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