations on the types of business activities in which it could engage. The HOLA limits the activities of a multiple savings and loan holding company and its non-insured institution subsidiaries primarily to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act ("BHC Act"), subject to the prior approval of the OTS, and certain activities authorized by OTS regulation, and no multiple savings and loan holding company may acquire more than 5% the voting stock of a company engaged in impermissible activities. The HOLA prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of the voting stock of another savings institution or holding company thereof, without prior written approval of the OTS or acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by holding companies to acquire savings institutions, the OTS must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors. The OTS is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies and (ii) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions. Although savings and loan holding companies are not subject to specific capital requirements or specific restrictions on the payment of dividends or other capital distributions, HOLA does prescribe such restrictions on subsidiary savings institutions as described below. The Bank must notify the OTS within 30 days before declaring any dividend to the Company. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the OTS, and the agency has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the subsidiary institution. 27 FEDERAL SAVINGS INSTITUTION REGULATION Capital Requirements. The OTS capital regulations require savings institutions to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage (core) capital ratio and an 8% risk-based capital ratio. Core capital is defined as common stockholders' equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus, minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain mortgage servicing rights and credit card relationships. The OTS regulations require that, in meeting the tangible, leverage (core) and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities that are not permissible for a national bank. The risk-based capital standard for savings institutions requires the maintenance of total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, as assigned by the OTS capital regulation based on the risks the OTS believes are inherent in the type of asset. The components of core capital are equivalent to those discussed earlier under the 4% leverage standard. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock and, within specified limits, the allowance for loan and lease losses. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. The OTS regulatory capital requirements also incorporate an interest rate risk component. Savings institutions with "above normal" interest rate risk exposure are subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. A savings institution's interest rate risk is measured by the decline in the net portfolio value of its assets (i.e., the difference between incoming and outgoing discounted cash flows from assets, liabilities and off-balance sheet contracts) that would result from a hypothetical 200 basis point increase or decrease in market interest rates divided by the estimated economic value of the institution's assets, as calculated in accordance with guidelines set forth by the OTS. A savings institution whose measured interest rate risk exposure exceeds 2% must deduct an amount equal to one-half of the difference between the institution's measured interest rate risk and 2%, multiplied by the estimated economic value of the institution's total assets. That dollar amount is deducted from an institution's total capital in calculating compliance with its risk-based capital requirement. Under the rule, there is a two quarter lag between the reporting date of an institution's financial data and the effective date for the new capital requirement based on that data. A savings institution with assets of less than $300 million and risk-based capital ratios in excess of 12% is not subject to the interest rate risk component, unless the OTS determines otherwise. The Director of the OTS may waive or defer a savings institution's interest rate risk component on a case-by-case basis. For the present time, the OTS has deferred implementation of the interest rate risk component. At December 31, 2002, the Bank met each of its capital requirements. 28 The following table presents the Bank's capital position at December 31, 2002.
Actual Amount Required Amount Excess Amount Actual Percent Required Percent ------------- --------------- ------------- -------------- ---------------- (DOLLARS IN THOUSANDS) Tangible $ 41,474 $ 8,790 $ 32,684 7.08% 1.50% Core (Leverage) 41,474 23,440 18,034 7.08% 4.00% Risk-based 43,991 24,518 19,473 14.35% 8.00%
Prompt Corrective Regulatory Action. Under the OTS prompt corrective action regulations, the OTS is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's degree of undercapitalization. Generally, a savings institution that has a total risk-based capital of less than 8% or a leverage ratio or a Tier 1 capital ratio that is less than 4% is considered to be "undercapitalized." A savings institution that has a total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be "significantly undercapitalized" and a savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be "critically undercapitalized." Subject to a narrow exception, the banking regulator is required to appoint a receiver or conservator for an institution that is "critically undercapitalized." The regulation also provides that a capital restoration plan must be filed with the OTS within 45 days of the date a savings institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Compliance with the plan must be guaranteed by any parent holding company. In addition, numerous mandatory supervisory actions become immediately applicable to the institution depending upon its category, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Insurance of Deposit Accounts. Deposits of the Bank are presently insured by SAIF. The FDIC maintains a risk-based assessment system by which institutions are assigned to one of three categories based on their capitalization and one of three subcategories based on examination ratings and other supervisory information. An institution's assessment rate depends upon the categories to which it is assigned. Assessment rates for SAIF member institutions are determined semiannually by the FDIC and currently range from zero basis points for the healthiest institutions to 27 basis points for the riskiest. In addition to the assessment for deposit insurance, institutions are required to pay on bonds issued in the late 1980s by the Financing Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 2002, FICO payments for SAIF members and Bank Insurance Fund ("BIF" - the deposit insurance fund that covers most commercial bank deposits) members approximated 1 basis point. The BIF and SAIF have equal sharing of FICO payments between the members of both insurance funds. The Bank's assessment rate for the year ended December 31, 2002 was 0 basis points and no premiums were paid for this period. Payments on the FICO bonds amounted to $73,000. A significant increase in SAIF insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. 29 Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance. Thrift Rechartering Legislation. Various proposals to eliminate the federal thrift charter, create a uniform financial institutions charter and abolish the OTS have been introduced in past sessions of Congress. The Bank is unable to predict whether such legislation would be enacted or the extent to which the legislation would restrict or disrupt its operations. Loans to One Borrower. Under the HOLA, savings institutions are generally subject to the limits on loans to one borrower applicable to national banks. Generally, savings institutions may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan is fully secured by readily-marketable collateral, which is defined to include certain financial instruments and bullion. At December 31, 2002, the Bank's limit on loans to one borrower was $6.6 million. At December 31, 2002, the Bank's largest aggregate outstanding balance of loans to one borrower was $4.2 million. QTL Test. The HOLA requires savings institutions to meet a QTL test. Under the QTL test, a savings association is required to maintain at least 65% of its "portfolio assets" (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain "qualified thrift investments" (primarily residential mortgages and related investments, including certain mortgage-backed and related securities) in at least 9 months out of each 12 month period. A savings association that fails the QTL test must either convert to a bank charter or operate under certain restrictions. As of December 31, 2002, the Bank maintained 90.52% of its portfolio assets in qualified thrift investments and, therefore, met the QTL test. Limitation on Capital Distributions. OTS regulations impose limitations upon all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The rule establishes three tiers of institutions, which are based primarily on an institution's capital level. An institution that exceeds all fully phased-in capital requirements before and after a proposed capital distribution ("Tier 1 Bank") and has not been advised by the OTS that it is in need of more than normal supervision, could, after prior notice but without obtaining approval of the OTS, make capital distributions during a calendar year equal to the greater of (i) 100% of its net earnings to date during the calendar year plus the amount that would reduce by one-half its "surplus capital ratio" (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year or (ii) 75% of its net earnings for the previous four quarters. Any additional capital distributions would require prior regulatory approval. In the event the Bank's capital fell below its regulatory requirements or the OTS notified it that it was in need of more than normal supervision, the Bank's ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice. At December 31, 2002, the Bank was classified as a Tier 1 Bank. 30 Under OTS capital distribution regulations, an application to and the prior approval of the OTS is required before an institution makes a capital distribution if (1) the institution does not meet certain criteria for "expedited treatment" for applications under the regulations, (2) the total capital distributions by the institution for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, (3) the institution would be undercapitalized following the distribution or (4) the distribution would otherwise be contrary to a statute, regulation or agreement with the OTS. If an application is not required, the institution may still need to give advance notice to the OTS of the capital distribution. Liquidity. Until recently, the Bank is required to maintain an average daily balance of specified liquid assets equal to a monthly average of not less than a specified percentage of its net withdrawable deposit accounts plus short-term borrowings. Effective March 15, 2001, the liquidity requirement to which the Bank is held under HOLA was amended to eliminate the specific percentage requirement, but retained the requirement that an institution "maintain sufficient liquidity to ensure its safe and sound operation." The Bank's average liquidity ratio for the month of December 2002 calculated using the ratio calculation of HOLA prior to March 15, 2001 was 10.92%, and in the opinion of management meets current requirements for Bank's safe and sound operation. The Bank has never been subject to monetary penalties for failure to meet its liquidity requirements. Assessments. Savings institutions are required to pay assessments to the OTS to fund the agency's operations. The general assessments, paid on a semi-annual basis, are based upon the savings institution's total assets, including consolidated subsidiaries, as reported in the Bank's latest quarterly thrift financial report. The assessments paid by the Bank for the fiscal year ended December 31, 2002 totaled $115,000. Branching. OTS regulations permit nationwide branching by federally chartered savings institutions to the extent allowed by federal statute. This permits federal savings institutions to establish interstate networks and to geographically diversify their loan portfolios and lines of business. The OTS authority preempts any state law purporting to regulate branching by federal savings institutions. Transactions with Related Parties. The Bank's authority to engage in transactions with related parties or "affiliates" (i.e., any company that controls or is under common control with an institution, including the Company and its non-savings institution subsidiaries) is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A restricts the aggregate amount of covered transactions with any individual affiliate to 10% of the capital and surplus of the savings institution. The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings institution's capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A and the purchase of low quality assets from affiliates is generally prohibited. Section 23B generally requires that certain transactions with affiliates, including loans and asset purchases, be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. Enforcement. Under the FDI Act, the OTS has primary enforcement responsibility over savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. 31 Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. Under the FDI Act, the FDIC has the authority to recommend to the Director of the OTS enforcement action to be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations. Standards for Safety and Soundness. The FDI Act requires each federal banking agency to prescribe for all insured depository institutions standards relating to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, and compensation, fees and benefits and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies have adopted final regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the FDI Act. The final rule establishes deadlines for the submission and review of such safety and soundness compliance plans. Standards for Safeguarding Customer Information. In 1999, the President signed the Gramm-Leach-Bliley Act was into law. Section 501 of the Act requires that bank regulatory agencies establish appropriate standards for financial institutions relating to the administrative, technical, and physical safeguards for customer records and information. Accordingly, the OTS, the FDIC, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System published Interagency Guidelines for Safeguarding Customer Information in February of 2001. The Customer Information Guidelines require the Bank to adopt a comprehensive written information security program that is designed to protect against unauthorized access to or use of customers' nonpublic personal information. All elements of the security program must be coordinated among all parts of the bank. The Board of Directors of the Bank must approve the written information security program and oversee its the development, implementation and maintenance. The Bank must identify reasonably foreseeable internal and external threats that could result in unauthorized disclosure, misuse, alteration or destruction of customer information or customer information systems, assess the likelihood and potential damage of these threats (taking into consideration the sensitivity of customer information), and assess the sufficiency of policies, procedures, customer information systems, and other arrangements in place to control risks. In order to manage and control any risk, the Bank should design its information security program to control the identified risks, commensurate with the sensitivity of the information as well as the complexity and scope of the bank's activities and adopt such measures listed in the Guidelines regarding access, controls, encryption and other procedures that the bank concludes are appropriate. In addition, Banks are required to exercise due diligence in selecting service providers having access to customer information, require such service providers by contract to implement appropriate measures designed to meet the objectives of the Guidelines, and monitor such service providers to confirm that they have satisfied their obligations under the contract. The Bank must report to its board at least 32 annually describing the overall status of the information security program and the Bank's compliance with the Guidelines. FEDERAL RESERVE SYSTEM The Federal Reserve Board regulations require savings institutions to maintain non-interest earning reserves against their transaction accounts. The Federal Reserve Board regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for accounts aggregating $44.3 million or less (subject to adjustment by the Federal Reserve Board) the reserve requirement was 3%; and for accounts aggregating greater than $44.3 million, the reserve requirement was $1.395 million plus 10% (subject to adjustment by the Federal Reserve Board) against that portion of total transaction accounts in excess of $46.5 million. The first $4.9 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) were exempted from the reserve requirements. The Bank maintained compliance with the foregoing requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the OTS. NEW JERSEY LAW The Commissioner regulates, among other things, the Bank's internal business procedures as well as its deposits, lending and investment activities. The Commissioner must approve changes to the Bank's Certificate of Incorporation, establishment or relocation of branch offices, mergers and the issuance of additional stock. In addition, the Commissioner conducts periodic examinations of First Savings. Certain of the areas regulated by the Commissioner are not subject to similar regulation by the FDIC. Recent federal and state legislative developments have reduced distinctions between commercial banks and SAIF-insured savings institutions in New Jersey with respect to lending and investment authority, as well as interest rate limitations. As federal law has expanded the authority of federally chartered savings institutions to engage in activities previously reserved for commercial banks, New Jersey legislation and regulations ("parity legislation") have given New Jersey chartered savings institutions, such as the Bank, the powers of federally chartered savings institutions. New Jersey law provides that, upon satisfaction of certain triggering conditions, as determined by the Commissioner, insured institutions or savings and loan holding companies located in a state which has reciprocal legislation in effect on substantially the same terms and conditions as stated under New Jersey law may acquire, or be acquired by New Jersey insured institutions or holding companies on either a regional or national basis. New Jersey law explicitly prohibits interstate branching. SARBANES-OXLEY ACT OF 2002 On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Act"). The Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Act is applicable to all companies with equity or debt securities registered under the Securities Exchange Act of 1934. Some provisions of the Act took effect upon passage while the rest take effect over a period of 30 to 270 days after passage and are 33 subject to rulemaking by the Securities and Exchange Commission and the self regulatory organizations. Some of the changes included in the new, amended and proposed regulations are: . Require accelerated annual and quarterly reporting for certain filers and require the CEOs and CFOs to certify their company's financial reports, filings & control systems; . Require increased disclosure and reporting obligations for the company, its officers and directors, and its affiliates; . Require that the company comply with new audit committee independence and auditor independence requirements; and . Implement new corporate responsibility requirements and provide additional corporate and criminal fraud accountability. The Company is continuing to monitor the passage of the new and amended regulations and is taking appropriate measures to comply with them. Although the Company will incur additional expense in complying with the various provisions of the Act and the new and amended regulations, management does not expect that such compliance will have a material impact on the Company's results of operations or financial condition. FEDERAL AND STATE TAXATION FEDERAL TAXATION General. The Company and the Bank report their income on a consolidated basis and the accrual method of accounting, and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank's reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company. The Bank has not been audited by the IRS in the past nine years. For its 2002 taxable year, the Bank is subject to a maximum federal income tax rate of 35%. Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995, thrift institutions which qualified under certain definitional tests and other conditions of the Internal Revenue Code of 1986 (the "Code") were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans (generally secured by interests in real property improved or to be improved) under (i) the Percentage of Taxable Income Method (the "PTI Method") or (ii) the Experience Method. The Bank's reserve for nonqualifying loans was computed using the Experience Method. The Small Business Job Protection Act of 1996 (the "1996 Act"), which was enacted on August 20, 1996, requires savings institutions to recapture (i.e., take into income) certain portions of their accumulated bad debt reserves. The 1996 Act repeals the reserve method of accounting for bad debts effective for tax years beginning after 1995. Thrift institutions that would be treated as small banks are allowed to utilize the Experience Method applicable to such institutions, while thrift institutions that are treated as large banks (those generally exceeding $500 million in assets) are required to use only the specific charge-off method. Thus, the PTI Method of accounting for bad debts is no longer available for any financial institution. 34 A thrift institution required to change its method of computing reserves for bad debts will treat such change as a change in method of accounting, initiated by the taxpayer, and having been made with the consent of the IRS. Any Section 481(a) adjustment required to be taken into income with respect to such change generally will be taken into income ratably over a six-taxable year period, beginning with the first taxable year beginning after 1995, subject to the residential loan requirement. Under the 1996 Act, for its current and future taxable years, the Bank is not permitted to make additions to its tax bad debt reserves. In addition, the Bank is required to recapture (i.e., take into income) over a six year period the excess of the balance of its tax bad debt reserves as of December 31, 1995, other than its supplemental reserve for losses on loans, if any, over the balance of such reserves as of December 31, 1987. As a result of such recapture, the Bank incurred an additional tax payment of approximately $150,000 in 1996, which was paid over a six year period ending with the final payment in 2001. Distributions. Under the 1996 Act, if the Bank makes "non-dividend distributions" to the Company, such distributions will be considered to have been made from the Bank's unrecaptured tax bad debt reserves (including the balance of its reserves as of December 31, 1987) to the extent thereof, and then from the Bank's supplemental reserve for losses on loans, to the extent thereof, and an amount based on the amount distributed (but not in excess of the amount of such reserves) will be included in the Bank's income. Non-dividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of the Bank's current or accumulated earnings and profits will not be so included in the Bank's income. The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if the Bank makes a non-dividend distribution to the Company, approximately one and one-half times the amount of such distribution (but not in excess of the amount of such reserves) would be includable in income for federal income tax purposes, assuming a 35% federal corporate income tax rate. The Banks does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves. STATE AND LOCAL TAXATION New Jersey Taxation. The Bank, its subsidiary, Pamrapo Service Corporation, and the Company file separate New Jersey income tax returns. For New Jersey income tax purposes, savings institutions are presently taxed at a rate equal to 9% of taxable income. For this purpose, "taxable income" generally means federal taxable income, subject to certain adjustments (including addition of interest income on state and municipal obligations). For New Jersey tax purposes, regular corporations are presently taxed at a rate equal to 9% of taxable income (7.5% is the rate if taxable income is less than $100,000). PERSONNEL As of December 31, 2002, the Bank had 95 full-time employees and 25 part-time employees. The employees are not represented by a collective bargaining unit and the Bank considers its relationship with its employees to be good. 35 ITEM 2. PROPERTIES. The Bank conducts its business through nine branch offices and one administrative office. Three offices have drive-up facilities. The Bank has automatic teller machines at eight of its nine branch facilities and ten other off-site locations. The following table sets forth information relating to each of the Bank's offices as of December 31, 2002. The total net book value of the Bank's premises and equipment at December 31, 2002 was $4.4 million.
YEAR NET LOCATION OFFICE OPENED BOOK VALUE ------------------------------------------------------ ------------------ --------------- (IN THOUSANDS) Executive Office 591-597 Avenue C Bayonne, New Jersey............................... 1985 $ 1,751 Branch Offices 611 Avenue C Bayonne, New Jersey............................... 1984 672 155 Broadway Bayonne, New Jersey............................... 1973 110 175 Broadway Bayonne, New Jersey............................... 1985 -(1) 861 Broadway Bayonne, New Jersey............................... 1962 121 987 Broadway Bayonne, New Jersey............................... 1977 258 1475 Bergen Boulevard Fort Lee, New Jersey.............................. 1990 -(2) 544 Broadway Bayonne, New Jersey............................... 1995 19(2) 401 Washington Street Hoboken, New Jersey............................... 1990 250(2) 473 Spotswood-Englishtown Road Monroe, New Jersey................................ 1998 406(2) --------------- Net book value of properties...................... 3,587 Furnishings and equipment (3)..................... 830 --------------- Total premises and equipment................... $ 4,417 ===============
- ---------- (1) The net book value of the property is included in investment in real estate. (2) Leased Property. (3) Includes off-site ATMs. 36 ITEM 3. LEGAL PROCEEDINGS. The Company is from time to time a party to litigation which arises primarily in the ordinary course of business. In the opinion of management, the ultimate disposition of any such existing litigation should not have material effect on the consolidated financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information relating to the market for Registrant's common stock and related stockholder matters appears under Market for Common Stock and Related Matters in the Registrant's 2002 Annual Report to Stockholders on page 43 and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The selected financial data appears under Selected Consolidated Financial Condition and Operating Data of the Company in the Registrant's 2002 Annual Report to Stockholders on pages 41 and 42 and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The above-captioned information appears under Management's Discussion and Analysis of Financial Condition and Results of Operations in the Registrant's 2002 Annual Report to Stockholders on pages 9 through 14 and is incorporated herein by reference. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Statements of Financial Condition, and related notes thereto, of Pamrapo Bancorp, Inc. and its subsidiaries, together with the report thereon by Radics & Co., LLC appears in the Registrant's 2002 Annual Report to Stockholders on pages 15 through 39 and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information relating to Directors and Executive Officers of the Registrant is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 2003 at pages 5 through 7. ITEM 11. EXECUTIVE COMPENSATION. The information relating to executive compensation is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 2003 at pages 14 through 17. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The information relating to security ownership of certain beneficial owners is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 2003 on pages 3 through 4. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information relating to certain relationships and related transactions is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 2003 on page 17. ITEM 14. CONTROLS AND PROCEDURES. As of a date within 90 days of the filing date of this report, based on an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) each of the chief executive officer and the chief financial officer of the Company has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC's rules and forms. There were no significant changes in the Company's internal controls or in any other factors that could significantly affect those controls subsequent to the date of the most recent evaluation of the Company's internal controls by the Company, including any corrective actions with regard to any significant deficiencies or material weaknesses. 38 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Page ---- (a) The following documents are filed as a part of this report: (1) Consolidated Financial Statements of Pamrapo Bancorp, Inc. are incorporated by reference to the indicated pages of the 2002 Annual Report to Stockholders. Consolidated Statements of Financial Condition as of December 31, 2001 and 2002....................................... 15 Consolidated Statements of Income for the Years Ended December 31, 2000, 2001, and 2002................................ 16 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2000, 2001, and 2002................ 17 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2000, 2001, and 2002............ 18 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 2001, and 2002.......................... 19 Notes to Consolidated Financial Statements.......................... 21 Independent Auditors' Report........................................ 39 Management Responsibility Statement................................. 40
The remaining information appearing in the 2002 Annual Report to Stockholders is not deemed to be filed as part of this report, except as expressly provided herein. (2) All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto. 39 (3) Exhibits. (a) The following exhibits are filed as part of this report. 3.1 Certificate of Incorporation of Pamrapo Bancorp, Inc., as filed with the State of New Jersey on February 7, 2001.* 3.2 Bylaws of Pamrapo Bancorp, Inc.* 4 Stock Certificate of Pamrapo Bancorp, Inc.** 10.1 Employment Agreement between the Bank and William J. Campbell.** 10.2 Employment Agreement between the Company and William J. Campbell.** 10.3 Special Termination Agreement (Hughes). *** 10.5 Special Termination Agreement (Russo).** 10.6 Change of Control Agreement (Walter).**** 10.7 Management Recognition and Retention Plan and Trust.** 10.11 Board of Directors' Compensation and Trust Agreement.** 11 Computation of earnings per share (filed herewith). 13 Portions of the 2002 Annual Report to Stockholders (filed herewith). 21 Subsidiary information is incorporated herein by reference to "Part I - Subsidiaries." 23 Consent of Auditors (filed herewith). 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). ---------- * Incorporated herein by reference to the Form 10-K Annual Report, filed on April 30, 2001, SEC file No. 000-18014. ** Incorporated herein by reference to the Form S-1, Registration Statement, as amended, filed on August 11, 1989, Registration No. 33-30370. *** Incorporated herein by reference to the Form 10-Q, Quarterly Report, filed on May 6, 1997, Registration No. 000-18014. **** Incorporated herein by reference to the Form 10-K Annual Report, filed on March 27, 2002, SEC file No. 000-18014. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the fourth quarter of the 2002 fiscal year. 40 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. /s/ William J. Campbell ----------------------- William J. Campbell President DATED: March 31, 2003 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Name Title Date - --------------------------- ----------------------------- ------------------ /s/ William J. Campbell President, Chief Executive March 31, 2003 - --------------------------- Officer and Director William J. Campbell (Principal Executive Officer) /s/ Kenneth D. Walter Treasurer/Chief Financial March 31, 2003 - --------------------------- Officer (Principal Financial Kenneth D. Walter and Accounting Officer) /s/ Daniel J. Massarelli Chairman of the Board and March 31, 2003 - --------------------------- Director Daniel J. Massarelli /s/ John A. Morecraft Vice Chairman of the Board March 31, 2003 - --------------------------- and Director John A. Morecraft /s/ Patrick D. Conaghan Director March 31, 2003 - --------------------------- Patrick D. Conaghan /s/ James J. Kennedy Director March 31, 2003 - --------------------------- James J. Kennedy /s/ Dr. Jaime Portela Director March 31, 2003 - --------------------------- Dr. Jaime Portela /s/ Francis J. O'Donnell Director March 31, 2003 - --------------------------- Francis J. O'Donnell 41 CERTIFICATIONS I, William J. Campbell, certify that: 1. I have reviewed this annual report on Form 10-K of Pamrapo Bancorp, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this annual report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/ William J. Campbell ----------------------- William J. Campbell Chief Executive Officer I, Kenneth D. Walter, certify that: 1. I have reviewed this annual report on Form 10-K of Pamrapo Bancorp, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this annual report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/ Kenneth D. Walter ----------------------- Kenneth D. Walter Chief Financial Officer EX-11 3 dex11.txt EXHIBIT 11 Exhibit 11 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE YEAR ENDED DECEMBER 31, 2002 ------------------ Income available to common stockholders................. $ 7,123,392 Weighted average shares outstanding..................... 5,141,486 Basic earnings per share................................ $ 1.39 Income for diluted earnings per share................... $ 7,123,392 Total weighted average common shares and equivalents outstanding for diluted computation........ 5,141,486 Diluted earnings per share.............................. $ 1.39 EX-13 4 dex13.txt EXHIBIT 13 PAMRAPO BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Pamrapo Bancorp, Inc. (the "Company") owns 100% of the issued and outstanding stock of Pamrapo Savings Bank, SLA (the "Bank"), which is the primary asset of the Company. The Company's business is conducted principally through the Bank. BUSINESS OF THE COMPANY The Bank's principal business has been and continues to be attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, primarily in one-to-four family, owner occupied residential mortgage loans. In addition, in times of low loan demand, the Bank will invest in mortgage-backed securities to supplement its lending portfolio. The Bank also invests, to a lesser extent, in multi-family residential mortgage loans, commercial real estate loans, home equity and second mortgage loans and consumer loans. The earnings of the Bank depend primarily upon the level of net interest income, which is the difference between the interest earned on assets such as loans, mortgage-backed securities, investments and other interest-earning assets and the interest paid on liabilities such as deposits and borrowings. Net interest income is affected by many factors, including regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flow. Net interest income is also affected by the amount, composition and relative interest rates of the Bank's assets and liabilities and by the repricing of such assets and liabilities. The Bank is vulnerable to interest rate fluctuations to the extent that its interest-bearing liabilities mature or reprice more rapidly than its interest-earning assets. Such asset/liability structure may result in lower net interest income during periods of rising interest rates and may be beneficial in times of declining interest rates. The Bank's net income is also affected by provisions for loan losses, non-interest income, non-interest expenses and income taxes. FINANCIAL CONDITION The Company's consolidated assets at December 31, 2002 totaled $588.7 million, which represents an increase of $49.1 million or 9.10% when compared to $539.6 million at December 31, 2001, primarily due to increases in the loans receivable and mortgage-backed securities. Securities available for sale decreased $761,000 or 14.35% to $4.5 million at December 31, 2002 when compared to $5.3 million at December 31, 2001. The decrease during the year ended December 31, 2002, resulted primarily from proceeds from repayments on securities available for sale amounting to $895,000 which offset purchases of securities available for sale of $44,000 along with an increase in unrealized gain on securities available for sale of $98,000. Investment securities held to maturity increased $2.1 million or 42.00% to $7.1 million at December 31, 2002 when compared to $5.0 million at December 31, 2001. The increase during the year ended December 31, 2002 resulted primarily from purchases of investment securities held to maturity of $4.1 million, which offset proceeds from calls of such securities of $2.0 million. Mortgage-backed securities held to maturity increased $23.7 million or 19.36% to $146.1 million at December 31, 2002 from $122.4 million at December 31, 2001. The increase during the year ended December 31, 2002 resulted primarily from purchases of mortgage-backed securities of $68.4 million, sufficient to offset principal repayments of $44.5 million on mortgage-backed securities. Net loans amounted to $389.9 million and $369.2 million at December 31, 2002 and 2001, respectively, which represents an increase of $20.7 million or 5.61%, primarily due to loan originations exceeding loan principal repayments by $21.3 million. Foreclosed real estate amounted to $155,000 and $238,000 at December 31, 2002 and 2001, respectively. At December 31, 2002, foreclosed real estate consisted of one commercial property which is under contract for sale. At December 31, 2001, foreclosed real estate consisted of one residential property and one commercial property. Total deposits at December 31, 2002 increased $28.9 million or 6.94% to $445.5 million compared to $416.6 million at December 31, 2001. Advances from the Federal Home Loan Bank of New York ("FHLB-NY") totaled $84.3 million and $67.3 million Pamrapo Bancorp, Inc. 9 PAMRAPO BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) at December 31, 2002 and 2001, respectively. The net increase of $17.0 million during the year ended December 31, 2002, resulted from new advances from the FHLB-NY, which were used to fund loan commitments, purchase of mortgage-backed securities and for general corporate purposes. Stockholders' equity amounted to $50.8 million and $47.5 million at December 31, 2002 and 2001, respectively. During the years ended December 31, 2002 and 2001, net income of $7.1 million and $5.0 million, respectively, was recorded and cash dividends of $3.9 million and $3.7 million, respectively, were paid on the Company's common stock. During the years ended December 31, 2002 and 2001, the Company repurchased 20,600 and 40,888 shares (on a post-split basis), respectively, of its common stock for $279,000 and $416,000, respectively, under a stock repurchase program. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 NET INCOME Net income increased by $2.1 million or 42.00% to $7.1 million during the year ended December 31, 2002 compared to $5.0 million for the year ended December 31, 2001. The increase in net income during the 2002 period was primarily due to increases in total interest income of $1.4 million and in non-interest income of $645,000, along with a decrease in total interest expense of $2.3 million, which more than offset increases in non-interest expense of $157,000, provision for loan losses of $175,000 and income taxes of $1.9 million. INTEREST INCOME Interest income on loans during the year ended December 31, 2002 increased by $1.8 million or 6.55% to $29.3 million when compared to $27.5 million during 2001. During the years ended December 31, 2002 and 2001, the yield earned on the loan portfolio was 7.61% and 8.07%, respectively. The average balance of loans outstanding during the years ended December 31, 2002 and 2001, totaled $384.7 million and $340.3 million, respectively, representing an increase of $44.4 million or 13.05%. Interest on mortgage-backed securities decreased $160,000 or 2.02% during the year ended December 31, 2002 to $7.8 million compared to $7.9 million for 2001. During the years ended December 31, 2002 and 2001, the average balance of mortgage-backed securities totaled $127.7 million and $121.6 million, respectively, resulting in a net increase of $6.1 million or 5.02%. The yield earned on the mortgage-backed securities portfolio was 6.08% and 6.52% during 2002 and 2001, respectively. Interest earned on investment securities decreased by $78,000 or 13.06% to $518,000 for the year ended December 31, 2002, when compared to $596,000 for 2001. The decrease during the year ended December 31, 2002, resulted from a decrease of $1.7 million or 18.97% in the average balance of the investment securities portfolio, sufficient to offset an increase of forty-eight basis points in the yield earned on the investment securities portfolio from 6.75% in 2001 to 7.23% in 2002. Interest on other interest-earning assets amounted to $508,000 and $623,000 during the years ended December 31, 2002 and 2001, respectively. The average balance of other interest-earning assets outstanding increased $13.7 million or 116.10% to $25.5 million in 2002 from $11.8 million in 2001, sufficient to offset a decrease of 327 basis points in the yield earned on other interest-earning assets to 1.99% in 2002 from 5.26% in 2001. INTEREST EXPENSE Interest on deposits decreased $3.4 million or 22.82% to $11.5 million during the year ended December 31, 2002 compared to $14.9 million for 2001. The decrease during 2002 was attributable to a decrease of 105 basis points in the Bank's average cost of interest-bearing deposits to 2.86% for 2002 from 3.91% for 2001 partially offset by an increase of $19.9 million or 5.22% in the average balance of interest-bearing deposits outstanding. Interest on advances and other borrowed money increased $1.2 million or 46.15% to $3.8 million during the year ended December 31, 2002 compared to $2.6 million for 2001. The increase during 2002 was attributable to an increase of $30.0 million or 65.81% in the average balance of advances and other borrowings outstanding, partially offset by a decrease of seventy-five basis points in the Bank's cost of borrowings from 5.79% for 2001 to 5.04% for 2002. 10 Pamrapo Bancorp, Inc. NET INTEREST INCOME Net interest income for the year ended December 31, 2002, increased $3.7 million or 19.37% to $22.8 million for 2002 as compared to $19.1 million for 2001. The Bank's net interest rate spread increased from 3.48% in 2001 to 3.78% in 2002 and its interest rate margin increased from 3.95% in 2001 to 4.18% in 2002. The increase in net interest rate spread primarily resulted from a ninety basis point decrease in the cost of average interest-bearing liabilities to 3.21% in 2002 from 4.11% in 2001, sufficient to offset a sixty-one basis point decrease in the yield on interest-earning assets from 7.59% in 2001 to 6.98% in 2002. PROVISION FOR LOAN LOSSES During the years ended December 31, 2002 and 2001, the Bank provided $634,000 and $459,000, respectively, for loan losses. At December 31, 2002 and 2001, the Bank's loan portfolio included loans totaling $2.7 million and $3.3 million, respectively, which were delinquent ninety days or more. The Bank maintains an allowance for loan losses based on management's evaluation of the risk inherent in its loan portfolio which gives due consideration to changes in general market conditions and in the nature and volume of the Bank's loan activity. The allowance for loan losses amounted to $2.55 million at December 31, 2002, representing .65% of total loans and 94.41% of loans delinquent ninety days or more compared to an allowance of $2.15 million at December 31, 2001, representing .57% of total loans and 65.95% of loans delinquent ninety days or more. During the years ended December 31, 2002 and 2001, the Bank charged off loans aggregating $244,000 and $273,000, respectively. The Bank monitors its loan portfolio and intends to continue to provide for loan losses based on its ongoing periodic review of the loan portfolio and general market conditions. NON-INTEREST INCOME Non-interest income increased by $645,000 or 33.58% to $2.6 million during the year ended December 31, 2002 as compared to $1.9 million for 2001. The increase in non-interest income during 2002 resulted primarily from increases in fees and service charges of $85,000, gain on sale of branches of $479,000 and miscellaneous income of $81,000. During the year ended December 31, 2002, the Bank sold deposits of $21.8 million, furniture, fixtures and leasehold improvements of $221,000 and account loans of $148,000 at its two Brick, New Jersey, branch offices to another financial institution. As a result of the sale, the Bank recognized a net gain of $479,000. NON-INTEREST EXPENSES Non-interest expenses increased $156,000 to $12.8 million during the year ended December 31, 2002 compared to $12.6 million for 2001. Occupancy, federal insurance premium, advertising, equipment, loss on foreclosed real estate, and miscellaneous expenses decreased $121,000, $1,000, $53,000, $72,000, $7,000 and $394,000, respectively, during the year ended December 31, 2002, which were more than offset by increases in salaries and employee benefits of $804,000. INCOME TAXES Income tax expense totaled $4.8 million and $2.9 million during the years ended December 31, 2002 and 2001, respectively. The increase in 2002 resulted primarily from increases in pre-tax income of $4.0 million and an increase in the New Jersey income tax rate from 3% to 9% as a result of a tax law change. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 NET INCOME Net income increased by $524,000 or 11.71% to $5.0 million during the year ended December 31, 2001 compared to $4.5 million for the year ended December 31, 2000. The increase in net income during the 2001 period was primarily due to increases in total interest income of $3.4 million and in non-interest income of $345,000, which more than offset increases in total interest expense of $2.0 million, non-interest expense of $645,000, provision for loan losses of $251,000 and income taxes of $339,000. INTEREST INCOME Interest income on loans during the year ended December 31, 2001 increased by $4.0 million or 17.02% to $27.5 million when compared to $23.5 million during 2000. During the years ended December 31, 2001 and 2000, the yield earned on the loan portfolio was 8.07% and 8.27%, respectively. The average balance of Pamrapo Bancorp, Inc. 11 PAMRAPO BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) loans outstanding during the years ended December 31, 2001 and 2000, totaled $340.3 million and $284.6 million, respectively, representing an increase of $55.7 million or 19.57%. Interest on mortgage-backed securities decreased $189,000 or 2.33% during the year ended December 31, 2001 to $7.9 million compared to $8.1 million for 2000. During the year ended December 31, 2001, the average balance of mortgage-backed securities outstanding decreased $4.2 million or 3.34% to $121.6 million when compared to $125.8 million for 2000. The yield earned on the mortgage-backed securities portfolio was 6.52% and 6.45% during 2001 and 2000, respectively. Interest earned on investment securities decreased by $133,000 or 18.24% to $596,000 for the year ended December 31, 2001, when compared to $729,000 for 2000. The decrease during the year ended December 31, 2001, resulted from a decrease of $547,000 or 5.83% in the average balance of the investment securities portfolio, along with a decrease of one hundred and two basis points in the yield earned on the investment securities portfolio from 7.77% in 2000 to 6.75% in 2001. Interest on other interest-earning assets amounted to $623,000 and $780,000 during the years ended December 31, 2001 and 2000, respectively. The average balance of other interest-earning assets outstanding decreased $1.4 million or 10.23% to $11.8 million in 2001 from $13.2 million in 2000, along with a decrease of sixty-five basis points in the yield earned on other interest-earning assets from 5.91% in 2000 to 5.26% in 2001. INTEREST EXPENSE Interest on deposits increased $1.1 million or 7.97% to $14.9 million during the year ended December 31, 2001 compared to $13.8 million for 2000. The increase during 2001 was attributable to an increase of $35.4 million or 10.24% in the average balance of interest-bearing deposits outstanding partially offset by a decrease of seven basis points in the Bank's average cost of interest-bearing deposits from 3.98% for 2000 to 3.91% for 2001. Interest on advances and other borrowed money increased $898,000 or 51.70% to $2.6 million during the year ended December 31, 2001 compared to $1.7 million for 2000. The increase during 2001 was attributable to an increase of $15.9 million in the average balance of advances and other borrowings outstanding, partially offset by a decrease of eight basis points in the Bank's cost of borrowings from 5.87% for 2000 to 5.79% for 2001. NET INTEREST INCOME Net interest income for the year ended December 31, 2001, increased $1.4 million or 7.91% to $19.1 million for 2001 as compared to $17.7 million for 2000. The Bank's net interest rate spread decreased from 3.53% in 2000 to 3.48% in 2001 and its interest rate margin decreased from 4.10% in 2000 to 3.95% in 2001. The decreased net interest rate spread primarily resulted from a seven basis point decrease in the yield on average interest-earning assets to 7.59% in 2001 from 7.66% in 2000, sufficient to offset a two basis point decrease in the cost of interest-bearing liabilities from 4.13% in 2000 to 4.11% in 2001. PROVISION FOR LOAN LOSSES During the years ended December 31, 2001 and 2000, the Bank provided $459,000 and $208,000, respectively, for loan losses. At December 31, 2001 and 2000, the Bank's loan portfolio included loans totaling $3.3 million and $4.1 million, respectively, which were delinquent ninety days or more. The Bank maintains an allowance for loan losses based on management's evaluation of the risk inherent in its loan portfolio which gives due consideration to changes in general market conditions and in the nature and volume of the Bank's loan activity. The allowance for loan losses amounted to $2.15 million at December 31, 2001, representing .57% of total loans and 65.95% of loans delinquent ninety days or more compared to an allowance of $1.95 million at December 31, 2000, representing .62% of total loans and 47.74% of loans delinquent ninety days or more. During the years ended December 31, 2001 and 2000, the Bank charged off loans aggregating $273,000 and $268,000, respectively. The Bank monitors its loan portfolio and intends to continue to provide for loan losses based on its ongoing periodic review of the loan portfolio and general market conditions. NON-INTEREST INCOME Non-interest income increased by $345,000 or 21.89% to $1.9 million during the year ended December 31, 2001 as compared to $1.6 million for 12 Pamrapo Bancorp, Inc. 2000. The increase in non-interest income during 2001 resulted primarily from increases in fees and service charges of $173,000 and miscellaneous income of $172,000. NON-INTEREST EXPENSES Non-interest expenses increased $645,000 or 5.38% to $12.6 million during the year ended December 31, 2001 compared to $12.0 million for 2000. Salaries and employee benefits, occupancy, equipment and miscellaneous expenses increased $32,000, $88,000, $241,000 and $443,000, respectively, during the year ended December 31, 2001, which were partially offset by decreases in advertising, federal insurance premium, loss on foreclosed real estate and amortization of intangibles of $60,000, $2,000, $36,000 and $61,000, respectively. INCOME TAXES Income tax expense totaled $2.9 million and $2.6 million during the years ended December 31, 2001 and 2000, respectively. The increase in 2001 resulted primarily from an increase in pre-tax income of $864,000. LIQUIDITY AND CAPITAL RESOURCES The Bank's primary sources of funds are deposits, amortization and prepayments of loan and mortgage-backed securities principal, FHLB-NY advances, maturities of investment securities and funds provided from operations. While scheduled loan and mortgage-backed securities amortization and maturities of investment securities are a relatively predictable source of funds, deposit flows and loan and mortgage-backed securities prepayments are greatly influenced by market interest rates, economic conditions and competition. The Bank is required to maintain sufficient liquidity to ensure its safe and sound operation by the Office of Thrift Supervision ("OTS") regulations. The Bank's liquidity averaged 10.92% during December, 2002. The Bank adjusts its liquidity levels in order to meet funding needs for deposit outflows, payments of real estate taxes from escrow accounts on mortgage loans, repayment of borrowings, when applicable, and loan funding commitments. The Bank also adjusts its liquidity level as appropriate to meet its asset/liability objectives. In addition, the Bank invests its excess funds in federal funds and interest-bearing deposits with the FHLB-NY, which provides liquidity to meet lending requirements. The Bank's liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. Cash was generated by operating activities in each of the above periods. The primary source of cash from operating activities during each period was net income. The primary sources of investing activities of the Bank are lending and investment in mortgage-backed securities. In addition to funding new loan production and the purchase of mortgage-backed securities through operations and financing activities, new loan production and purchases of mortgage-backed securities were also funded by principal repayments on existing loans and mortgage-backed securities. The primary sources of financing activities during the 2002 period were net increases in deposits of $29.4 million and net advances from the FHLB-NY of $17.0 million. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments, such as federal funds and interest-bearing deposits. If the Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the FHLB-NY, which provide an additional source of funds. At December 31, 2002 and 2001, advances from the FHLB-NY amounted to $84.3 million and $67.3 million, respectively. The Bank anticipates that it will have sufficient funds available to meet its current loan commitments. At December 31, 2002, the Bank had outstanding commitments to originate loans and fund unused credit lines of $28.6 million. Certificates of deposit scheduled to mature in one year or less, at December 31, 2002, totaled $164.0 million. Management believes that, based upon historical experience, a significant portion of such deposits will remain with the Bank. At December 31, 2002, the Bank exceeded each of the three OTS capital requirements. The Bank's tangible, core and risk-based capital ratios were 7.08%, 7.08% and 14.35%, respectively. The Bank was categorized as "well-capitalized" under the prompt corrective action regulations of the OTS. Pamrapo Bancorp, Inc. 13 PAMRAPO BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements and the related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of the Bank are monetary in nature. As a result, interest rates have a more significant impact on the Bank's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services because such prices are affected by inflation to a larger extent than interest rates. 14 Pamrapo Bancorp, Inc. PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, ---------------------------------------- Assets Note(s) 2001 2002 - ------------------------------------------------------------------------------------------------------------------------------- Cash and amounts due from depository institutions $ 4,816,866 $ 6,172,543 Interest-bearing deposits in other banks 17,872,019 17,684,844 - ------------------------------------------------------------------------------------------------------------------------------- Total cash and cash equivalents 1 and 15 22,688,885 23,857,387 Securities available for sale 1,2,9 and 15 5,304,032 4,542,528 Investment securities held to maturity 1,3,9 and 15 5,000,000 7,095,209 Mortgage-backed securities held to maturity 1,4,9 and 15 122,417,611 146,138,326 Loans receivable 1,5,9 and 15 369,238,574 389,864,704 Foreclosed real estate 1 238,141 155,340 Investment in real estate 1 227,033 213,643 Premises and equipment 1,6 and 10 4,830,735 4,417,239 Federal Home Loan Bank of New York stock, at cost 9 3,796,100 4,403,400 Interest receivable 1,7 and 15 2,944,226 2,982,315 Deferred tax asset 1 and 13 1,221,402 779,394 Other assets 12 1,732,103 4,209,460 - ------------------------------------------------------------------------------------------------------------------------------- Total assets $ 539,638,842 $ 588,658,945 =============================================================================================================================== Liabilities and stockholders' equity - ------------------------------------------------------------------------------------------------------------------------------- Liabilities - ------------------------------------------------------------------------------------------------------------------------------- Deposits 8 and 15 $ 416,586,795 $ 445,507,415 Advances from Federal Home Loan Bank of New York 9 and 15 67,340,000 84,340,000 Other borrowed money 10 and 15 178,176 149,166 Advance payments by borrowers for taxes and insurance 3,516,532 3,835,862 Other liabilities 12 4,494,164 4,070,229 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities 492,115,667 537,902,672 =============================================================================================================================== Commitments and contingencies 14 and 15 - - Stockholders' equity 1,11, and, 13 - ------------------------------------------------------------------------------------------------------------------------------- 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 (2001) and 6,900,000 (2002); shares outstanding 2,577,293 (2001) and 5,145,986 (2002) 34,500 69,000 Paid-in capital in excess of par value 18,906,768 18,937,168 Retained earnings - substantially restricted 47,621,056 50,889,220 Accumulated other comprehensive income - Unrealized gain on securities available for sale, net of income tax 195,784 242,546 Treasury stock, at cost; 872,707 shares (2001) and 1,754,014 shares (2002) (19,234,933) (19,381,661) - ------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 47,523,175 50,756,273 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 539,638,842 $ 588,658,945 ===============================================================================================================================
See notes to consolidated financial statements. Pamrapo Bancorp, Inc. 15 PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, ------------------------------------------------------------- Note(s) 2000 2001 2002 - ------------------------------------------------------------------------------------------------------------------------------- Interest income: Loans 1 and 5 $ 23,539,700 $ 27,480,276 $ 29,266,901 Mortgage-backed securities 1 8,113,734 7,924,810 7,764,545 Investments 1 728,837 596,371 518,481 Other interest-earning assets 779,848 623,336 508,158 - ------------------------------------------------------------------------------------------------------------------------------- Total interest income 33,162,119 36,624,793 38,058,085 - ------------------------------------------------------------------------------------------------------------------------------- Interest expense: Deposits 8 13,760,987 14,908,910 11,482,660 Advances and other borrowed money 1,736,695 2,635,383 3,807,006 - ------------------------------------------------------------------------------------------------------------------------------- Total interest expense 15,497,682 17,544,293 15,289,666 - ------------------------------------------------------------------------------------------------------------------------------- Net interest income 17,664,437 19,080,500 22,768,419 Provision for loan losses 1 and 5 207,879 458,888 634,090 - ------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 17,456,558 18,621,612 22,134,329 - ------------------------------------------------------------------------------------------------------------------------------- Non-interest income: Fees and service charges 1,027,426 1,200,562 1,285,725 Gain on sale of branches - - 478,563 Miscellaneous 548,837 720,554 801,605 - ------------------------------------------------------------------------------------------------------------------------------- Total non-interest income 1,576,263 1,921,116 2,565,893 - ------------------------------------------------------------------------------------------------------------------------------- Non-interest expenses: Salaries and employee benefits 12 6,398,237 6,430,140 7,234,261 Net occupancy expense of premises 6 and 14 1,118,931 1,206,893 1,085,575 Equipment 6 1,113,677 1,354,638 1,282,556 Advertising 294,275 233,745 181,207 Federal insurance premium 75,579 74,314 73,019 Loss on foreclosed real estate 1 42,875 7,242 232 Amortization of intangibles 1 60,649 - - Miscellaneous 2,884,329 3,327,375 2,933,748 - ------------------------------------------------------------------------------------------------------------------------------- Total non-interest expenses 11,988,552 12,634,347 12,790,598 - ------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 7,044,269 7,908,381 11,909,624 Income taxes 1 and 13 2,568,659 2,907,980 4,786,232 - ------------------------------------------------------------------------------------------------------------------------------- Net income $ 4,475,610 $ 5,000,401 $ 7,123,392 =============================================================================================================================== Net income per common share: Basic/diluted 1 $ 0.85 $ 0.97 $ 1.39 =============================================================================================================================== Weighted average number of common shares outstanding: Basic/diluted 1 5,264,530 5,160,346 5,141,486 =============================================================================================================================== Dividends per common share 1 $ 0.69 $ 0.72 $ 0.75 ===============================================================================================================================
See notes to consolidated financial statements. 16 Pamrapo Bancorp, Inc. PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31, ------------------------------------------------------ 2000 2001 2002 - ---------------------------------------------------------------------------------------------------------------------------- Net income $ 4,475,610 $ 5,000,401 $ 7,123,392 - ---------------------------------------------------------------------------------------------------------------------------- Other comprehensive income, net of income taxes: Gross unrealized holding gain on securities available for sale 188,167 191,091 97,762 Deferred income taxes 67,700 68,900 51,000 - ---------------------------------------------------------------------------------------------------------------------------- Other comprehensive income 120,467 122,191 46,762 - ---------------------------------------------------------------------------------------------------------------------------- Comprehensive Income $ 4,596,077 $ 5,122,592 $ 7,170,154 ============================================================================================================================
See notes to consolidated financial statements. Pamrapo Bancorp, Inc. 17 PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
RETAINED EARNINGS - PAID-IN CAPITAL IN SUBSTANTIALLY COMMON STOCK EXCESS OF PAR VALUE RESTRICTED - ------------------------------------------------------------------------------------------------------------------ Balance - December 31,1999 $ 34,500 $ 18,906,768 $ 45,474,883 Net income for the year ended December 31, 2000 - - 4,475,610 Purchase of treasury stock - - - Unrealized gain on securities available for sale, net of income taxes - - - Cash dividends - - (3,618,057) - ------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2000 34,500 18,906,768 46,332,436 Net income for the year ended December 31, 2001 - - 5,000,401 Purchase of treasury stock - - - Unrealized gain on securities available for sale, net of income taxes - - - Cash dividends - - (3,711,781) - ------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2001 34,500 18,906,768 47,621,056 Net income for the year ended December 31, 2002 - - 7,123,392 Stock split 34,500 (34,500) - Purchase of treasury stock - - - Reissuance of treasury stock - 64,900 - Unrealized gain on securities available for sale, net of income taxes - - - Cash dividends - - (3,855,228) - ------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2002 $ 69,000 $ 18,937,168 $ 50,889,220 ================================================================================================================== ACCUMULATED OTHER COMPREHENSIVE TREASURY INCOME STOCK TOTAL - ------------------------------------------------------------------------------------------------------------------ Balance - December 31,1999 $ (46,874) $ (16,115,313) $ 48,253,964 Net income for the year ended December 31, 2000 - - 4,475,610 Purchase of treasury stock - (2,703,475) (2,703,475) Unrealized gain on securities available for sale, net of income taxes 120,467 - 120,467 Cash dividends - - (3,618,057) - ------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2000 73,593 (18,818,788) 46,528,509 Net income for the year ended December 31, 2001 - - 5,000,401 Purchase of treasury stock - (416,145) (416,145) Unrealized gain on securities available for sale, net of income taxes 122,191 - 122,191 Cash dividends - - (3,711,781) - ------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2001 195,784 (19,234,933) 47,523,175 Net income for the year ended December 31, 2002 - - 7,123,392 Stock split - - - Purchase of treasury stock - (279,328) (279,328) Reissuance of treasury stock - 132,600 197,500 Unrealized gain on securities available for sale, net of income taxes 46,762 - 46,762 Cash dividends - - (3,855,228) - ------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2002 $ 242,546 $ (19,381,661) $ 50,756,273 ==================================================================================================================
See notes to consolidated financial statements. 18 Pamrapo Bancorp, Inc. PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ---------------------------------------------------- 2000 2001 2002 - -------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 4,475,610 $ 5,000,401 $ 7,123,392 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of premises and equipment and investment in real estate 575,508 584,996 619,262 (Accretion) amortization of deferred fees, premiums and discounts, net (7,106) (7,895) 128,086 Provision for loan losses 207,879 458,888 634,090 Provision for losses on foreclosed real estate 13,500 20,037 - Loss (gain) on sale of foreclosed real estate 2,873 (34,359) (8,349) (Gain) on sale of branches - - (478,563) Deferred income taxes (benefit) (18,671) (26,319) 391,008 (Increase) in interest receivable (212,076) (178,242) (38,089) (Increase) in other assets (216,459) (440,326) (2,477,357) Amortization of intangibles 60,649 - - Increase (decrease) in other liabilities 1,217,743 (805,963) (423,935) Distribution of treasury stock - - 197,500 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 6,099,450 4,571,218 5,667,045 - --------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Principal repayments on securities available for sale 949,784 1,081,230 895,307 Purchases of securities available for sale (81,087) (570,385) (43,590) Purchases of investment securities held to maturity (1,000,000) (4,000,000) (4,110,600) Proceeds from calls of investment securities held to maturity 2,000,000 6,000,000 2,000,000 Principal repayments on mortgage-backed securities held to maturity 18,037,553 30,463,577 44,499,307 Purchases of mortgage-backed securities held to maturity (16,217,257) (34,155,728) (68,421,533) Proceeds from sales of loans 116,730 - 147,950 Purchases of mortgage loans (1,675,900) - - Net change in loans receivable (39,418,857) (60,394,792) (21,311,805) Proceeds from sales of foreclosed real estate 42,127 335,017 91,150 Additions to premises and equipment (1,131,746) (359,171) (413,813) Proceeds from sale of premises and equipment - - 221,437 Purchase of Federal Home Loan Bank of New York stock (253,000) (299,900) (607,300) - --------------------------------------------------------------------------------------------------------------------------------- Net cash (used in) investing activities (38,631,653) (61,900,152) (47,053,490) - ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. Pamrapo Bancorp, Inc. 19 PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year Ended December 31, ------------------------------------------------------- 2000 2001 2002 - ------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits $ 17,485,188 $ 37,176,939 $ 50,726,043 Cash paid for sale of deposits - - (21,326,860) Advances from Federal Home Loan Bank of New York 15,000,000 35,000,000 25,000,000 Repayment of Advances from Federal Home Loan Bank of New York (10,000,000) (3,243,100) (8,000,000) Net (decrease) in other borrowed money (24,734) (26,786) (29,010) Net (decrease) increase in payments by borrowers for taxes and insurance (414,945) 984,838 319,330 Cash dividends paid (3,618,057) (3,711,781) (3,855,228) Purchase of treasury stock (2,703,475) (416,145) (279,328) - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 15,723,977 65,763,965 42,554,947 - ------------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (16,808,226) 8,435,031 1,168,502 Cash and cash equivalents - beginning 31,062,080 14,253,854 22,688,885 - ------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents - ending $ 14,253,854 $ 22,688,885 $ 23,857,387 - ------------------------------------------------------------------------------------------------------------------------------- Supplemental information: Transfer of loans receivable to foreclosed real estate $ 222,376 $ 33,264 $ - - ------------------------------------------------------------------------------------------------------------------------------- Loans to facilitate sales of foreclosed real estate $ - $ 94,500 $ - - ------------------------------------------------------------------------------------------------------------------------------- Cash paid during the period for: Income taxes $ 2,560,280 $ 2,775,334 $ 4,830,390 - ------------------------------------------------------------------------------------------------------------------------------- Interest on deposits and borrowings $ 15,479,682 $ 17,551,080 $ 15,348,766 - -------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 20 Pamrapo Bancorp, Inc. 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 Company, its wholly owned subsidiary, Pamrapo Savings Bank, S.L.A. (the "Bank") and the Bank's wholly owned subsidiary, Pamrapo Service Corp., Inc. (the "Service Corp."). The Company's business is conducted principally through the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). 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 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, 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, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area. Additionally, assessments of prepayment risks related to mortgage-backed securities are based upon current market conditions, which are subject to frequent change. Finally, the determination of the amount of deferred tax assets more likely than not to be realized is dependent on projections of future earnings, which are subject to frequent change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance for loan losses 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 and interest-bearing deposits in other banks having original maturities of three months or less. INVESTMENT AND MORTGAGE-BACKED SECURITIES Investments in debt securities that the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt and equity securities not classified as trading securities nor as held-to-maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in a separate component of stockholders' equity. Premiums and discounts on all securities are amortized/ accreted using the interest method. Interest and dividend income on securities, which includes amortization of premiums and accretion of discounts, is recognized in the consolidated financial statements when earned. The adjusted cost basis of an identified security sold or called is used for determining security gains and losses recognized in the consolidated statements of income. LOANS RECEIVABLE Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees and discounts. The Bank defers loan origination fees and certain direct loan origination costs and amortizes/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 man- Pamrapo Bancorp, Inc. 21 PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) agement'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 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 Bank utilizes a two tier approach:(1) identification of impaired loans and the establishment of specific loss allowances, if necessary, on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The 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 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 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 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 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 Bank does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal. FORECLOSED REAL ESTATE AND INVESTMENT IN REAL ESTATE Real estate acquired by foreclosure or deed in lieu of foreclosure is initially recorded at the lower of cost or estimated fair value at date of acquisition and subsequently carried at the lower of such initially recorded amount or estimated fair value less estimated costs to sell. Costs incurred in developing or preparing properties for sale are capitalized. Expenses of holding properties and income from operating properties are recorded in operations as incurred or earned. Gains and losses from sales of such properties are recognized as incurred. Real estate held for investment is carried at cost less accumulated depreciation. Income and expense of operating the property are recorded in operations. PREMISES AND EQUIPMENT Premises and equipment are comprised of land, at cost, and buildings, building improvements, leaseholds and furnishings and equipment, at cost, less accumulated depreciation and amortization. Significant renewals and betterments are charged to the property and equipment account. Maintenance and repairs are expensed in the year incurred. Rental income is netted against occupancy expense in the consolidated statements of income. INCOME TAXES The Company, Bank and Service Corp. file a consolidated federal income tax return. Income taxes are allocated to the Company, 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 Company, Bank and Service Corp. Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the Company'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 22 Pamrapo Bancorp, Inc. 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 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 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 Bank's assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used in estimating the fair value of its financial instruments: Cash and cash equivalents and interest receivable: The carrying amounts reported in the consolidated financial statements for cash and cash equivalents and interest receivable approximate their fair values. Securities: The fair value of securities, as well as commitments to purchase securities, is determined by reference to quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans receivable: 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 approximate 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 was 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. During the years ended December 31, 2000, 2001, and 2002, there were no outstanding securities or contracts that could have been dilutive. On April 30, 2002, the Board of Directors declared a two-for-one stock split which was paid on May 29, 2002, in the form of a stock dividend on the Company's common stock to shareholders of record on May 15, 2002. Net income per common share, dividends per common share, and weighted average number of common shares outstanding have been adjusted to reflect the two-for-one stock split. RECLASSIFICATION Certain amounts for prior periods have been reclassified to conform to the current period's presentation. Pamrapo Bancorp, Inc. 23 PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. SECURITIES AVAILABLE FOR SALE
December 31, 2001 - ------------------------------------------------------------------------------------------------------------------------------- Gross Unrealized Amortized ---------------------------------- Carrying Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------------- Mortgage-backed securities $ 3,092,701 $ 45,986 $ - $ 3,138,687 Mutual funds 1,398,327 - 1,045 1,397,282 Trust originated preferred security, maturing after twenty years 500,000 3,400 - 503,400 Equity security 7,020 257,643 - 264,663 - ------------------------------------------------------------------------------------------------------------------------------- $ 4,998,048 $ 307,029 $ 1,045 $ 5,304,032 =============================================================================================================================== DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------- GROSS UNREALIZED AMORTIZED ---------------------------------- CARRYING COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------------------------------------------------------- Mortgage-backed securities $ 2,189,845 $ 58,207 $ - $ 2,248,052 Mutual funds 1,441,917 400 - 1,442,317 Trust originated preferred security, maturing after twenty years 500,000 25,000 - 525,000 Equity security 7,020 320,139 - 327,159 - ------------------------------------------------------------------------------------------------------------------------------- $ 4,138,782 $ 403,746 $ - $ 4,542,528 ===============================================================================================================================
There were no sales of securities available for sale during the years ended December 31, 2000, 2001 and 2002. 24 Pamrapo Bancorp, Inc. 3. INVESTMENT SECURITIES HELD TO MATURITY
December 31, 2001 - ------------------------------------------------------------------------------------------------------------------------------- Gross Unrealized Amortized ---------------------------------- Estimated Cost Gains Losses Fair Value - ------------------------------------------------------------------------------------------------------------------------------- U.S. Government (including agencies): Due after five through ten years $ 2,000,000 $ 12,500 $ - $ 2,012,500 Subordinated notes due after five through ten years 3,000,000 35,000 30,307 3,004,693 - ------------------------------------------------------------------------------------------------------------------------------- $ 5,000,000 $ 47,500 $ 30,307 $ 5,017,193 =============================================================================================================================== DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------- GROSS UNREALIZED AMORTIZED ---------------------------------- ESTIMATED COST GAINS LOSSES FAIR VALUE - ------------------------------------------------------------------------------------------------------------------------------- Subordinated notes due after five through ten years $ 7,095,209 $ 365,801 $ - $ 7,461,010 ===============================================================================================================================
There were no sales of investment securities held to maturity during the years ended December 31, 2000, 2001 and 2002. Pamrapo Bancorp, Inc. 25 PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
December 31, 2001 - ----------------------------------------------------------------------------------------------------------------------------- Gross Unrealized Amortized ------------------------------------ Estimated Cost Gains Losses Fair Value - ----------------------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation $ 79,433,582 $ 1,820,697 $ 209,129 $ 81,045,150 Federal National Mortgage Association 40,922,509 487,066 16,372 41,393,203 Government National Mortgage Association 2,061,520 77,903 - 2,139,423 - ----------------------------------------------------------------------------------------------------------------------------- $ 122,417,611 $ 2,385,666 $ 225,501 $ 124,577,776 ============================================================================================================================= DECEMBER 31, 2002 - ----------------------------------------------------------------------------------------------------------------------------- GROSS UNREALIZED AMORTIZED ------------------------------------ ESTIMATED COST GAINS LOSSES FAIR VALUE - ----------------------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation $ 98,734,189 $ 3,871,401 $ - $ 102,605,590 Federal National Mortgage Association 38,481,631 1,718,481 1,385 40,198,727 Government National Mortgage Association 1,217,349 91,901 - 1,309,250 Collateralized Mortgage Obligations 7,705,157 153,372 - 7,858,529 - ----------------------------------------------------------------------------------------------------------------------------- $ 146,138,326 $ 5,835,155 $ 1,385 $ 151,972,096 =============================================================================================================================
There were no sales of mortgage-backed securities held to maturity during the years ended December 31, 2000, 2001 and 2002. 26 Pamrapo Bancorp, Inc. 5. LOANS RECEIVABLE
December 31, - ---------------------------------------------------------------------------------------- 2001 2002 - ---------------------------------------------------------------------------------------- Real estate mortgage: One-to-four family $ 230,374,470 $ 253,972,105 Multi-family 44,616,664 37,069,398 Commercial 28,258,043 31,624,172 FHA insured and VA guaranteed 285,891 186,109 - ---------------------------------------------------------------------------------------- 303,535,068 322,851,784 - ---------------------------------------------------------------------------------------- Real estate construction 7,067,870 6,519,779 - ---------------------------------------------------------------------------------------- Land 1,403,441 1,372,803 - ---------------------------------------------------------------------------------------- Commercial 1,262,477 658,216 - ---------------------------------------------------------------------------------------- Consumer: Passbook or certificate 688,520 552,252 Home improvement 575,917 336,268 Equity and second mortgage 56,958,107 59,233,431 Automobile 1,484,381 1,243,333 Personal 1,293,763 1,297,740 - ---------------------------------------------------------------------------------------- 61,000,688 62,663,024 - ---------------------------------------------------------------------------------------- Total 374,269,544 394,065,606 - ---------------------------------------------------------------------------------------- Less: Loans in process 2,271,587 1,882,044 Allowance for loan losses 2,150,000 2,550,000 Deferred loan fees (costs) and discounts 609,383 (231,142) - ---------------------------------------------------------------------------------------- 5,030,970 4,200,902 - ---------------------------------------------------------------------------------------- $ 369,238,574 $ 389,864,704 ========================================================================================
At December 31, 2000, 2001 and 2002, loans serviced by the Bank for the benefit of others totaled approximately $2,249,000, $1,584,000 and $1,104,000, respectively. At December 31, 2000, 2001 and 2002, nonaccrual loans for which interest has been discontinued totaled approximately $2,703,000, $2,256,000, and $1,485,000, respectively. During the years ended December 31, 2000, 2001 and 2002, the Bank recognized interest income of approximately $71,000, $88,000, and $24,000, respectively, on these loans. Interest income that would have been recorded, had the loans been on the accrual status, would have amounted to approximately $270,000, $230,000, and $151,000 for the years ended December 31, 2000, 2001 and 2002, respectively. The 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, - ----------------------------------------------------------------------------------------------- 2000 2001 2002 - ----------------------------------------------------------------------------------------------- Balance, beginning $ 2,000,000 $ 1,950,000 $ 2,150,000 Provisions charged to operations 207,879 458,888 634,090 Recoveries credited to allowance 9,860 14,432 10,346 Loan losses charged to allowance (267,739) (273,320) (244,436) - ----------------------------------------------------------------------------------------------- Balance, ending $ 1,950,000 $ 2,150,000 $ 2,550,000 ===============================================================================================
Impaired loans and related amounts recorded in the allowance for loan losses are summarized as follows: December 31, - ----------------------------------------------------------------------------- 2001 2002 - ----------------------------------------------------------------------------- Recorded investment in impaired loans: With recorded allowances $ 41,487 $ 32,959 Without recorded allowances 2,183,808 1,566,438 - ----------------------------------------------------------------------------- Total impaired loans 2,225,295 1,599,397 Related allowance for loan losses 41,487 32,959 - ----------------------------------------------------------------------------- Net impaired loans $ 2,183,808 $ 1,566,438 ============================================================================= The activity with respect to loans to directors, officers and associates of such persons, is as follows: Year Ended December 31, - -------------------------------------------------------------------------- 2002 - -------------------------------------------------------------------------- Balance, beginning $ 2,151,266 Loans originated 686,281 Now associated 93,840 Collection of principal (821,850) - -------------------------------------------------------------------------- Balance, ending $ 2,109,537 ========================================================================== Pamrapo Bancorp, Inc. 27 PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. PREMISES AND EQUIPMENT December 31, - ---------------------------------------------------------------------------- 2001 2002 - ---------------------------------------------------------------------------- Land $ 701,625 $ 701,625 - ---------------------------------------------------------------------------- Buildings and improvements 4,027,388 4,027,388 Less accumulated depreciation 1,686,978 1,817,150 - ---------------------------------------------------------------------------- 2,340,410 2,210,238 - ---------------------------------------------------------------------------- Leasehold improvements 1,590,555 1,190,690 Less accumulated amortization 573,690 516,257 - ---------------------------------------------------------------------------- 1,016,865 674,433 - ---------------------------------------------------------------------------- Furnishings and equipment 5,443,180 5,693,398 Less accumulated depreciation 4,671,345 4,862,455 - ---------------------------------------------------------------------------- 771,835 830,943 - ---------------------------------------------------------------------------- $ 4,830,735 $ 4,417,239 ============================================================================ Depreciation expense for the years ended December 31, 2000, 2001, and 2002 totaled approximately $561,000,$571,000, and $606,000, 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, - --------------------------------------------------------------------------- 2001 2002 - --------------------------------------------------------------------------- Loans, net of allowance for uncollected interest of approximately $136,000 and $130,000, respectively $ 2,126,962 $ 2,078,868 Mortgage-backed securities 711,617 756,356 Investment securities 105,647 147,091 - --------------------------------------------------------------------------- $ 2,944,226 $ 2,982,315 =========================================================================== 28 Pamrapo Bancorp, Inc. 8. DEPOSITS
December 31, - ----------------------------------------------------------------------------------------------------------------------------- 2001 2002 - ----------------------------------------------------------------------------------------------------------------------------- Weighted WEIGHTED Average AVERAGE Rate Amount Percent RATE AMOUNT PERCENT - ----------------------------------------------------------------------------------------------------------------------------- Demand: Non-interest-bearing demand 0.00% $ 26,247,595 6.30 0.00% $ 26,313,782 5.91 NOW 1.50% 32,335,151 7.76 1.26% 33,200,162 7.45 - ----------------------------------------------------------------------------------------------------------------------------- 0.83% 58,582,746 14.06 0.70% 59,513,944 13.36 Money Market 2.22% 28,292,792 6.79 2.11% 32,594,320 7.31 Savings and club 2.33% 137,112,652 32.92 2.34% 155,430,932 34.89 Certificates of deposit 4.29% 192,598,605 46.23 3.18% 197,968,219 44.44 - ----------------------------------------------------------------------------------------------------------------------------- 3.02% $ 416,586,795 100.00 2.48% $ 445,507,415 100.00 =============================================================================================================================
The scheduled maturities of certificates of deposit are as follows (in thousands): December 31, - ------------------------------------------------------------------------- Maturity Period 2001 2002 - ------------------------------------------------------------------------- One year or less $ 164,029 $ 164,187 After one to three years 25,811 30,150 After three years 2,759 3,631 - ------------------------------------------------------------------------- $ 192,599 $ 197,968 - ------------------------------------------------------------------------- Certificates of deposit of $100,000 or more by the time remaining until maturity are as follows (in thousands): December 31, - ------------------------------------------------------------------------- Maturity Period 2001 2002 - ------------------------------------------------------------------------- Three months or less $ 17,394 $ 11,880 After three through six months 11,743 12,107 After six through twelve months 18,467 24,510 After twelve months 8,231 9,346 - ------------------------------------------------------------------------- $ 55,835 $ 57,843 ========================================================================= A summary of interest on deposits follows:
Year Ended December 31, - ------------------------------------------------------------------------------------------------ 2000 2001 2002 - ------------------------------------------------------------------------------------------------ Demand $ 1,225,308 $ 1,147,870 $ 1,080,086 Savings and club 2,629,007 3,281,412 3,428,455 Certificates of deposit 9,923,003 10,490,771 6,983,647 - ------------------------------------------------------------------------------------------------ 13,777,318 14,920,053 11,492,188 Less penalties for early withdrawal of certificates of deposit (16,331) (11,143) (9,528) - ------------------------------------------------------------------------------------------------ $ 13,760,987 $ 14,908,910 $ 11,482,660 ================================================================================================
Pamrapo Bancorp, Inc. 29 PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK
December 31, - ------------------------------------------------------------------------------------------- 2001 2002 - ------------------------------------------------------------------------------------------- Weighted Weighted Maturing Average Average by Interest Interest December 31, Rate Amount Rate Amount - ------------------------------------------------------------------------------------------- 2002 5.57% $ 8,000,000 -% $ - 2003 5.50% 27,340,000 5.50% 27,340,000 2004 4.04% 5,000,000 3.49% 12,000,000 2005 4.54% 5,000,000 3.98% 13,000,000 2006 4.84% 5,000,000 4.47% 12,000,000 2007 -% - 3.50% 3,000,000 2008 4.85% 7,000,000 4.85% 7,000,000 2010 6.19% 10,000,000 6.19% 10,000,000 - ------------------------------------------------------------------------------------------- 5.32% $ 67,340,000 4.79% $ 84,340,000 ===========================================================================================
At December 31, 2001 and 2002, the advances were secured by pledges of the Bank's investment in the capital stock of the Federal Home Loan Bank of New York totaling $3,796,100, and $4,403,400 respectively, and a blanket assignment of the Bank's unpledged qualifying mortgage loans, mortgage-backed securities and investment securities portfolios. 10. OTHER BORROWED MONEY December 31, - --------------------------------------------------------------- 2001 2002 - --------------------------------------------------------------- Interest Interest Rate Amount Rate Amount - --------------------------------------------------------------- Mortgage loan 8.00% $ 178,176 8.00% $ 149,166 =============================================================== 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 $1,370,000 and $1,340,000 at December 31, 2001 and 2002, respectively. 11. REGULATORY CAPITAL For the purpose of granting to eligible account holders a priority in the event of future liquidation, the 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 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 Bank below the amount required by the special account. The Bank is subject to various regulatory capital requirements administered by the 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 Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The 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 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 adjusted total assets (as defined). The following tables present a reconciliation of capital per GAAP and regulatory capital and information as to the Bank's capital levels at the dates presented:
December 31, - --------------------------------------------------------------------------------- 2001 2002 - --------------------------------------------------------------------------------- GAAP capital $ 41,205 $ 43,757 Less: Investment in and advances to non-includable subsidiary (2,017) (2,040) Unrealized (gain) on securities available for sale (196) (243) - --------------------------------------------------------------------------------- Core and tangible capital 38,992 41,474 Add: general valuation allowance 2,108 2,517 - --------------------------------------------------------------------------------- Total regulatory capital $ 41,100 $ 43,991 =================================================================================
30 Pamrapo Bancorp, Inc.
To Be Well Capitalized Under Prompt Minimum Capital Corrective (Dollars in Thousands) Actual Requirements Action Provisions - ------------------------------------------------------------------------------------------------------------------------------ Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------------------------ December 31, 2001: Total Capital (to risk-weighted assets) $ 41,100 14.43% $ 22,789 8.00% $ 28,487 10.00% Tier 1 Capital (to risk-weighted assets) 38,993 13.69% - - 17,092 6.00% Core (Tier 1) Capital (to adjusted total assets) 38,993 7.26% 21,489 4.00% 26,861 5.00% Tangible Capital (to adjusted total assets) 38,993 7.26% 8,058 1.50% - - DECEMBER 31, 2002: Total Capital (to risk-weighted assets) $ 43,991 14.35% $ 24,518 8.00% $ 30,648 10.00% Tier 1 Capital (to risk-weighted assets) 41,474 13.53% - - 18,389 6.00% Core (Tier 1) Capital (to adjusted total assets) 41,474 7.08% 23,440 4.00% 29,300 5.00% Tangible Capital (to adjusted total assets) 41,474 7.08% 8,790 1.50% - -
As of September 30, 2001, the most recent notification from the Office of Thrift Supervision, the 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. Pamrapo Bancorp, Inc. 31 PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. BENEFIT PLANS PENSION PLAN ("PLAN") The 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 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, - ---------------------------------------------------------------------------------------- 2001 2002 - ---------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 3,730,084 $ 4,470,707 Service cost 192,887 230,791 Interest cost 296,009 336,367 Actuarial loss 352,452 752,164 Benefits paid (100,725) (119,682) - ---------------------------------------------------------------------------------------- Benefit obligation at end of year $ 4,470,707 $ 5,670,347 ======================================================================================== CHANGE IN PLAN ASSETS Fair value of assets at beginning of year $ 3,410,719 $ 3,408,608 Actual loss on plan assets (238,917) (181,718) Employer contributions 337,531 2,336,814 Benefits paid (100,725) (119,682) - ---------------------------------------------------------------------------------------- Fair value of assets at end of year $ 3,408,608 $ 5,444,022 ========================================================================================
December 31, - ---------------------------------------------------------------------------------------- 2001 2002 - ---------------------------------------------------------------------------------------- RECONCILIATION OF FUNDED STATUS Accumulated benefit obligation $ 3,634,438 $ 4,918,612 ======================================================================================== Projected benefit obligation $ 4,470,707 $ 5,670,347 Fair value of assets (3,408,608) (5,444,022) - ---------------------------------------------------------------------------------------- Funded status 1,062,099 226,325 Contributed in fourth quarter (412,777) - Unrecognized net (loss) (1,266,737) (2,295,871) Unrecognized past service liability - (161,550) - ---------------------------------------------------------------------------------------- (Prepaid) expense included in other assets $ (617,415) $ (2,231,096) ========================================================================================
Year Ended December 31, - -------------------------------------------------------------------------------------------------------------------- 2000 2001 2002 - -------------------------------------------------------------------------------------------------------------------- NET PERIODIC PENSION EXPENSE Service cost $ 168,854 $ 192,887 $ 230,791 Interest cost 273,500 296,009 336,367 Expected return on assets (259,404) (297,851) (338,524) Amortization of unrecognized loss - 1,256 68,393 Unrecognized past service liability - - 13,329 - -------------------------------------------------------------------------------------------------------------------- Net periodic pension expense $ 182,950 $ 192,301 $ 310,356 ====================================================================================================================
Assumptions used in the accounting for the Plan are as follows:
Year Ended December 31, - -------------------------------------------------------------------------------------------------------------------- 2000 2001 2002 - -------------------------------------------------------------------------------------------------------------------- Discount rate 8.00% 8.00% 7.25% Rate of increase in compensation 5.00% 5.00% 4.50% Long-term rate of return on plan assets 8.50% 8.50% 8.50% ====================================================================================================================
SAVINGS AND INVESTMENT PLAN ("SIP") The 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, $118,000, $106,000 and $124,000 for the years ended December 31, 2000, 2001 and 2002, respectively. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP") The Bank has an unfunded non-qualified deferred retirement plan for certain employees. A participant who retires at age 65 (the "Normal Retirement Age"), is entitled to an annual retirement benefit equal to 75% of his compensation reduced by his retirement plan annual benefits. Participants retiring before the Normal Retirement Age receive the same benefits reduced by a percentage based on years of service to the Bank and the number of years prior to the Normal Retirement Age that participant retires. 32 Pamrapo Bancorp, Inc. The following tables set forth the SERP's funded status and components of net periodic SERP cost: December 31, - ---------------------------------------------------------------------------- 2001 2002 - ---------------------------------------------------------------------------- Projected benefit obligation - at beginning of year $ 2,094,942 $ 2,596,758 Service cost - (11,265) Interest cost 173,378 177,653 Actuarial loss 153,493 345,576 Benefit payments (121,497) (33,456) Plan amendment 296,442 (284,504) - ---------------------------------------------------------------------------- Projected benefit obligation - at end of year 2,596,758 2,790,762 Plan assets at fair value - - - ---------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets 2,596,758 2,790,762 Unrecognized net loss (622,887) (895,743) Benefit paid in fourth quarter - (64,928) Unrecognized past service liability (985,122) (588,702) - ---------------------------------------------------------------------------- Accrued SERP cost included in other liabilities $ 988,749 $ 1,241,389 ============================================================================ Net periodic SERP cost included the following components: Year Ended December 31, - ------------------------------------------------------------------- 2000 2001 2002 - ------------------------------------------------------------------- Service cost $ - $ - $ (11,265) Interest cost 153,150 173,378 177,653 Net amortization 113,842 150,029 184,636 - ------------------------------------------------------------------- Net periodic SERP cost $ 266,992 $ 323,407 $ 351,024 =================================================================== Contributions made $ 66,901 $ 121,497 $ 163,312 =================================================================== Assumptions used in the accounting for the SERP are as follows: Year Ended December 31, - ------------------------------------------------ 2000 2001 2002 - ------------------------------------------------ Discount rate 8.00% 8.00% 7.25% Rate of increase in compensation 5.50% 5.50% 4.50% Amortization period (in years) 7.96 6.37 4.94 ================================================ 13. INCOME TAXES The 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, 2002, include approximately $6,907,000 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. 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, - ----------------------------------------------------------------------------- 2001 2002 - ----------------------------------------------------------------------------- Deferred tax assets Allowance for losses $ 799,451 $ 1,044,130 Deferred loan fees 174,844 130,326 Depreciation 129,356 98,391 Reserve for uncollected interest 48,888 43,677 Benefit plans 179,063 - - ----------------------------------------------------------------------------- 1,331,602 1,316,524 - ----------------------------------------------------------------------------- Deferred tax liabilities Benefit plans - 375,930 Unrealized gain on securities available for sale 110,200 161,200 - ----------------------------------------------------------------------------- 110,200 537,130 - ----------------------------------------------------------------------------- Net deferred tax assets $ 1,221,402 $ 779,394 ============================================================================= The components of income taxes are summarized as follows: Year Ended December 31, - ------------------------------------------------------- 2000 2001 2002 - ------------------------------------------------------- Current $ 2,587,330 $ 2,934,299 $ 4,395,224 Deferred (18,671) (26,319) 391,008 - ------------------------------------------------------- $ 2,568,659 $ 2,907,980 $ 4,786,232 ======================================================= Pamrapo Bancorp, Inc. 33 PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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, - -------------------------------------------------------------------------------------- 2000 2001 2002 - -------------------------------------------------------------------------------------- Federal income tax $ 2,395,051 $ 2,688,850 $ 4,049,272 Increases in income taxes resulting from: New Jersey income tax, net of federal income tax effect 147,989 168,315 603,430 Other items, net 25,619 50,815 133,530 - -------------------------------------------------------------------------------------- Effective income tax $ 2,568,659 $ 2,907,980 $ 4,786,232 ======================================================================================
14. COMMITMENTS AND CONTINGENCIES The 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 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 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 obtained, if deemed necessary by the 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 Bank had loan commitments outstanding as follows: December 31, - ----------------------------------------------------------- 2001 2002 - ----------------------------------------------------------- To originate loans $ 27,097,000 $ 18,415,000 =========================================================== At December 31, 2002, all the outstanding commitments to originate loans are at fixed interest rates which range from 5.75% to 8.25%. All commitments are due to expire within ninety days. At December 31, 2002, undisbursed funds from approved lines of credit under a homeowners' equity and a commercial equity lending program amounted to approximately $8,487,000 and $1,656,000, respectively. Unless they are specifically cancelled by notice from the Bank, these funds represent firm commitments available to the respective borrowers on demand. The interest rates charged for any month on funds disbursed under these programs range from 0% to 4.25% above the prime rate. Rental expenses related to the occupancy of premises totaled $306,000, $312,000 and $272,000 for the years ended December 31, 2000, 2001 and 2002, respectively. At December 31, 2002, minimum non-cancellable obligations under lease agreements with original terms of more than one year are as follows: December 31, Amount - --------------------------------------------------------- 2003 $ 174,000 2004 158,000 2005 161,000 2006 165,000 2007 166,000 Thereafter 378,000 - --------------------------------------------------------- $ 1,202,000 ========================================================= The 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 Company. 34 Pamrapo Bancorp, Inc. 15. FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts and fair value of the financial instruments are as follows (in thousands):
December 31, 2001 - ------------------------------------------------------------------------------------------------------- 2001 2002 - ------------------------------------------------------------------------------------------------------- Carrying CARRYING Value Fair Value VALUE FAIR VALUE - ------------------------------------------------------------------------------------------------------- FINANCIAL ASSETS Cash and cash equivalents $ 22,689 $ 22,689 $ 23,857 $ 23,857 Securities available for sale 5,304 5,304 4,543 4,543 Investment securities held to maturity 5,000 5,017 7,095 7,461 Mortgage-backed securities held to maturity 122,418 124,578 146,138 151,972 Loans receivable 369,239 371,477 389,865 400,548 Interest receivable 2,944 2,944 2,982 2,982 FINANCIAL LIABILITIES Deposits 416,587 418,319 445,507 446,626 Advances and other borrowed money 67,518 68,109 84,489 88,896 COMMITMENTS To originate loans 27,097 27,097 18,415 18,415 Unused lines of credit 8,403 8,403 10,143 10,143 To purchase securities 5,914 5,914 - -
Pamrapo Bancorp, Inc. 35 PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale. In addition, the fair value estimates were based on existing on-and-off balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include mortgage servicing rights, premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values. 16. PARENT COMPANY FINANCIAL INFORMATION The following condensed financial statements of the Company should be read in conjunction with the Notes to Consolidated Financial Statements. STATEMENTS OF FINANCIAL CONDITION December 31, - ------------------------------------------------------------------- ASSETS 2001 2002 - ------------------------------------------------------------------- Cash and cash equivalents $ 6,121,603 $ 6,812,987 Investment in subsidiary 41,204,870 43,757,083 Refundable income taxes 111,836 120,965 Other assets 187,866 178,328 - ------------------------------------------------------------------- Total assets $ 47,626,175 $ 50,869,363 =================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Other liabilities $ 103,000 $ 113,090 - ------------------------------------------------------------------- Total liabilities 103,000 113,090 - ------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock 34,500 69,000 Paid-in-capital in excess of par value 18,906,768 18,937,168 Retained earnings - substantially restricted 47,816,840 51,131,766 Treasury stock, at cost (19,234,933) (19,381,661) - ------------------------------------------------------------------- Total stockholders' equity 47,523,175 50,756,273 - ------------------------------------------------------------------- Total liabilities and stockholders' equity $ 47,626,175 $ 50,869,363 =================================================================== 36 Pamrapo Bancorp, Inc. STATEMENTS OF INCOME
Year Ended December 31, - -------------------------------------------------------------------------------------------------------------- 2000 2001 2002 - -------------------------------------------------------------------------------------------------------------- Dividends from subsidiary $ 7,000,000 $ 5,000,000 $ 5,000,000 Interest income 6,139 5,306 5,364 - -------------------------------------------------------------------------------------------------------------- Total income 7,006,139 5,005,306 5,005,364 Expenses 392,540 470,761 507,798 - -------------------------------------------------------------------------------------------------------------- Income before equity in undistributed earnings of subsidiary and income taxes (benefit) 6,613,599 4,534,545 4,497,566 Equity in undistributed earnings of subsidiary (2,250,305) 354,260 2,505,451 - -------------------------------------------------------------------------------------------------------------- Income before income taxes (benefit) 4,363,294 4,888,805 7,003,017 Income taxes (benefit) (112,316) (111,596) (120,375) - -------------------------------------------------------------------------------------------------------------- Net income $ 4,475,610 $ 5,000,401 $ 7,123,392 ==============================================================================================================
STATEMENTS OF CASH FLOWS
Year Ended December 31, - -------------------------------------------------------------------------------------------------------------- 2000 2001 2002 - -------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 4,475,610 $ 5,000,401 $ 7,123,392 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiary 2,250,305 (354,260) (2,505,451) Decrease (increase) in refundable income taxes 93,833 (87,119) (9,129) (Increase) decrease in other assets (21,081) 2,193 9,538 (Decrease) increase in other liabilities (307,762) 14,196 10,090 Distribution of treasury stock - - 197,500 - -------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 6,490,905 4,575,411 4,825,940 - -------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Cash dividends paid (3,618,057) (3,711,781) (3,855,228) Purchase of treasury stock (2,703,475) (416,145) (279,328) - -------------------------------------------------------------------------------------------------------------- Net cash (used in) financing activities (6,321,532) (4,127,926) (4,134,556) - ------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 169,373 447,485 691,384 Cash and cash equivalents - beginning 5,504,745 5,674,118 6,121,603 - -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents - ending $ 5,674,118 $ 6,121,603 $ 6,812,987 ==============================================================================================================
Pamrapo Bancorp, Inc. 37 PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except for per share amounts) First Second Third Fourth Year Ended December 31, 2001 Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------- Interest income $ 8,777 $ 8,928 $ 9,429 $ 9,491 Interest expense 4,461 4,488 4,474 4,121 - ------------------------------------------------------------------------------------------------------- Net interest income 4,316 4,440 4,955 5,370 Provision for loan losses 60 60 150 189 Non-interest income 443 392 458 628 Non-interest expenses 3,046 3,150 3,256 3,183 Income taxes 609 599 736 964 - ------------------------------------------------------------------------------------------------------- Net income $ 1,044 $ 1,023 $ 1,271 $ 1,662 ======================================================================================================= Net income per common share: Basic/diluted $ 0.20 $ 0.20 $ 0.24 $ 0.33 ======================================================================================================= Dividends per common share $ 0.18 $ 0.18 $ 0.18 $ 0.18 ======================================================================================================= (In thousands, except for per share amounts) FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 2002 QUARTER QUARTER QUARTER QUARTER - ------------------------------------------------------------------------------------------------------- Interest income $ 9,603 $ 9,592 $ 9,486 $ 9,377 Interest expense 3,917 3,780 3,812 3,781 - ------------------------------------------------------------------------------------------------------- Net interest income 5,686 5,812 5,674 5,596 Provision for loan losses 210 225 125 74 Non-interest income 530 504 943 589 Non-interest expenses 2,966 3,243 3,257 3,325 Income taxes 1,109 1,023 1,484 1,170 - ------------------------------------------------------------------------------------------------------- Net income $ 1,931 $ 1,825 $ 1,751 $ 1,616 ======================================================================================================= Net income per common share: Basic/diluted $ 0.37 $ 0.36 $ 0.34 $ 0.32 ======================================================================================================= Dividends per common share $ 0.1875 $ 0.1875 $ 0.1875 $ 0.1875 =======================================================================================================
38 Pamrapo Bancorp, Inc. PAMRAPO BANCORP, INC. AND SUBSIDIARIES 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 "Company") and Subsidiaries as of December 31, 2001 and 2002, 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, 2002. These consolidated financial statements are the responsibility of the Company'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 auditing standards generally accepted in the United States of America. 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, 2001 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ Radics & Co., LLC January 31, 2003 Pine Brook, New Jersey Pamrapo Bancorp, Inc. 39 PAMRAPO BANCORP, INC. AND SUBSIDIARIES MANAGEMENT RESPONSIBILITY STATEMENT Management of Pamrapo Bancorp, Inc. and Subsidiaries is responsible for the preparation of the consolidated financial statements and all other consolidated financial information included in this report. Consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. All consolidated financial information included in the report agrees with the consolidated financial statements. In preparing the consolidated financial statements, management makes informed estimates and judgments with consideration given to materiality about the expected results of various events and transactions. Management maintains a system of internal accounting control that includes personnel selection, appropriate division of responsibilities, and formal procedures and policies consistent with high standards of accounting and administrative practice. Consideration has been given to the necessary balance between the costs of systems of internal control and the benefits derived. Management reviews and modifies its systems of accounting and internal control in light of changes in conditions and operations as well as in response to recommendations from the independent certified public accountants. Management believes the accounting and internal control systems provide reasonable assurance that assets are safeguarded and the consolidated financial information is reliable. The Board of Directors is responsible for determining that management fulfills its responsibilities in the preparation of the consolidated financial statements and the control of operations. The Board appoints the independent certified public accountants. The Board meets with management, the independent certified public accountants, and also the internal auditor, approves the overall scope of audit work and related fee arrangements, and reviews audit reports and findings. /s/ William J. Campbell William J. Campbell President and Chief Executive Officer /s/ Kenneth D. Walter Kenneth D. Walter Vice President-Treasurer and Chief Financial Officer /s/ Robert A. Hughes Robert A. Hughes Vice President January 31, 2003 40 Pamrapo Bancorp, Inc. PAMRAPO BANCORP, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL CONDITION AND OPERATING DATA OF THE COMPANY
At December 31, - ---------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1998 1999 2000 2001 2002 - ---------------------------------------------------------------------------------------------------------------- FINANCIAL CONDITION DATA: Total amount of: Assets $ 413,474 $ 448,020 $ 469,558 $ 539,639 $ 588,659 Loans receivable 239,010 268,280 309,082 369,239 389,865 Securities available for sale 9,652 6,429 5,713 5,304 4,543 Mortgage-backed securities 120,400 120,824 118,791 122,418 146,138 Investment securities 1,998 7,996 6,996 5,000 7,095 Deposits 325,985 361,925 379,410 416,587 445,507 Advances and other borrowed money 28,836 30,813 35,788 67,518 84,489 Stockholders' equity 49,773 48,254 46,529 47,523 50,756
Year Ended December 31, - ---------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1998 1999 2000 2001 2002 - ---------------------------------------------------------------------------------------------------------------- OPERATING DATA: Interest income $ 28,971 $ 31,253 $ 33,162 $ 36,625 $ 38,058 Interest expense 12,428 13,642 15,498 17,544 15,290 - ---------------------------------------------------------------------------------------------------------------- Net interest income 16,543 17,611 17,664 19,081 22,768 Provision for loan losses 292 299 208 459 634 Non-interest income 1,399 1,565 1,576 1,921 2,566 Non-interest expenses 10,812 11,464 11,988 12,635 12,791 Income taxes 2,443 2,696 2,568 2,908 4,786 - ---------------------------------------------------------------------------------------------------------------- Net income $ 4,395 $ 4,717 $ 4,476 $ 5,000 $ 7,123 ================================================================================================================ Net income per share Basic $ 0.78 $ 0.85 $ 0.85 $ 0.97 $ 1.39 Diluted 0.78 0.85 0.85 0.97 1.39 ================================================================================================================ Dividends per share $ 0.56 $ 0.63 $ 0.69 $ 0.72 $ 0.75 ================================================================================================================ Dividend payout ratio 72.45% 73.35% 80.84% 74.23% 54.12% ================================================================================================================
Pamrapo Bancorp, Inc. 41 PAMRAPO BANCORP, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL CONDITION AND OPERATING DATA OF THE COMPANY (continued)
At or For Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------ 1998 1999 2000 2001 2002 - ------------------------------------------------------------------------------------------------------------------ SELECTED FINANCIAL RATIOS: Return on average assets 1.13% 1.09% 0.99% 0.99% 1.26% Return on average equity 8.96% 9.66% 9.57% 10.70% 14.52% Average equity/average assets 12.64% 11.29% 10.30% 9.24% 8.70% Interest rate spread 3.91% 3.76% 3.53% 3.48% 3.78% Net yield on average interest-earning assets 4.49% 4.28% 4.08% 3.95% 4.18% Non-interest expenses to average assets 2.79% 2.65% 2.64% 2.50% 2.27% Equity/total assets 12.04% 10.77% 9.91% 8.81% 8.62% Capital ratios: Tangible 10.05% 9.30% 8.27% 7.26% 7.08% Core 10.05% 9.30% 8.27% 7.26% 7.08% Risk-based 21.23% 19.52% 16.29% 14.43% 14.35% Non-performing loans to total assets 1.11% 0.94% 0.87% 0.60% 0.46% Non-performing loans to loans receivable 1.92% 1.57% 1.30% 0.88% 0.69% Non-performing assets to total assets 1.40% 1.03% 1.00% 0.65% 0.49% Allowance for loan losses to non-performing loans 50.00% 47.62% 47.74% 65.95% 94.41% Average interest-earning assets/average interest-bearing liabilities 1.17x 1.16x 1.15x 1.13x 1.14x Net interest income after provision for loan losses to non-interest expenses 1.50x 1.51x 1.46x 1.47x 1.73x
42 Pamrapo Bancorp, Inc. PAMRAPO BANCORP, INC. AND SUBSIDIARIES STOCKHOLDER INFORMATION MARKET FOR COMMON STOCK AND RELATED MATTERS Pamrapo Bancorp, Inc.'s common stock is presently quoted on the National Association of Securities Dealers Automated Quotation's National Market System under the symbol "PBCI." At March 10, 2003, the Corporation's 5,145,986 outstanding shares of common stock were held by approximately 1,300 persons or entities. The following table sets forth the high and low closing sales price per common share for the periods indicated. Such prices do not necessarily reflect retail markups, markdowns or commissions. CLOSING PRICES ----------------------- QUARTER ENDED HIGH LOW - -------------------------------------------- March 31, 2001 $ 12.25 $ 9.63 June 30, 2001 12.30 11.75 September 30, 2001 13.63 11.65 December 31, 2001 13.10 12.25 March 31, 2002 13.80 13.00 June 30, 2002 16.95 13.60 September 30, 2002 16.64 14.00 December 31, 2002 17.69 15.99 Prices retroactively adjusted for a two-for-one stock split on May 29, 2002 DIVIDENDS WERE PAID AS FOLLOWS: - -------------------------------------------- March, 2001 $ .18 June, 2001 .18 September, 2001 .18 December, 2001 .18 March, 2002 .1875 June, 2002 .1875 September, 2002 .1875 December, 2002 .1875 Dividends retroactively adjusted for a two-for-one stock split on May 29, 2002 Future dividend policy will be determined by the Board of Directors after giving consideration to the Company's financial condition, results of operations, tax status, industry standards, economic conditions and other factors. Dividends will also depend upon dividend payments by the Bank to the Corporation, which is its primary source of income. The Board may also consider the payment of stock dividends from time to time, in addition to, or in lieu of cash dividends. Under federal regulations, the Bank may not declare or pay a cash dividend on any of its common stock if the effect thereof would cause the Bank's regulatory capital to be reduced below the amount required for the liquidation account or the regulatory capital requirements imposed by the Office of Thrift Supervision ("OTS"). The Bank must provide at least 30 days advance notice to the OTS before declaring a dividend. Pamrapo Bancorp, Inc. 43 EX-23 5 dex23.txt EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference into the previously filed Registration Statements on Form S-8 of Pamrapo Bancorp, Inc. (the "Company") of our report dated January 31, 2003, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. /s/ Radics & Co., LLC ---------------------------- Radics & Co., LLC March 31, 2003 Pine Brook, New Jersey EX-99 6 dex99.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Pamrapo Bancorp, Inc. (the "Company") on Form 10-K for the year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William J. Campbell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ William J. Campbell ----------------------------- Chief Executive Officer March 31, 2003 EX-99 7 dex991.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Pamrapo Bancorp, Inc. (the "Company") on Form 10-K for the period ending December 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth D. Walter, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Kenneth D. Walter ----------------------------- Chief Financial Officer March 31, 2003 -----END PRIVACY-ENHANCED MESSAGE-----