10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________ FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 -------------------------------------------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ____________________________________ Commission File Number 0-18014 ------- PAMRAPO BANCORP, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW JERSEY 22-2984813 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 611 Avenue C, Bayonne, New Jersey 07002 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 201-339-4600 ----------------------- Indicate by check X whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ ----- The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date April 29, 2003. -------------- $.01 par value common stock - 5,145,986 shares outstanding PAMRAPO BANCORP, INC. AND SUBSIDIARIES INDEX
Page PART I - FINANCIAL INFORMATION Number ---------- Item 1: Financial Statements Consolidated Statements of Financial Condition at March 31, 2003 and December 31, 2002 (Unaudited) 1 Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002 (Unaudited) 2 Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2003 and 2002 (Unaudited) 3 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 (Unaudited) 4 Notes to Consolidated Financial Statements 5 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 9 Item 3: Quantitative and Qualitative Disclosure About Market Risk 10 - 11 Item 4: Controls and Procedures 12 PART II - OTHER INFORMATION 13 SIGNATURES 14
PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ---------------------------------------------- (Unaudited)
March 31, December 31, ASSETS 2003 2002 ------ ------------- ------------- Cash and amounts due from depository institutions $ 2,740,544 $ 6,172,543 Interest-bearing deposits in other banks 21,703,129 17,684,844 ------------- ------------- Total cash and cash equivalents 24,443,673 23,857,387 Securities available for sale 4,346,386 4,542,528 Investment securities held to maturity; estimated fair value of $7,568,000 (2003) and $7,461,000 (2002) 7,085,029 7,095,209 Mortgage-backed securities held to maturity; estimated fair value of $175,281,000 (2003) and $151,972,000 (2002) 170,012,657 146,138,326 Loans receivable 381,399,740 389,864,704 Foreclosed real estate 155,340 155,340 Investment in real estate 210,295 213,643 Premises and equipment 4,364,440 4,417,239 Federal Home Loan Bank stock, at cost 4,403,400 4,403,400 Interest receivable 3,030,248 2,982,315 Other assets 4,789,059 4,988,854 ------------- ------------- Total assets $ 604,240,267 $ 588,658,945 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Deposits $ 465,123,518 $ 445,507,415 Advances from Federal Home Loan Bank of New York 79,340,000 84,340,000 Other borrowed money 141,544 149,166 Advance payments by borrowers for taxes and insurance 3,979,426 3,835,862 Other liabilities 4,075,787 4,070,229 ------------- ------------- Total liabilities 552,660,275 537,902,672 ------------- ------------- Stockholders' equity: Preferred stock; authorized 3,000,000 shares; issued and outstanding - none - - Common stock; par value $.01; authorized 7,000,000 shares; 6,900,000 shares issued; 5,145,986 shares, outstanding 69,000 69,000 Paid-in capital in excess of par value 18,937,168 18,937,168 Retained earnings - substantially restricted 51,706,741 50,889,220 Accumulated other comprehensive income - Unrealized gain on securities available for sale 248,744 242,546 Treasury stock, at cost; 1,754,014 shares (19,381,661) (19,381,661) ------------- ------------- Total stockholders' equity 51,579,992 50,756,273 ------------- ------------- Total liabilities and stockholders' equity $ 604,240,267 $ 588,658,945 ============= =============
See notes to consolidated financial statements. -1- PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Unaudited)
Three Months Ended March 31, ------------------------------- 2003 2002 -------------- -------------- Interest income: Loans $ 6,931,445 $ 7,364,105 Mortgage-backed securities 2,124,358 2,060,444 Investments and other interest-earning assets 287,933 178,929 ------------ ------------ Total interest income 9,343,736 9,603,478 ------------ ------------ Interest expense: Deposits 2,623,870 3,001,272 Advances and other borrowed money 999,496 916,077 ------------ ------------ Total interest expense 3,623,366 3,917,349 ------------ ------------ Net interest income 5,720,370 5,686,129 Provision for loan losses 30,000 210,000 ------------ ------------ Net interest income after provision for loan losses 5,690,370 5,476,129 ------------ ------------ Non-interest income: Fees and service charges 342,015 342,345 Miscellaneous 230,784 188,057 ------------ ------------ Total non-interest income 572,799 530,402 ------------ ------------ Non-interest expenses: Salaries and employee benefits 1,715,438 1,686,764 Net occupancy expense of premises 260,488 268,515 Equipment 361,820 284,789 Advertising 44,348 38,313 Federal insurance premium 17,948 18,484 Miscellaneous 756,417 669,265 ------------ ------------ Total non-interest expenses 3,156,459 2,966,130 ------------ ------------ Income before income taxes 3,106,710 3,040,401 Income taxes 1,259,992 1,109,185 ------------ ------------ Net income $ 1,846,718 $ 1,931,216 ------------ ------------ Net income per common share: Basic/diluted $ 0.36 $ 0.37 ============ ============ Dividends per common share $ 0.20 0.1875 ============ ============ Weighted average number of common shares and common stock equivalents outstanding: Basic/diluted 5,145,986 5,151,698 ============ ============
See notes to consolidated financial statements. -2- PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ----------------------------------------------- (Unaudited)
Three Months Ended March 31, ------------------------------- 2003 2002 -------------- -------------- Net income $ 1,846,718 $ 1,931,216 ------------ ------------ Other comprehensive income, net of income taxes: Gross unrealized holding gain on securities available for sale 10,298 37,352 Deferred income taxes (4,100) (13,400) ------------ ------------ Other comprehensive income 6,198 23,952 ------------ ------------ Comprehensive income $ 1,852,916 $ 1,955,168 ============ ============
See notes to consolidated financial statements. -3- PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Unaudited)
Three Months Ended March 31, ------------------------------- 2003 2002 -------------- -------------- Cash flows from operating activities: Net income $ 1,846,718 $ 1,931,216 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of premises and equipment and investment in real estate 155,002 147,283 Amortization of premiums and discounts, net 97,498 17,436 Accretion of deferred loan fees, net 65,012 (64,510) Provision for loan losses 30,000 210,000 (Increase) in interest receivable (47,933) (74,380) Decrease (increase) in other assets 195,695 (649,832) Increase in other liabilities 5,558 2,458,873 ------------ ------------ Net cash provided by operating activities 2,347,550 3,976,086 ------------ ------------ Cash flow from investing activities: Principal repayments on securities available for sale 213,186 258,167 Purchases of securities available for sale (8,396) (11,438) Proceeds from calls of investment securities held to maturity - 2,000,000 Principal repayments on mortgage-backed securities held to maturity 15,971,561 10,910,007 Purchases of mortgage-backed securities held to maturity (39,931,560) (10,883,494) Net change in loans receivable 8,369,952 (19,700,473) Additions to premises and equipment (98,855) (14,312) Purchase of Federal Home Loan Bank of New York stock - (607,300) ------------ ------------ Net cash (used in) investing activities (15,484,112) (18,048,843) ------------ ------------ Cash flows from financing activities: Net increase in deposits 19,616,103 2,541,302 Net (decrease) increase in advances from Federal Home Loan Bank of New York (5,000,000) 5,000,000 Net (decrease) in other borrowed money (7,622) (7,037) Net increase in payments by borrowers for taxes and insurance 143,564 150,253 Cash dividends paid (1,029,197) (966,486) Purchase of treasury stock - (269,200) ------------ ------------ Net cash provided by financing activities 13,722,848 6,448,832 ------------ ------------ Net increase (decrease) in cash and cash equivalents 586,286 (7,623,925) Cash and cash equivalents - beginning 23,857,387 22,688,885 ------------ ------------ Cash and cash equivalents - ending $ 24,443,673 $ 15,064,960 ============ ============ Supplemental information: Cash paid during the period for: Interest on deposits and borrowings $ 3,699,930 $ 3,991,567 ============ ============
See notes to consolidated financial statements. -4- PAMRAPO BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. PRINCIPLES OF CONSOLIDATION ------------------------------ The consolidated financial statements include the accounts of Pamrapo Bancorp, Inc. (the "Company") and its wholly owned subsidiaries, Pamrapo Savings Bank, SLA (the "Bank") and Pamrapo Service Corp, Inc. The Company's business is conducted principally through the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. 2. BASIS OF PRESENTATION ------------------------ The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three months ended March 31, 2003, are not necessarily indicative of the results which may be expected for the entire fiscal year. 3. NET INCOME PER COMMON SHARE ------------------------------ Basic net income per common share is based on the weighted average number of common shares actually outstanding. Diluted net income per share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable or which could be converted into common stock, if dilutive, using the treasury stock method. There were no potentially dilutive contracts or securities outstanding at either March 31, 2003 or 2002, or during the three months then ended. 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 for the three months ended March 31, 2002. -5- PAMRAPO BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Changes in Financial Condition The Company's assets at March 31, 2003 totaled $604.2 million, which represents an increase of $15.5 million or 2.6% as compared with $588.7 million at December 31, 2002. Securities available for sale at March 31, 2003, decreased $197,000 or 4.3% to $4.3 million when compared with $4.5 million at December 31, 2002. The decrease during the three months ended March 31, 2003, resulted primarily from repayments on securities available for sale of $213,000, sufficient to offset an increase in net unrealized gain of $10,000 and purchases of $8,000. Investment securities held to maturity at March 31, 2003, remained unchanged at $7.1 million when compared with December 31, 2002. Mortgage-backed securities held to maturity at March 31, 2003 increased $23.9 million or 16.4% to $170.0 million when compared with $146.1 million at December 31, 2002. During the three months ended March 31, 2003, purchases of mortgage-backed securities held to maturity amounted to $39.9 million, offset by repayments of $16.0 million. Net loans amounted to $381.4 million at March 31, 2003, as compared to $389.9 million at December 31, 2002, which represents a decrease of $8.5 million or 2.2%. The decrease during the three months ended March 31, 2003 resulted primarily from principal repayments exceeding loan origination. Foreclosed real estate remained unchanged at $155,000 at March 31, 2003 and December 31, 2002, respectively. Deposits at March 31, 2003 totaled $465.1 million as compared with $445.5 million at December 31, 2002, representing an increase of $19.6 million or 4.4%. Advances from the Federal Home Loan Bank ("FHLB") decreased $5.0 million or 5.9% to $79.3 million at March 31, 2003, when compared to $84.3 million at December 31, 2002, due to repayments. Stockholders' equity totaled $51.6 million and $50.8 million at March 31, 2003, and December 31, 2002, respectively. The increase of $824,000 was primarily the result of the net income for three months ended March 31, 2003, of $1.8 million, partially offset by cash dividends paid of $1.0 million. Comparison of Operating Results for the Three Months Ended March 31, 2003 and 2002 Net income decreased $84,000 or 4.4% to $1.8 million for the three months ended March 31, 2003, compared with $1.9 million for the same 2002 period. The decrease in net income during the 2003 period resulted from a decrease in total interest income along with increases in non-interest expenses and income taxes which were offset by an increase in non-interest income along with decreases in interest expense and in provision for loan losses. Interest income on loans decreased by $433,000 or 5.9% to $6.9 million during the three months ended March 31, 2003, when compared with $7.4 million for the same 2002 period. The decrease during the 2003 period resulted from a decrease of fifty-five basis points in the yield earned on loans, which was partially offset by an increase of $5.2 million or 1.4% in the average balance of loans outstanding. Interest on mortgage-backed securities increased $64,000 or 3.1% to $2.12 million during the three months ended March 31, 2003, when compared with $2.06 million for the same 2002 period. The increase during the 2002 period resulted from an increase of $26.2 million or 20.2% in the average balance of mortgage-backed securities outstanding, which -6- PAMRAPO BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Comparison of Operating Results for the Three Months Ended March 31, 2003 and 2002 (Cont'd.) was sufficient to offset a decrease of ninety-one basis points in the yield earned on the mortgage-backed securities. Interest earned on investments and other interest-earning assets increased by $109,000 or 60.9% to $288,000 during the three months ended March 31, 2003, when compared to $179,000 during the same 2002 period primarily due to an increase of $15.1 million or 99.8% in the average balance of such assets outstanding sufficient to offset a decrease of ninety-three basis points in the yield earned on such portfolio. Interest expense on deposits decreased $377,000 or 12.6% to $2.6 million during the three months ended March 31, 2003, when compared to $3.0 million during the same 2002 period. Such decrease was primarily attributable to a decrease of sixty-one basis points in the cost of interest-bearing deposits, which was sufficient to offset an increase of $35.8 million or 9.2% in the average balance of interest-bearing deposits. Interest expense on advances and other borrowed money increased by $83,000 or 9.1% to $999,000 during the three months ended March 31, 2003, when compared with $916,000 during the same 2002 period, primarily due to an increase of $13.1 million or 18.5% in the average balance of advances outstanding from the FHLB, sufficient to offset a forty-one basis point decrease in the cost of advances and other borrowed money. Net interest income increased $34,000 or 0.60% during the three months ended March 31, 2003 when compared with the same 2002 period. Such increase was due to a decrease in total interest expense of $294,000, sufficient to offset a decrease in total interest income of $260,000. The Bank's net interest rate spread decreased to 3.69% in 2003 from 3.91% in 2002. The decrease in the interest rate spread resulted from a decrease of seventy-eight basis points in the yield of interest-earning assets sufficient to offset fifty-five basis point decrease in the cost of interest-bearing liabilities. During the three months ended March 31, 2003 and 2002, the Bank provided $30,000 and $210,000, respectively, as a provision for loan losses. The allowance for loan losses is based on management's evaluation of the risk inherent in its loan portfolio and gives due consideration to the changes in general market conditions and in the nature and volume of the Bank's loan activity. The Bank intends to continue to provide for loan losses based on its periodic review of the loan portfolio and general market conditions. At March 31, 2003 and 2002, the Bank's non-performing loans, which were delinquent ninety days or more, totaled $2.5 million or 0.41% of total assets and $3.5 million or 0.64% of total assets, respectively. At March 31, 2003, $1.2 million of non-performing loans were accruing interest and $1.3 million were on nonaccrual status. The non-performing loans primarily consist of one-to-four family mortgage loans. During the three months ended March 31, 2003 and 2002, the Bank charged off loans aggregating $7,000 and $63,000, respectively. The allowance for loan losses amounted to $2.6 million at March 31, 2003, representing 0.67% of total loans and 103.8% of loans delinquent ninety days or more, and $2.3 million at March 31, 2002, representing 0.58% of total loans and 65.7% of loans delinquent ninety days or more. Non-interest income increased $43,000 or 8.1% to $573,000 during the three months ended March 31, 2003, from $530,000 during the same 2002 period, which resulted from an increase in miscellaneous income. Non-interest expenses increased by $190,000 or 6.4% to $3.2 million during the three months ended March 31, 2003, when compared with $3.0 million during the same 2002 period. Salaries and employee benefits, equipment, advertising and miscellaneous expenses increased $28,000, $77,000, $6,000 and $87,000, respectively, which was sufficient to offset a decrease in net occupancy of $8,000 during the 2003 period when compared with the same 2002 period. -7- PAMRAPO BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Comparison of Operating Results for the Three Months Ended March 31, 2003 and 2002 (Cont'd.) Income taxes totaled $1.3 million and $1.1 million during the three months ended March 31, 2003 and 2002, respectively. The increase during the 2003 period resulted from increases in pre-tax income and the state income tax rate from 3.0% to 9.0%. Liquidity and Capital Resources The Bank is required by Office of Thrift Supervision (the "OTS") regulations to maintain sufficient liquidity to ensure the Bank's safe and sound operation. The Bank's liquidity averaged 5.86% during the month of March 2003. The Bank adjusts its liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes from escrow accounts on mortgage loans, repayment of borrowings, when applicable, and loan funding commitments. The Bank also adjusts its liquidity level as appropriate to meet its asset/liability objectives. The Bank's primary sources of funds are deposits, amortization and prepayments of loans and mortgage-backed securities principal, FHLB advances, maturities of investment securities and funds provided from operations. While scheduled loan and mortgage-backed securities amortization and maturing investment securities are a relatively predictable source of funds, deposit flow and loan and mortgage-backed securities prepayments are greatly influenced by market interest rates, economic conditions and competition. The Bank's liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. Cash was generated by operating activities during the three months ended March 31, 2003 and 2002. The primary source of cash was net income. Cash dividends paid during the three months ended March 31, 2003 and 2002, amounted to $1.03 million and $966,000, respectively. The primary sources of investing activity are lending and the purchase of mortgage-backed securities. Net loans amounted to $381.4 million and $389.9 million at March 31, 2003, and December 31, 2002, respectively. Securities available for sale totaled $4.3 million and $4.5 million at March 31, 2003 and December 31, 2002, respectively. Mortgage-backed securities held to maturity totaled $170.0 million and $146.1 million at March 31, 2003, and December 31, 2002. In addition to funding new loan production and mortgage-backed securities purchases through operating and financing activities, such activities were funded by principal repayments on existing loans and mortgage-backed securities. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments, such as federal funds and interest-bearing deposits. If the Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the FHLB which provide an additional source of funds. At March 31, 2003, advances from the FHLB amounted to $79.3 million. The Bank anticipates that it will have sufficient funds available to meet its current loan commitments. At March 31, 2003, the Bank had outstanding commitments to originate loans of $10.3 million and to purchase mortgage-backed securities of $5.0 million. Certificates of deposit scheduled to mature in one year or less at March 31, 2003, totaled $165.1 million. Management believes that, based upon its experience and the Bank's deposit flow history, a significant portion of such deposits will remain with the Bank. -8- PAMRAPO BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Liquidity and Capital Resources (Cont'd.) Under OTS regulations, three separate measurements of capital adequacy (the "Capital Rule") are required. The Capital Rule requires each savings institution to maintain tangible capital equal to at least 1.5% and core capital equal to at least 4.0% of its adjusted total assets. The Capital Rule further requires each savings institution to maintain total capital equal to at least 8.0% of its risk-weighted assets. The following table sets forth the Bank's capital position at March 31, 2003, as compared to the minimum regulatory capital requirements (dollars in thousands):
To Be Well Capitalized Under Prompt Minimum Capital Corrective Actual Requirements Actions Provisions --------------------------- --------------------------- --------------------------- Amount Ratio Amount Ratio Amount Ratio ------------ ------------ ------------ ------------ ------------ ------------ Total Capital (to risk-weighted assets) $ 45,943 14.93% $ 24,617 8.00% $ 30,771 10.00% Tier 1 Capital (to risk-weighted assets) 43,411 14.11% - - 18,463 6.00% Core (Tier 1) Capital (to adjusted total assets) 43,411 7.21% 24,074 4.00% 30,092 5.00% Tangible Capital (to adjusted total assets) 43,411 7.21% 9,028 1.50% - -
Forward-Looking Statement This Form 10-Q may include certain forward-looking statements based on current management expectations. The Company's actual results could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of loan and investment portfolios of Pamrapo Savings Bank, SLA, the Company's wholly-owned subsidiary, (the "Bank"), changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. Further description of the risks and uncertainties to the business are included in the Company's other filings with the Securities and Exchange Commission. -9- PAMRAPO BANCORP, INC. AND SUBSIDIARIES QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK --------------------------------------------------------- MANAGEMENT OF INTEREST RATE RISK. The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that can be sustained during fluctuations in prevailing interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference, or the interest rate repricing "gap", provides an indication of the extent to which an institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities, and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest-rate sensitive assets. Generally, during a period of rising interest rates, a negative gap within shorter maturities would adversely affect net interest income, while a positive gap within shorter maturities would result in an increase in net interest income, and during a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income while a positive gap within shorter maturities would result in a decrease in net interest income. Because the Bank's interest-bearing liabilities which mature or reprice within short periods exceed its interest-earning assets with similar characteristics, material and prolonged increases in interest rates generally would adversely affect net interest income, while material and prolonged decreases in interest rates generally would have a positive effect on net interest income. The Bank's current investment strategy is to maintain an overall securities portfolio that provides a source of liquidity and that contributes to the Bank's overall profitability and asset mix within given quality and maturity considerations. Securities classified as available for sale provide management with the flexibility to make adjustments to the portfolio given changes in the economic or interest rate environment, to fulfill unanticipated liquidity needs, or to take advantage of alternative investment opportunities. NET PORTFOLIO VALUE. The Bank's interest rate sensitivity is monitored by management through the use of the OTS model which estimates the change in the Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The OTS produces its analysis based upon data submitted on the Bank's quarterly Thrift Financial Reports. The following table sets forth the Bank's NPV as of December 31, 2002, the most recent date the Bank's NPV was calculated by the OTS. -10- PAMRAPO BANCORP, INC. AND SUBSIDIARIES QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ---------------------------------------------------------
NPV as Change in Percent of Portfolio Interest Rates Net Portfolio Value Value of Assets --------------------------------------- ------------------------------ In Basis Points Dollar Percent NPV Change In (Rate Shock) Amount Change Change Ratio Basis Points ----------------- ------------ ------------ ----------- ----------- -------------- (Dollars in Thousands) 300 $40,694 $(43,474) (52) 6.96 % (628) 200 56,628 (27,541) (33) 9.39 (385) 100 72,946 (11,222) (13) 11.73 (151) Static 84,168 - - 13.24 - -100 87,137 2,969 4 13.57 33
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV model presented assumes that the composition of the Bank's interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV measurements and net interest income models provide an indication of the Bank's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Bank's net interest income and will differ from actual results. -11- PAMRAPO BANCORP, INC. AND SUBSIDIARIES CONTROLS AND PROCEDURES ----------------------- As of a date within 90 days of filing date of this report, based on an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934), each of the Chief Executive Officer and the Chief Financial Officer of the Company has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC's rules and forms. There were no significant changes in the Company's internal controls or in any other factors that could significantly affect those controls subsequent to the date of the most recent evaluation of the Company's internal controls by the Company, including any corrective actions with regard to any significant deficiencies or material weaknesses. -12- PAMRAPO BANCORP, INC. PART II ITEM 1. Legal Proceedings ----------------- Neither the Company nor the Bank is involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition of the Company and the Bank. ITEM 2. Changes in Securities --------------------- Not applicable. ITEM 3. Defaults Upon Senior Securities ------------------------------- Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. ITEM 5. Exhibits and Reports on Form 8-K -------------------------------- (a) The following Exhibits are filed as part of this report. 3.1 Certificate of Incorporation of Pamrapo Bancorp, Inc.* 3.2 By-Laws of Pamrapo Bancorp, Inc.* 11.0 Computation of earnings per share (filed herewith). 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). * Incorporated herein by reference to 10-K Annual Report for the fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on March 30, 2001, Commission File No. 000-18014. (b) Reports on Form 8-K None. -13- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PAMRAPO BANCORP, INC. Date: April 29, 2003 By /s/ William J. Campbell ---------------------------- ------------------------------------- William J. Campbell President and Chief Executive Officer Date: April 29, 2003 By: /s/ Kenneth D. Walter ---------------------------- ------------------------------------- Kenneth D. Walter Vice President and Chief Financial Officer -14- CERTIFICATIONS I, William J. Campbell, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pamrapo Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 29, 2003 /s/ William J. Campbell ------------------------------- William J. Campbell Chief Executive Officer I, Kenneth D. Walter, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pamrapo Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 29, 2003 /s/ Kenneth D. Walter --------------------------- Kenneth D. Walter Chief Financial Officer