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, S.L.A. (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, consumer loans and commercial 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.
CRITICAL ACCOUNTING ESTIMATES
ALLOWANCE FOR LOAN LOSSES
We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, at a minimum, and establishes the provision for loan losses based on the composition of the loan portfolio, delinquency levels, loss experience, economic conditions, and other factors related to the collectibility of the loan portfolio. Since there has been no material shift in the loan portfolio, the level of the allowance for loan losses has changed primarily due to changes in the size of the loan portfolio and the level of nonperforming loans. We have allocated the allowance among categories of loan types as well as classification status at each period-end date. Assumptions and allocation percentages based on loan types and classification status have been consistently applied. Management regularly evaluates various risk factors related to the loan portfolio, such as type of loan, underlying collateral and payment status, and the corresponding allowance allocation percentages. Although we believe that we use the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, the regulatory authorities, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on their judgment about information available to them at the time of their examinations.
PENSION PLAN ASSUMPTIONS
Our pension plan costs are calculated using actuarial concepts, as discussed within the requirements of Statement of Financial Accounting Standards (SFAS) No. 87, Employers Accounting for Pensions SFAS No. 132 (R) and as amended by SFAS No. 158, “Employers’ Accounting for Deferred Benefit Pension and Other Post Retirement Plans.” Pension expense and the determination of our projected pension liability are based upon two critical assumptions; the discount rate and the expected return on plan assets. We evaluate each of these critical assumptions annually. Other assumptions impact the determination of pension expense and the projected liability including the primary employee demographics, such as retirement patterns, employee turnover, mortality rates, and estimated employer compensation increases. These factors, along with the critical assumptions, are carefully reviewed by management each year in consultation with our pension plan consultants and actuaries. Further information about our pension plan assumptions, the plan’s funded status, and other plan information is included in Note 11 to Consolidated Financial Statements.
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“OTHER THAN TEMPORARY” IMPAIRMENT OF INVESTMENT SECURITIES
Investment securities are written down to their net realizable value when there is impairment in value that is considered to be “other than temporary.” The determination of whether or not “other than temporary” impairment exists is a matter of judgement. Management reviews its investment securities portfolio regularly for possible impairment that is “other than temporary” by analyzing the facts and circumstances of each investment and the expectations for that investment’s performance.
FINANCIAL CONDITION
The Company’s consolidated assets at December 31, 2007 totaled $657.4 million, which represents an increase of $20.8 million or 3.27% when compared to $636.6 million at December 31, 2006, primarily due to an increase in interest-bearing deposits in other banks, which more than offset deceases in loans receivable and mortgage-backed securities.
Securities available for sale decreased $253,000 or 21.59% to $917,000 at December 31, 2007 when compared to $1.2 million at December 31, 2006. The decrease during the year ended December 31, 2007, resulted primarily from principal repayments of $246,000 on securities available for sale. Investment securities held to maturity increased $1.2 million or 13.04% to $10.4 million at December 31, 2007 when compared to $9.2 million at December 31, 2006. The increase during the year ended December 31, 2007 resulted primarily from purchases of investment securities held to maturity amounting to $1.3 million.
Mortgage-backed securities held to maturity decreased $17.2 million or 12.19% to $123.9 million at December 31, 2007 from $141.1 million at December 31, 2006.
The decrease during the year ended December 31, 2007 resulted primarily from principal repayments of $20.8 million on mortgage-backed securities, which more than offset purchases of mortgage-backed securities totaling $3.9 million.
Net loans amounted to $439.1 million and $454.9 million at December 31, 2007 and 2006, respectively, which represents a decrease of $15.8 million or 3.47%, primarily due to loan repayments exceeding loan originations.
Foreclosed real estate amounted to $486,000 at December 31, 2007. There was no foreclosed real estate at December 31, 2006.
Total deposits at December 31, 2007 increased $38.1 million or 8.11% to $508.0 million compared to $469.9 million at December 31, 2006. Included in the December 31, 2007 total is an interest-bearing demand account with a balance of $40.3 million. This account had a balance of $157,000 at December 31, 2006 and reflects a deposit of $43.1 million on November 30, 2007.
Advances from the Federal Home Loan Bank of New York (“FHLB-NY”) totaled $84.0 million and $101.0 million at December 31, 2007 and 2006, respectively. The net decrease of $17.0 million or 16.83% during the year ended December 31, 2007, resulted from repayments on advances from the FHLB-NY.
Stockholders’ equity amounted to $58.6 million at both December 31, 2007 and 2006. During the years ended December 31, 2007 and 2006, net income of $4.4 million and $6.5 million, respectively, was recorded and cash dividends of $4.6 million and $4.6 million, respectively, were paid on the Company’s common stock.
Results Of Operations For The Years Ended December 31, 2007 And 2006
NET INCOME
Net income decreased by $2.1 million or 32.31% to $4.4 million during the year ended December 31, 2007 when compared to $6.5 million for the year ended December 31, 2006. The decrease in net income during the 2007 period was primarily due to an increase in total interest expense of $2.1 million and provision for loan losses of $670,000, along with decreases in total interest income of $435,000 and total non-interest income of $451,000, which more than offset decreases in total non-interest expenses of $44,000 and income taxes of $1.4 million.
INTEREST INCOME
Interest income on loans during the year ended December 31, 2007 decreased by $98,000 or 0.34% to $28.8 million when compared to $28.9 million during 2006. During the years ended December 31, 2007 and 2006, the yield earned on the loan portfolio was 6.49% and 6.45%, respectively. The average balance of loans outstanding during the years ended December 31, 2007 and 2006, totaled $444.4 million and $448.9 million, respectively.
Interest on mortgage-backed securities decreased $1.2 million or 16.67% during the year ended December 31, 2007 to $6.0 million compared to $7.2 million for 2006. During the years ended December 31, 2007 and 2006, the average balance of mortgage-backed securities totaled $133.1 million and $154.5 million, respectively, resulting in a net decrease of $21.4 million or 13.85%. The yield earned on the mortgage-backed securities portfolio was 4.51% and 4.68% during 2007 and 2006, respectively. Interest earned on
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PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations — (continued)
investment securities decreased by $78,000 or 10.09% to $695,000 for the year ended December 31, 2007, when compared to $773,000 for 2006. The decrease during the year ended December 31, 2007, resulted from a decrease of $1.4 million in the average balance of the investment securities portfolio, which more than offset an increase of sixteen basis points in the yield earned on the investment securities portfolio from 6.74% in 2006 to 6.90% in 2007. Interest on other interest-earning assets increased by $960,000 or 158.60% to $1.6 million for the year ended December 31, 2007, when compared to $606,000 for 2006. The increase during the year ended December 31, 2007, resulted from an increase of $18.7 million in the average balance of the other interest-earning assets portfolio along with an increase of thirty-five basis points in the yield earned on the other interest-earning assets portfolio from 4.54% in 2006 to 4.89% in 2007.
INTEREST EXPENSE
Interest on deposits increased $2.4 million or 21.24% to $13.7 million during the year ended December 31, 2007 compared to $11.3 million for 2006. The increase during 2007 was attributable to an increase of fifty-two basis points in the Bank’s average cost of interest-bearing deposits to 3.14% for 2007 from 2.62% for 2006, along with an increase of $3.8 million or 0.89% in the average balance of interest-bearing deposits outstanding. Interest on advances and other borrowed money decreased $283,000 or 6.06% to $4.4 million during the year ended December 31, 2007 compared to $4.7 million for 2006. The decrease during 2007 was attributable to a decrease of $12.7 million or 12.20% in the average balance of advances and other borrowed money, which more than offset an increase of thirty-one basis points in the Bank’s cost of borrowings from 4.49% for 2006 to 4.80% for 2007.
NET INTEREST INCOME
Net interest income for the year ended December 31, 2007, decreased $2.6 million or 12.04% to $19.0 million for 2007 as compared to $21.6 million for 2006. The Bank’s net interest rate spread decreased from 3.00% in 2006 to 2.56% in 2007 and its interest rate margin decreased from 3.43% in 2006 to 3.07% in 2007. The decrease in net interest rate spread primarily resulted from a forty-five basis point increase in the cost of interest-bearing liabilities from 2.98% in 2006 to 3.43% in 2007, sufficient to offset a one basis point increase in the yield of average interest-earning assets from 5.98% in 2006 to 5.99% in 2007. The average balance of interest-earning assets amounted to $619.6 million in 2007 and $628.2 million in 2006 and the average balance of interest-bearing liabilities amounted to $527.5 million in 2007 and $536.3 million in 2006.
PROVISION FOR LOAN LOSSES
During the years ended December 31, 2007 and 2006, the Bank provided $670,000 and $0, respectively, for loan losses. At December 31, 2007 and 2006, the Bank’s loan portfolio included loans totaling $5.5 million and $2.3 million, respectively, which were delinquent ninety days or more. Included in the December 31, 2007 total is the Bank’s largest non-accruing commercial loan of $1.9 million to a local hospital. The loan matured on June 1, 2007 and was not paid. The hospital is presently in bankruptcy, and repayment of the loan is subject to bankruptcy proceedings. 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 $3.15 million at December 31, 2007, representing 0.71% of total loans and 57.54% of loans delinquent ninety days or more compared to an allowance of $2.65 million at December 31, 2006, representing 0.58% of total loans and 116.32% of loans delinquent ninety days or more. During the years ended
December 31, 2007 and 2006, the Bank charged off loans aggregating $270,000 and $113,000, respectively. Recoveries totaled $104,000 and $9,000, 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 decreased by $451,000 or 16.11% to $2.3 million during the year ended December 31, 2007 as compared to $2.8 million for 2006. The decrease in non-interest income during 2007 resulted primarily from decreases in the gain on sale of securities available for sale of $430,000, commissions from sale of financial products of $73,000 and other income of $15,000, sufficient to offset an increase in fees and service charges of $67,000.
NON-INTEREST EXPENSES
Non-interest expenses decreased $44,000 or 0.31% to $13.8 million during the year ended December 31, 2007 compared to $13.9 million for 2006. During the year ended December 31, 2007, salary and employee benefits, advertising and other expenses decreased $41,000, $52,000 and $169,000 respectively, which more than offset increases in occupancy costs, equipment and professional fees of $17,000, $25,000, and $176,000, respectively.
INCOME TAXES
Income tax expense totaled $2.5 million and $3.9 million during the years ended December 31, 2007
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and 2006, respectively. The decrease in 2007 resulted from a decrease in pre-tax income of $3.6 million.
Results Of Operations For The Years Ended December 31, 2006 And 2005
NET INCOME
Net income decreased by $1.5 million or 18.79% to $6.5 million during the year ended December 31, 2006 when compared to $8.0 million for the year ended December 31, 2005. The decrease in net income during the 2006 period was primarily due to an increase in total interest expense of $3.6 million and non-interest expenses of $342,000, which more than offset increases in total interest income of $1.0 million and non-interest income of $257,000 along with decreases in the provision for loan losses of $110,000 and income taxes of $1.1 million.
INTEREST INCOME
Interest income on loans during the year ended December 31, 2006 increased by $2.3 million or 8.65% to $28.9 million when compared to $26.6 million during 2005. During the years ended December 31, 2006 and 2005, the yield earned on the loan portfolio was 6.45% and 6.37%, respectively. The average balance of loans outstanding during the years ended December 31, 2006 and 2005, totaled $448.9 million and $417.7 million, respectively.
Interest on mortgage-backed securities decreased $1.5 million or 17.24% during the year ended December 31, 2006 to $7.2 million compared to $8.7 million for 2005. During the years ended December 31, 2006 and 2005, the average balance of mortgage-backed securities totaled $154.5 million and $184.3 million, respectively, resulting in a net decrease of $29.8 million or 16.17%. The yield earned on the mortgage-backed securities portfolio was 4.68% and 4.70% during 2006 and 2005, respectively. Interest earned on investment securities decreased by $27,000 or 3.38% to $773,000 for the year ended December 31, 2006, when compared to $800,000 for 2005. The decrease was due to a decrease of $421,000 in the average balance of the investment securities portfolio. The yield earned on the investment securities portfolio was 6.74% and 6.73% during 2006 and 2005, respectively. Interest on other interest-earning assets amounted to $606,000 and $434,000 during the years ended December 31, 2006 and 2005, respectively.
INTEREST EXPENSE
Interest on deposits increased $2.6 million or 29.89% to $11.3 million during the year ended December 31, 2006 compared to $8.7 million for 2005. The increase during 2006 was attributable to an increase of sixty-six basis points in the Bank’s average cost of interest-bearing deposits to 2.62% for 2006 from 1.96% for 2005, which more than offset a decrease of $13.1 million or 2.94% in the average balance of interest-bearing deposits outstanding. Interest on advances and other borrowed money increased $1.0 million or 27.03% to $4.7 million during the year ended December 31, 2006 compared to $3.7 million for 2005. The increase during 2006 was attributable to an increase of fifty-nine basis points in the Bank’s cost of borrowings from 3.90% for 2005 to 4.49% for 2006, along with an increase of $9.3 million or 9.70% in the average balance of advances and other borrowed money outstanding.
NET INTEREST INCOME
Net interest income for the year ended December 31, 2006, decreased $2.5 million or 10.37% to $21.6 million for 2006 as compared to $24.1 million for 2005. The Bank’s net interest rate spread decreased from 3.52% in 2005 to 3.00% in 2006 and its interest rate margin decreased from 3.84% in 2005 to 3.43% in 2006. The decrease in net interest rate spread primarily resulted from a sixty-eight basis point increase in the cost of interest-bearing liabilities from 2.30% in 2005 to 2.98% in 2006, sufficient to offset a sixteen basis point increase in the yield of average interest-earning assets from 5.82% in 2005 to 5.98% in 2006. The average balance of interest-earning assets amounted to $628.2 million in 2006 and $627.2 million in 2005 and the average balance of interest-bearing liabilities amounted to $536.3 million in 2006 and $540.2 million in 2005.
PROVISION FOR LOAN LOSSES
During the years ended December 31, 2006 and 2005, the Bank provided $0 and $110,000, respectively, for loan losses. At December 31, 2006 and 2005, the Bank’s loan portfolio included loans totaling $2.3 million and $2.0 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 $2.65 million at December 31, 2006, representing 0.58% of total loans and 116.32% of loans delinquent ninety days or more compared to an allowance of $2.76 million at December 31, 2005, representing 0.62% of total loans and 139.93% of loans delinquent ninety days or more. During the years ended December 31, 2006 and 2005, the Bank charged off loans aggregating $113,000 and $21,000, respectively. Recoveries totaled $9,000 and $171,000, 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.
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PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
NON-INTEREST INCOME
Non-interest income increased by $257,000 or 10.11% to $2.8 million during the year ended December 31, 2006 as compared to $2.5 million for 2005. The increase in non-interest income during 2006 resulted primarily from an increase in the gain on sale of securities of $331,000 and miscellaneous income of $27,000, sufficient to offset a decrease in fees and service charges of $101,000.
NON-INTEREST EXPENSES
Non-interest expenses increased $342,000 or 2.53% to $13.9 million during the year ended December 31, 2006 compared to $13.5 million for 2005. Occupancy costs, advertising, professional fees and miscellaneous expenses increased $65,000, $88,000, $76,000, and $182,000, respectively, during the year ended December 31, 2006, which were partially offset by decreases in salary and employee benefits and equipment of $51,000 and $18,000, respectively.
INCOME TAXES
Income tax expense totaled $3.9 million and $5.0 million during the years ended December 31, 2006 and 2005, respectively. The decrease in 2006 resulted from a decrease in pre-tax income of $2.5 million.
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 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.
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, 2007 and 2006, advances from the FHLB-NY amounted to $84.0 million and $101.0 million, respectively.
The Bank anticipates that it will have sufficient funds available to meet its current loan commitments. At December 31, 2007, the Bank had outstanding commitments to originate loans and fund unused credit lines of $19.1 million. Certificates of deposit scheduled to mature in one year or less, at December 31, 2007, totaled $219.8 million. Management believes that, based upon historical experience, a significant portion of such deposits will remain with the Bank.
At December 31, 2007, the Bank exceeded each of the three OTS capital requirements. The Bank’s tangible, core and total risk-based capital ratios were 8.43%, 8.43% and 15.82%, respectively. The Bank was categorized as “well-capitalized” under the prompt corrective action regulations of the OTS.
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CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The following table sets forth our contractual obligations and commercial commitments at December 31, 2007.
| Payment Due By Period | |||||||||||||||
| Contractual Obligations |
Total | Less Than One Year |
More Than One Year Through Three Years |
More Than Three Years Through Five Years |
More Than Five Years | ||||||||||
| (In Thousands) | |||||||||||||||
| FHLB advances |
$ | 84,000 | $ | 15,000 | $ | 41,000 | $ | 10,000 | $ | 18,000 | |||||
| Certificates of deposit |
238,185 | 219,829 | 17,076 | 1,022 | 258 | ||||||||||
| Lease Obligations |
2,870 | 471 | 1,291 | 436 | 672 | ||||||||||
| Benefit plans |
7,119 | 677 | 1,386 | 1,360 | 3,696 | ||||||||||
| Total |
$ | 332,174 | $ | 235,977 | $ | 60,753 | $ | 12,818 | $ | 22,626 | |||||
In the normal course of business, the Bank enters into off-balance sheet arrangements consisting of commitments to fund mortgage loans and lines of credit secured by real estate. The following table presents these off-balance sheet arrangements at December 31, 2007. For more information regarding these commitments, see Note 13 of the Notes to Consolidated Financial Statements.
| Payment Due By Period | |||||||||||||||
| Off-Balance Sheet Arrangements |
Total | Less Than One Year |
More Than One Year Through Three Years |
More Than Three Years Through Five Years |
More Than Five Years | ||||||||||
| (In Thousands) | |||||||||||||||
| To originate loans |
$ | 8,477 | $ | 8,477 | $ | — | $ | — | $ | — | |||||
| Unused lines of credit |
10,617 | 10,617 | — | — | — | ||||||||||
| Letters of credit |
559 | 462 | 97 | — | — | ||||||||||
| Total |
$ | 19,653 | $ | 19,556 | $ | 97 | $ | — | $ | — | |||||
MANAGEMENT OF INTEREST RATE RISK
The Bank, like other financial institutions, is subject to market risk. Market risk is the type of risk that occurs when an institution suffers economic loss due to changes in the market value of various types of assets or liabilities. As a financial institution, the Bank makes a profit by accepting and managing various risks such as credit risk and interest rate risk. Interest rate risk is the Bank’s primary market 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
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PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations — (continued)
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, which sets forth the Bank’s NPV as of December 31, 2007, was calculated by the OTS:
| NPV as Percent of Portfolio Value of Assets |
||||||||||||||||
| Change in Interest Rates In Basis Points (Rate Shock) |
Amount | Net Portfolio Value Dollar Change |
Percent Change |
NPV Ratio |
Change In Basis Points |
|||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| +300 bp | $ | 44,294 | $ | -42,426 | -49 | % | 6.87 | % | -563 bp | |||||||
| +200 bp | $ | 59,301 | $ | -27,419 | -32 | % | 8.96 | % | -354 bp | |||||||
| +100 bp | $ | 74,561 | $ | -12,159 | -14 | % | 10.98 | % | -152 bp | |||||||
| +50 bp | $ | 80,961 | $ | -5,760 | -7 | % | 11.79 | % | -71 bp | |||||||
| 0 | $ | 86,270 | $ | — | — | 12.50 | % | — | ||||||||
| -50 bp | $ | 91,752 | $ | 5,032 | +6 | % | 13.10 | % | +60 bp | |||||||
| -100 bp | $ | 96,462 | $ | 9,742 | +11 | % | 13.66 | % | +116 bp | |||||||
| -200 bp | $ | 103,302 | $ | 16,582 | +19 | % | 14.42 | % | +193 bp | |||||||
Certain shortcomings are inherent in the methodology used in 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.
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.
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Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
PAMRAPO BANCORP, INC.
We have audited the accompanying consolidated statements of financial condition of Pamrapo Bancorp, Inc. and Subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pamrapo Bancorp, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1, the Company changed its method of accounting for Defined Benefit Pension and Other Post-Retirement Plans in 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) Pamrapo Bancorp, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 10, 2008 expressed an unqualified opinion.
| Beard Miller Company LLP |
 | |
| Pine Brook, New Jersey |
||
| March 10, 2008 |
11
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| ASSETS |
||||||||
| Cash and amounts due from depository institutions |
$ | 3,919,627 | $ | 4,557,390 | ||||
| Interest-bearing deposits in other banks |
62,976,392 | 8,789,549 | ||||||
| Cash and Cash Equivalents |
66,896,019 | 13,346,939 | ||||||
| Securities available for sale |
917,047 | 1,169,620 | ||||||
| Investment securities held to maturity (estimated fair value of $10,650,000 and $9,599,000, respectively) |
10,376,920 | 9,167,703 | ||||||
| Mortgage-backed securities held to maturity (estimated fair value of $121,422,000 and $136,449,000, respectively) |
123,906,632 | 141,053,489 | ||||||
| Loans receivable (net of allowance for loan losses of $3,155,000 and $2,651,000, respectively) |
439,053,090 | 454,859,315 | ||||||
| Foreclosed real estate |
486,000 | — | ||||||
| Premises and equipment |
3,339,898 | 3,730,636 | ||||||
| Federal Home Loan Bank of New York stock |
4,996,000 | 5,721,100 | ||||||
| Interest receivable |
2,738,425 | 2,894,089 | ||||||
| Deferred tax asset |
2,503,680 | 2,227,761 | ||||||
| Other assets |
2,214,550 | 2,389,546 | ||||||
| Total Assets |
$ | 657,428,261 | $ | 636,560,198 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Liabilities |
||||||||
| Deposits |
$ | 507,961,177 | $ | 469,941,066 | ||||
| Advances from Federal Home Loan Bank of New York |
84,000,000 | 101,000,000 | ||||||
| Advance payments by borrowers for taxes and insurance |
3,557,745 | 3,654,164 | ||||||
| Other liabilities |
3,269,865 | 3,397,222 | ||||||
| Total Liabilities |
598,788,787 | 577,992,452 | ||||||
| Commitments and Contingencies |
||||||||
| Stockholders’ Equity |
||||||||
| Preferred stock; 3,000,000 shares authorized; none issued and outstanding |
— | — | ||||||
| Common stock; $0.01 par value; 25,000,000 shares authorized; 6,900,000 shares issued; 4,975,542 shares outstanding, 2007 and 2006 |
69,000 | 69,000 | ||||||
| Paid-in capital |
19,339,615 | 19,339,615 | ||||||
| Retained earnings |
63,711,451 | 63,936,702 | ||||||
| Accumulated other comprehensive loss |
(1,301,888 | ) | (1,598,867 | ) | ||||
| Treasury stock, at cost, 1,924,458 shares, 2007 and 2006 |
(23,178,704 | ) | (23,178,704 | ) | ||||
| Total Stockholders’ Equity |
58,639,474 | 58,567,746 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 657,428,261 | $ | 636,560,198 | ||||
See Notes to Consolidated Financial Statements
12
Consolidated Statements of Income
| Years Ended December 31, | |||||||||
| 2007 | 2006 | 2005 | |||||||
| Interest Income |
|||||||||
| Loans |
$ | 28,838,443 | $ | 28,936,780 | $ | 26,615,913 | |||
| Mortgage-backed securities |
6,003,167 | 7,222,162 | 8,667,286 | ||||||
| Investments |
694,725 | 772,736 | 799,897 | ||||||
| Other interest-earning assets |
1,566,054 | 605,583 | 433,802 | ||||||
| Total Interest Income |
37,102,389 | 37,537,261 | 36,516,898 | ||||||
| Interest Expense |
|||||||||
| Deposits |
13,698,770 | 11,313,907 | 8,735,004 | ||||||
| Advances and other borrowed money |
4,383,916 | 4,666,907 | 3,694,720 | ||||||
| Total Interest Expense |
18,082,686 | 15,980,814 | 12,429,724 | ||||||
| Net Interest Income |
19,019,703 | 21,556,447 | 24,087,174 | ||||||
| Provision for Loan Losses |
670,000 | — | 109,863 | ||||||
| Net Interest Income after Provision for Loan Losses |
18,349,703 | 21,556,447 | 23,977,311 | ||||||
| Non-Interest Income |
|||||||||
| Fees and service charges |
1,249,896 | 1,183,073 | 1,284,125 | ||||||
| Gain on sale of mortgage-backed securities |
— | — | 99,575 | ||||||
| Gain on sale of securities available for sale |
— | 430,089 | — | ||||||
| Commissions from sale of financial products |
903,675 | 976,194 | 894,508 | ||||||
| Other |
193,672 | 208,655 | 263,071 | ||||||
| Total Non-Interest Income |
2,347, 243 | 2,798,011 | 2,541,279 | ||||||
| Non-Interest Expenses |
|||||||||
| Salaries and employee benefits |
7,596,422 | 7,637,767 | 7,688,655 | ||||||
| Net occupancy expense of premises |
1,199,928 | 1,183,348 | 1,118,607 | ||||||
| Equipment |
1,320,370 | 1,294,678 | 1,312,591 | ||||||
| Advertising |
255,225 | 306,779 | 219,066 | ||||||
| Professional fees |
770,734 | 594,923 | 519,495 | ||||||
| Other |
2,698,593 | 2,867,354 | 2,684,803 | ||||||
| Total Non-Interest Expenses |
13,841,272 | 13,884,849 | 13,543,217 | ||||||
| Income before Income Taxes |
6,855,674 | 10,469,609 | 12,975,373 | ||||||
| IncomeTaxes |
2,503,426 | 3,927, 742 | 5,011,590 | ||||||
| Net Income |
$ | 4,352,248 | $ | 6,541,867 | $ | 7,963,783 | |||
| Net Income per Common Share |
|||||||||
| Basic |
$ | 0.87 | $ | 1.31 | $ | 1.60 | |||
| Diluted |
$ | 0.87 | $ | 1.31 | $ | 1.60 | |||
| Weighted Average Number of Common Shares Outstanding |
|||||||||
| Basic |
4,975,542 | 4,975,542 | 4,975,470 | ||||||
| Diluted |
4,978,652 | 4,980,708 | 4,986,762 | ||||||
| Dividends per Common Share |
$ | 0.92 | $ | 0.92 | $ | 0.88 | |||
See Notes to Consolidated Financial Statements
13
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
| Common Stock | Paid-In Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Treasury Stock |
Total | |||||||||||||||||
| Balance - December 31, 2004 |
$ | 69,000 | $ | 19,041,357 | $ | 58,387,028 | $ | 315,468 | $ | (22,698,638 | ) | $ | 55,114,215 | |||||||||
| Comprehensive income: |
||||||||||||||||||||||
| Net income |
— | — | 7,963,783 | — | — | 7,963,783 | ||||||||||||||||
| Unrealized loss on securities available for sale, net of income taxes of $13,300 |
— | — | — | (30,865 | ) | — | (30,865 | ) | ||||||||||||||
| Total Comprehensive Income |
7,932,918 | |||||||||||||||||||||
| Purchase of treasury stock |
— | — | — | — | (372,862 | ) | (372,862 | ) | ||||||||||||||
| Sale of treasury stock |
— | 109,246 | — | — | 195,789 | 305,035 | ||||||||||||||||
| Award of treasury stock |
— | 7,740 | — | — | 7,419 | 15,159 | ||||||||||||||||
| Cash dividends |
— | — | (4,378,477 | ) | — | — | (4,378,477 | ) | ||||||||||||||
| Balance - December 31, 2005 |
69,000 | 19,158,343 | 61,972,334 | 284,603 | (22,868,292 | ) | 58,615,988 | |||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||
| Net income |
— | — | 6,541,867 | — | — | 6,541,867 | ||||||||||||||||
| Unrealized loss on securities available for sale, net of income taxes of $14,214 |
— | — | — | (21,977 | ) | — | (21,977 | ) | ||||||||||||||
| Realized gain on securities available for sale, net of income taxes of $171,778 |
— | — | — | (258,311 | ) | — | (258,311 | ) | ||||||||||||||
| Total Comprehensive Income |
6,261,579 | |||||||||||||||||||||
| Adjustment to initially apply FASB Statement No. 158, net of income taxes of $1,068,789 |
(1,603,182 | ) | — | (1,603,182 | ) | |||||||||||||||||
| Purchase of treasury stock |
— | — | — | — | (644,620 | ) | (644,620 | ) | ||||||||||||||
| Sale of treasury stock |
— | 181,272 | — | — | 334,208 | 515,480 | ||||||||||||||||
| Cash dividends |
— | — | (4,577,499 | ) | — | — | (4,577,499 | ) | ||||||||||||||
| Balance - December 31, 2006 |
69,000 | 19,339,615 | 63,936,702 | (1,598,867 | ) | (23,178,704 | ) | 58,567,746 | ||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||
| Net income |
— | — | 4,352,248 | — | — | 4,352,248 | ||||||||||||||||
| Unrealized loss on securities available for sale, net of income taxes of $2,700 |
— | — | — | (4,029 | ) | — | (4,029 | ) | ||||||||||||||
| Benefit plans, net of income taxes of $200,675 |
301,008 | — | 301,008 | |||||||||||||||||||
| Total Comprehensive Income |
4,649,227 | |||||||||||||||||||||
| Cash dividends |
— | — | (4,577,499 | ) | — | — | (4,577,499 | ) | ||||||||||||||
| Balance - December 31, 2007 |
$ | 69,000 | $ | 19,339,615 | $ | 63,711,451 | $ | (1,301,888 | ) | $ | (23,178,704 | ) | $ | 58,639,474 | ||||||||
See Notes to Consolidated Financial Statements
14
Consolidated Statements of Cash Flows
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Cash Flows from Operating Activities |
||||||||||||
| Net income |
$ | 4,352,248 | $ | 6,541,867 | $ | 7,963,783 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation of premises and equipment and investment in real estate |
588,233 | 568,252 | 565,377 | |||||||||
| Amortization of deferred fees, premiums and discounts, net |
526,971 | 256,692 | 397,651 | |||||||||
| Provision for loan losses |
670,000 | — | 109,863 | |||||||||
| Originations of loans held for sale |
(1,487,884 | ) | — | — | ||||||||
| Proceeds from loan sales |
1,500,376 | — | — | |||||||||
| Gain on sale of loans sold |
(12,492 | ) | — | — | ||||||||
| Gain on sale of mortgage-backed securities held to maturity |
— | — | (99,575 | ) | ||||||||
| Gain on sale of securities available for sale |
— | (430,089 | ) | — | ||||||||
| Deferred income tax (benefit) expense |
(473,894 | ) | 37,470 | (49,261 | ) | |||||||
| Award of treasury stock |
— | — | 15,159 | |||||||||
| Decrease (increase) in interest receivable |
155,664 | (84,752 | ) | (106,805 | ) | |||||||
| Decrease (increase) in other assets |
174,996 | (42,176 | ) | (1,365,995 | ) | |||||||
| Increase in other liabilities |
374,326 | 65,908 | 317,999 | |||||||||
| Net Cash Provided by Operating Activities |
6,368,544 | 6,913,172 | 7,748,196 | |||||||||
| Cash Flows from Investing Activities |
||||||||||||
| Principal repayments on securities available for sale |
245,844 | 109,817 | 326,102 | |||||||||
| Purchases of securities available for sale |
— | (27,483 | ) | (52,059 | ) | |||||||
| Proceeds from sale of securities available for sale |
— | 2,025,221 | — | |||||||||
| Purchases of investment securities held to maturity |
(1,333,662 | ) | — | (1,085,000 | ) | |||||||
| Proceeds from sale of mortgage-backed securities held to maturity |
— | — | 4,011,840 | |||||||||
| Proceeds from maturity of investment securities held to maturity |
— | 1,000,000 | — | |||||||||
| Principal repayments on mortgage-backed securities held to maturity |
20,781,037 | 25,888,579 | 38,872,142 | |||||||||
| Purchases of mortgage-backed securities held to maturity |
(3,909,245 | ) | — | (9,776,945 | ) | |||||||
| Net change in loans receivable |
14,522,764 | (16,679,941 | ) | (42,789,545 | ) | |||||||
| Additions to premises and equipment |
(197,495 | ) | (442,981 | ) | (402,784 | ) | ||||||
| Redemption (purchase) of Federal Home Loan Bank of New York stock |
725,100 | 233,100 | (802,300 | ) | ||||||||
| Net Cash Provided by (Used in) Investing Activities |
30,834,343 | 12,106,312 | (11,698,549 | ) | ||||||||
15
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Cash Flows from Financing Activities |
||||||||||||
| Net Increase (decrease) in deposits |
38,020,111 | (4,062,214 | ) | (15,346,408 | ) | |||||||
| Advances from Federal Home Loan Bank of New York |
— | 40,000,000 | 37,400,000 | |||||||||
| Repayment of advances from Federal Home Loan Bank of New York |
(17,000,000 | ) | (37,000,000 | ) | (20,000,000 | ) | ||||||
| Repayment of Federal Home Loan Bank overnight borrowing |
— | (8,400,000 | ) | — | ||||||||
| Net decrease in other borrowed money |
— | (39,908 | ) | (36,850 | ) | |||||||
| Net (decrease) increase in payments by borrowers for taxes and insurance |
(96,419 | ) | (33,865 | ) | 351,285 | |||||||
| Cash dividends paid |
(4,577,499 | ) | (4,577,499 | ) | (4,378,477 | ) | ||||||
| Sale of treasury stock |
— | 515,480 | 305,035 | |||||||||
| Purchase of treasury stock |
— | (644,620 | ) | (372,862 | ) | |||||||
| Net Cash Provided by (Used in) Financing Activities |
16,346,193 | (14,242,626 | ) | (2,078,277 | ) | |||||||
| Net Increase (Decrease) in Cash and Cash Equivalents |
53,549,080 | 4,776,858 | (6,028,630 | ) | ||||||||
| Cash and Cash Equivalents—Beginning |
13,346,939 | 8,570,081 | 14,598,711 | |||||||||
| Cash and Cash Equivalents—Ending |
$ | 66,896,019 | $ | 13,346,939 | $ | 8,570,081 | ||||||
| Supplementary Information |
||||||||||||
| Income taxes paid, net of refunds |
$ | 2,492,212 | $ | 3,523,899 | $ | 5,791,868 | ||||||
| Interest paid |
$ | 18,125,636 | $ | 15,990,049 | $ | 12,383,218 | ||||||
| Loans transferred to foreclosed real estate |
$ | 486,000 | $ | — | $ | — | ||||||
16
Notes to Consolidated Financial Statements
Note 1. Summary Of Significant Accounting Policies
BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of Pamrapo Bancorp, Inc. (the “Company”), its wholly owned subsidiary, Pamrapo Savings Bank, S.L.A. (the “Bank”) and the Bank’s wholly-owned subsidiaries, Pamrapo Service Corp., Inc. (the “Service Corp.”) and Pamrapo Investment Company (the “Investment Company”). The Company’s business is conducted principally through the Bank. All significant inter-company 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 Bank 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.
On a quarterly basis, management makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. Management considers many factors including the severity and duration of the impairment; the intent and ability of the Bank to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded as a realized loss.
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
17
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
The accrual of interest on loans is discontinued at the time of the loan being 120 days past due unless the credit is well secured and in the process of collection. Uncollectible interest on loans is charged off, or an allowance is established based on management’s evaluation. An allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is probable, in which case the loan is returned to an accrual status.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level considered adequate to absorb loan losses. Management of the 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
Real estate acquired by foreclosure or deed in lieu of foreclosure is initially recorded at estimated fair value at date of acquisition, establishing a new cost basis 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.
ADVERTISING
Advertising expense is recorded when incurred.
BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering all eligible employees. The benefits are based on years of service and employees’ compensation. The defined benefit plan is funded in conformity with funding requirements of applicable government regulations. Prior service costs for the defined benefit plan generally are amortized over the estimated remaining service periods of employees.
Certain employees are covered under a Supplemental Executive Retirement Plan (“SERP”). SERP is an unfunded non-qualified deferred retirement plan for certain employees. A participant who retires at the age of 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
18
Company and the number of years prior to the Normal Retirement Age that participants retire.
The Company uses the corridor approach in the valuation of the defined benefit plan and SERP. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions. For a defined benefit plan, these unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. For SERP, amortization occurs when the net gains or losses exceed 10% of the accumulated SERP benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the average remaining service period to retirement date of active plan participants or, for retired participants, the average remaining life expectancy.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires two major changes to accounting for defined benefit and postretirement plans, with two different effective dates. The first requirement of SFAS No. 158, which the Company adopted as of December 31, 2006, requires the recognition of the over-funded and under-funded status of a defined benefit postretirement plan as an asset or liability in the consolidated statement of financial condition, with changes in the funded status recorded through other comprehensive income in the year in which those changes occur.
The second requirement of SFAS No. 158, which is effective for the Company as of December 31, 2008, requires that the funded status be measured as of the entity’s fiscal year-end rather than as of an earlier date currently permitted. The Company currently uses a measurement date of October 1 for its defined benefit pension plan and SERP.
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, Service Corp. and Investment Company file a consolidated federal income tax return. Income taxes are allocated to the Company, Bank, Service Corp. and Investment Company 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, Service Corp. and Investment Company.
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 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.
Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company’s evaluation of the implementation of FIN 48, no significant income tax uncertainties were identified. Therefore, the Company recognized no adjustment for unrecognized tax benefits for the year ended December 31, 2007. Our policy is to recognize interest and penalities on unrecognized tax benefits in income tax expense in the Consolidated Statements of
19
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income. The amount of interest and penalties for the year ended December 31, 2007 was immaterial. The tax years subject to examination by the taxing authorities are the years ended December 31, 2006, 2005, 2004, 2003 and 2002.
In May 2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1 “Definition of Settlement in FASB Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective retroactively to January 1, 2007. The implementation of this standard did not have a material impact on our consolidated financial position or results of operations.
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.
DISCLOSURE 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 and payable: The carrying amounts reported in the consolidated financial statements for cash and cash equivalents and interest receivable and payable approximate their fair values.
Securities: The fair value of 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.
FHLB stock: The estimated fair value of the Bank’s investment in FHLB stock is deemed equal to its carrying value, which represents the price at which it may be redeemed.
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: 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.
STOCK-BASED COMPENSATION
The Company, under a plan approved by its stockholders in 2003, has granted stock options to certain employees. Prior to 2006, the Company accounted for options granted using the intrinsic value method, in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No compensation expense had been reflected in net income for the options granted as all such grants have an exercise price equal to the market price of the underlying stock at the date of grant.
The Company adopted SFAS No. 123(R) on January 1, 2006 under the modified prospective method. Since all of the Company’s stock options were vested prior to 2006, the adoption of SFAS No. 123(R) had no impact on the consolidated financial statements. Had the Company applied the fair value recognition provisions of SFAS No. 123 to all option grants, the pro-forma net income would have been reduced by $18,986 with no impact on basic and diluted earnings per share for the year ended December 31, 2005.
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
20
calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options, if dilutive, using the treasury stock method.
RECLASSIFICATION
Certain amounts for prior periods have been reclassified to conform to the current period’s presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for the Company January 1, 2008. The Company believes that the impact of adoption of SFAS No. 159 is not material on its Consolidated Financial Statements.
In March 2007, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issues Task Force (“EITF”) Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for nonvested equity-classified employee share-based payment awards as an increase to additional paid-in capital. EITF 06-11 is effective for fiscal years beginning after September 15, 2007. The Company believes that the impact of adoption of EITF 06-11 is not material on its Consolidated Financial Statements.
In March 2007, the FASB ratified EITF Issue No. 06-10 “Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements” (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The Company believes that the impact of adoption of EITF 06-10 is not material on its Consolidated Financial Statements.
In September 2006, the FASB’s Emerging Issues Task Force (EITF) issued EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements” (“EITF 06-4”). EITF 06-4 requires the recognition of a liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement. The consensus highlights that the employer (who is also the policyholder) has a liability for the benefit it is providing to its employee. As such, if the policyholder has agreed to maintain the insurance policy in force for the employee’s benefit during his or her retirement, then the liability recognized during the employee’s active service period should be based on the future cost of insurance to be incurred during the employee’s retirement. Alternatively, if the policyholder has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106 or Accounting Principles Board (APB) Opinion No. 12, as appropriate. For transition, an entity can choose to apply the guidance using either of the following approaches: (a) a change in accounting principle through retrospective application to all periods presented or (b) a change in accounting principle through a cumulative-effect adjustment to the balance in retained earnings at the beginning of the year of adoption. The disclosures are required in fiscal years beginning after December 15, 2007, with early adoption permitted.
FASB statement No. 141 (R) “Business Combinations” was issued in December of 2007. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. This new pronouncement will impact the Company’s accounting for business combinations completed beginning January 1, 2009.
In December 2007, the FASB issued statement No. 160 “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
Staff Accounting Bulletin No. 109 (SAB 109), “Written Loan Commitments Recorded at Fair Value Through
21
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Earnings,” expresses the views of the staff regarding written loan commitments that are accounted for at fair value through earnings under generally accepted accounting principles. To make the staff’s views consistent with current authoritative accounting guidance, the SAB revises and rescinds portions of SAB No. 105, “Application of Accounting Principles to Loan Commitments.” Specifically, the SAB revises the SEC staff’s views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. The SAB retains the staff’s views on incorporating expected net future cash flows related to internally-developed intangible assets in the fair value measurement of a written loan commitment. The staff expects registrants to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The Company does not expect SAB 109 to have a material impact on its financial statements.
Staff Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of Section D.2 of Topic 14, “Share-Based Payment,” of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of expected term of “plain vanilla” share options and allows usage of the “simplified” method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a reasonable estimate to continue use of the “simplified” method for estimating the expected term of “plain vanilla” share option grants after December 31, 2007. SAB 110 is effective January 1, 2008.
In December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b, “Effective Date of FASB Statement No. 157,” that would permit a one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applies Statement 157 in interim or annual financial statements before proposed FSP 157-b is finalized. The Company is currently evaluating the impact, if any, that the adoption of FSP 157-b will have on the Company’s operating income or net earnings.
22
Note 2. Securities Available for Sale
| Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||
| December 31, 2007: |
||||||||||||
| Mortgage-backed securities |
$ | 516,561 | $ | 4,486 | $ | — | $ | 521,047 | ||||
| Trust originated preferred security, maturing after twenty years |
400,000 | — | 4,000 | 396,000 | ||||||||
| $ | 916,561 | $ | 4,486 | $ | 4,000 | $ | 917,047 | |||||
| December 31, 2006: |
||||||||||||
| Mortgage-backed securities |
$ | 662,405 | $ | 7,215 | $ | — | $ | 669,620 | ||||
| Trust originated preferred security, maturing after twenty years |
500,000 | — | — | 500,000 | ||||||||
| $ | 1,162,405 | $ | 7,215 | $ | — | $ | 1,169,620 | |||||
The unrealized loss, categorized by the length of time of continuous loss position, and the fair value of the related security available for sale is as follows:
| Less than 12 Months | More than 12 Months | Total | ||||||||||||||||
| Fair Value | Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses | |||||||||||||
| December 31, 2007: |
||||||||||||||||||
| Trust originated preferred security, maturing after twenty years |
$ | 396,000 | $ | 4,000 | $ | — | $ | — | $ | 396,000 | $ | 4,000 | ||||||
During the year ended December 31, 2007, trust originated preferred securities with a face value of $100,000 were called at par.
During the year ended December 31, 2006, a mutual fund with a book value of $1,588,112 was redeemed and a loss of $43,825 was realized and an equity security with a book value of $7,020 was sold and a profit of $473,914 was realized. There were no sales of securities available for sale during the years ended December 31, 2007 and 2005.
23
Note 3. Investment Securities Held to Maturity
| Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value | |||||||||
| December 31, 2007: |
||||||||||||
| Subordinated notes: |
||||||||||||
| Due after one within five years |
$ | 9,043,236 | $ | 262,464 | $ | — | $ | 9,305,700 | ||||
| Municipal Obligations: |
||||||||||||
| Due after ten years through fifteen years |
374,786 | 4,189 | — | 378,975 | ||||||||
| Due after fifteen years |
958,898 | 6,879 | — | 965,777 | ||||||||
| $ | 10,376,920 | $ | 273,532 | $ | — | $ | 10,650,452 | |||||
| December 31, 2006: |
||||||||||||
| Subordinated notes: |
||||||||||||
| Due after one within five years |
$ | 9,167,703 | $ | 431,097 | $ | — | $ | 9,598,800 | ||||
There were no sales of investment securities held to maturity during the years ended December 31, 2007, 2006 and 2005.
Note 4. Mortgage-Backed Securities Held to Maturity
| Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value | |||||||||
| December 31, 2007: |
||||||||||||
| Federal Home Loan Mortgage Corporation |
$ | 86,886,817 | $ | 171,847 | $ | 1,433,276 | $ | 85,625,388 | ||||
| Federal National Mortgage Association |
24,893,450 | 111,579 | 745,823 | 24,259,206 | ||||||||
| Government National Mortgage Association |
126,593 | 9,223 | — | 135,816 | ||||||||
| Collateralized mortgage obligations |
11,999,772 | 2 | 597,760 | 11,402,014 | ||||||||
| $ | 123,906,632 | $ | 292,651 | $ | 2,776,859 | $ | 121,422,424 | |||||
| December 31, 2006: |
||||||||||||
| Federal Home Loan Mortgage Corporation |
$ | 100,162,445 | $ | 111,051 | $ | 3,077,794 | $ | 97,195,702 | ||||
| Federal National Mortgage Association |
27,405,052 | 55,780 | 1,239,664 | 26,221,168 | ||||||||
| Government National Mortgage Association |
167,848 | 8,407 | — | 176,255 | ||||||||
| Collateralized mortgage obligations |
13,318,144 | — | 462,432 | 12,855,712 | ||||||||
| $ | 141,053,489 | $ | 175,238 | $ | 4,779,890 | $ | 136,448,837 | |||||
24
The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related mortgage-backed securities held to maturity are as follows:
| Less than 12 Months | More than 12 Months | Total | ||||||||||||||||
| Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses | |||||||||||||
| December 31, 2007: |
||||||||||||||||||
| Federal Home Loan Mortgage Corporation |
$ | — | $ | — | $ | 68,827,391 | $ | 1,433,276 | $ | 68,827,391 | $ | 1,433,276 | ||||||
| Federal National Mortgage Association |
— | — | 20,207,295 | 745,823 | 20,207,295 | 745,823 | ||||||||||||
| Collateralized mortgage obligations |
— | — | 11,401,045 | 597,760 | 11,401,045 | 597,760 | ||||||||||||
| $ | — | $ | — | $ | 100,435,731 | $ | 2,776,859 | $ | 100,435,731 | $ | 2,776,859 | |||||||
| December 31, 2006: |
||||||||||||||||||
| Federal Home Loan Mortgage Corporation |
$ | — | $ | — | $ | 89,927,413 | $ | 3,077,794 | $ | 89,927,413 | $ | 3,077,794 | ||||||
| Federal National Mortgage Association |
22,404 | 79 | 23,416,012 | 1,239,585 | 23,438,416 | 1,239,664 | ||||||||||||
| Collateralized mortgage obligations |
1,150 | 16 | 12,854,562 | 462,416 | 12,855,712 | 462,432 | ||||||||||||
| $ | 23,554 | $ | 95 | $ | 126,197,987 | $ | 4,779,795 | $ | 126,221,541 | $ | 4,779,890 | |||||||
Management does not believe that any of the unrealized losses at December 31, 2007 and 2006, represent an other-than-temporary impairment. The unrealized losses on the mortgage-backed securities portfolio are due primarily to increases in market interest rates. The securities with unrealized losses are primarily at fixed interest rates. The Bank has the intent and ability to hold these securities for a time necessary to recover the amortized cost.
There were no sales of mortgage-backed securities held to maturity during the years ended December 31, 2007 and 2006. During the year ended December 31, 2005, proceeds from the sales of mortgage-backed securities held to maturity totaled $4,011,840 and resulted in gross gains of $99,575. The securities sold had an outstanding principal balance of less than 15% of their original principal balances and, as provided for in FASB Statement No. 115, were permitted to be sold out of the held to maturity portfolio.
25
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5. Loans Receivable
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| Real estate mortgage: |
||||||||
| One-to-four family |
$ | 220,466,440 | $ | 230,520,981 | ||||
| Multi-family |
53,340,123 | 59,807,860 | ||||||
| Commercial |
69,911,297 | 70,771,387 | ||||||
| 343,717,860 | 361,100,228 | |||||||
| Real estate construction |
15,457,598 | 17,080,557 | ||||||
| Land |
75,500 | 143,769 | ||||||
| Commercial |
10,317,987 | 9,037,046 | ||||||
| Consumer: |
||||||||
| Passbook or certificate |
719,858 | 719,243 | ||||||
| Home improvement |
24,520 | 36,244 | ||||||
| Equity and second mortgage |
71,901,556 | 70,506,508 | ||||||
| Automobile |
561,433 | 535,988 | ||||||
| Personal |
938,236 | 1,146,181 | ||||||
| 74,145,603 | 72,944,164 | |||||||
| Total Loans |
443,714,548 | 460,305,764 | ||||||
| Loans in process |
2,718,470 | 4,012,011 | ||||||
| Allowance for loan losses |
3,154,977 | 2,650,679 | ||||||
| Deferred loan fees |
(1,211,989 | ) | (1,216,241 | ) | ||||
| 4,661,458 | 5,446,449 | |||||||
| $ | 439,053,090 | $ | 454,859,315 | |||||
At December 31, 2007, 2006 and 2005, loans serviced by the Bank for the benefit of others totaled approximately $1,708,000, $281,000, and $409,000, respectively.
The following is an analysis of the allowance for loan losses:
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Balance, beginning |
$ | 2,650,679 | $ | 2,755,000 | $ | 2,495,000 | ||||||
| Provisions charged to operations |
670,000 | — | 109,863 | |||||||||
| Recoveries credited to allowance |
103,938 | 8,570 | 171,319 | |||||||||
| Loan losses charged to allowance |
(269,640 | ) | (112,891 | ) | (21,182 | ) | ||||||
| Balance, ending |
$ | 3,154,977 | $ | 2,650,679 | $ | 2,755,000 | ||||||
Impaired loans and related amounts recorded in the allowance for loan losses are summarized as follows:
| December 31, | ||||||
| 2007 | 2006 | |||||
| Recorded investment in impaired loans: |
||||||
| With recorded allowances |
$ | 1,925,693 | $ | 21,932 | ||
| Without recorded allowances |
2,385,734 | 1,704,296 | ||||
| Total Impaired Loans |
4,311,427 | 1,726,228 | ||||
| Related allowance for loan losses |
702,857 | 21,932 | ||||
| Net Impaired Loans |
$ | 3,608,570 | $ | 1,704,296 | ||
| Average balance of total impaired loans |
$ | 2,960,836 | $ | 1,319,255 | ||
| Total loans past due ninety days or more and still accruing |
$ | 2,072,739 | $ | 1,382,740 | ||
At December 31, 2007, 2006 and 2005, non-accrual loans for which interest has been discontinued totaled approximately $3,410,000, $896,000, and $1,173,000, respectively. During the years ended December 31, 2007, 2006 and 2005, the Bank recognized interest income of approximately $86,000, $10,000, and $32,000, respectively, on these loans. Interest income that would have been recorded, had the loans been on the accrual status, would have amounted to approximately $261,000, $67,000, and $88,000 for the years ended December 31, 2007, 2006 and 2005, respectively. The Bank is not committed to lend additional funds to the borrowers whose loans have been placed on non-accrual status.
The activity with respect to loans to directors, officers and associates of such persons, is as follows:
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| Balance, beginning |
$ | 6,519,573 | $ | 4,025,218 | ||||
| Loans originated (1) |
636,756 | 2,687,398 | ||||||
| Collection of principal |
(290,597 | ) | (193,043 | ) | ||||
| Balance, ending |
$ | 6,865,732 | $ | 6,519,573 | ||||
| (1) |
Includes net change in line of credit loans |
26
Note 6. Premises and Equipment
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| Land |
$ | 701,625 | $ | 701,625 | ||||
| Buildings and improvements |
4,086,680 | 4,086,680 | ||||||
| Accumulated depreciation |
(2,455,124 | ) | (2,328,621 | ) | ||||
| 1,631,556 | 1,758,059 | |||||||
| Leasehold improvements |
1,571,552 | 1,525,317 | ||||||
| Accumulated amortization |
(1,221,311 | ) | (1,056,114 | ) | ||||
| 350,241 | 469,203 | |||||||
| Furnishings and equipment |
6,897,840 | 6,746,581 | ||||||
| Accumulated depreciation |
(6,241,364 | ) | (5,944,832 | ) | ||||
| 656,476 | 801,749 | |||||||
| $ | 3,339,898 | $ | 3,730,636 | |||||
Depreciation expense for the years ended December 31, 2007, 2006, and 2005 totaled approximately $588,000, $568,000, and $565,000, respectively. Depreciation charges are computed on the straight-line method over the following estimated useful lives:
| Years | ||
| Buildings and improvements |
10 - 50 | |
| Leasehold improvements |
Shorter of 5-10 years or terms of lease | |
| Furnishings and equipment |
3 - 10 | |
Note 7. Interest Receivable
| December 31, | ||||||
| 2007 | 2006 | |||||
| Loans |
$ | 2,047,801 | $ | 2,158,171 | ||
| Mortgage-backed securities |
499,071 | 565,089 | ||||
| Investment securities |
191,553 | 170,829 | ||||
| $ | 2,738,425 | $ | 2,894,089 | |||
Note 8. Deposits
| December 31, | ||||||||||||||||||
| 2007 | 2006 | |||||||||||||||||
| Weighted Average Rate |
Amount | Percent | Weighted Average Rate |
Amount | Percent | |||||||||||||
| Demand: |
||||||||||||||||||
| Non-interest bearing |
0.00 | % | $ | 38,225,640 | 7.53 | % | 0.00 | % | $ | 43,847,573 | 9.33 | % | ||||||
| NOW |
1.52 | % | 82,322,395 | 16.21 | % | 1.00 | % | 36,618,187 | 7.79 | % | ||||||||
| 1.04 | % | 120,548,035 | 23.74 | % | .46 | % | 80,465,760 | 17.12 | % | |||||||||
| Money market |
2.87 | % | 26,305,317 | 5.18 | % | 1.25 | % | 24,148,390 | 5.14 | % | ||||||||
| Savings and club |
1.13 | % | 122,923,204 | 24.19 | % | 1.41 | % | 135,503,290 | 28.84 | % | ||||||||
| Certificates of deposit |
4.57 | % | 238,184,621 | 46.89 | % | 4.39 | % | 229,823,626 | 48.90 | % | ||||||||
| 2.81 | % | $ | 507,961,177 | 100.00 | % | 2.69 | % | $ | 469,941,066 | 100.00 | % | |||||||
27
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The scheduled maturities of certificates of deposit are as follows:
| December 31, | ||||||
| 2007 | 2006 | |||||
| (In Thousands) | ||||||
| Maturing in: |
||||||
| One year or less |
$ | 219,829 | $ | 209,202 | ||
| After one to two years |
13,288 | 12,304 | ||||
| After two to three years |
3,788 | 5,147 | ||||
| After three to four years |
626 | 2,072 | ||||
| After four to five years |
396 | 631 | ||||
| After five years |
258 | 468 | ||||
| $ | 238,185 | $ | 229,824 | |||
Certificates of deposit of $100,000 or more by the time remaining until maturity are as follows:
| December 31, | ||||||
| 2007 | 2006 | |||||
| (In Thousands) | ||||||
| Three months or less |
$ | 37,747 | $ | 29,855 | ||
| After three months through six months |
34,997 | 22,719 | ||||
| After six months through twelve months |
30,982 | 39,539 | ||||
| After twelve months |
7,605 | 8,974 | ||||
| $ | 111,331 | $ | 101,087 | |||
A summary of interest on deposits follows:
| Years Ended December 31, | |||||||||
| 2007 | 2006 | 2005 | |||||||
| Demand |
$ | 1,005,979 | $ | 779,597 | $ | 884,854 | |||
| Savings, club and money market |
1,622,096 | 2,017,648 | 2,219,739 | ||||||
| Certificates of deposit |
11,070,695 | 8,516,662 | 5,630,411 | ||||||
| $ | 13,698,770 | $ | 11,313,907 | $ | 8,735,004 | ||||
Note 9. Advances from Federal Home Loan Bank of New York
| December 31, | ||||||||||||
| 2007 | 2006 | |||||||||||
| Weighted Average Rate |
Amount | Weighted Average Rate |
Amount | |||||||||
| Maturing by December 31, |
||||||||||||
| 2007 |
— | $ | — | 2.91 | % | $ | 17,000,000 | |||||
| 2008 |
4.24 | % | 15,000,000 | 4.24 | % | 15,000,000 | ||||||
| 2009 |
5.25 | % | 18,000,000 | 5.25 | % | 18,000,000 | ||||||
| 2010 |
5.59 | % | 23,000,000 | 5.59 | % | 23,000,000 | ||||||
| 2011 |
5.24 | % | 10,000,000 | 5.24 | % | 10,000,000 | ||||||
| 2012 |
— | % | — | — | % | — | ||||||
| Thereafter |
4.17 | % | 18,000,000 | 4.17 | % | 18,000,000 | ||||||
| 4.93 | % | $ | 84,000,000 | 4.59 | % | $ | 101,000,000 | |||||
At December 31, 2007 and 2006, all the advances were fixed interest rate advances.
At December 31, 2007 and 2006, the advances were secured by pledges of the Bank’s investment in the capital stock of the Federal Home Loan Bank of New York (the “FHLB”) totaling $4,996,000 and $5,721,100, respectively, and a blanket assignment of the Bank’s unpledged qualifying mortgage loans, mortgage-backed securities and investment securities portfolios.
At December 31, 2007 and 2006, the Company also had available to it $64,130,000 and $58,817,500, respectively, under a revolving overnight line of credit, expiring July 31, 2008 and July 31, 2007, respectively, with the FHLB. The line of credit is secured by a specific pledge of mortgage-backed securities with carrying values and fair values of approximately $42,962,000 and $42,220,000 (2007) and $48,723,000 and $47,170,000 (2006). Borrowings are at the lender’s cost of funds plus .25%. There were no outstanding borrowings under the line of credit at December 31, 2007 and 2006, respectively.
Note 10. Regulatory Matters
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.
28
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, | |||||||
| 2007 | 2006 | ||||||
| (In Thousands) | |||||||
| GAAP capital |
$ | 54,147 | $ | 53,025 | |||
| Unrealized gain on securities available for sale |
— | (4 | ) | ||||
| Benefit plans adjustment |
1,302 | 1,603 | |||||
| Core and tangible capital |
55,449 | 54,624 | |||||
| General valuation allowance |
2,453 | 2,629 | |||||
| Total Regulatory Capital |
$ | 57,902 | $ | 57,253 | |||
As of April 30, 2007, the most recent notification from the State of New Jersey Department of Banking and Insurance, 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.
| Actual | For Capital Adequacy Purposes |
To be Well Capitalized under Prompt Corrective Action Provisions |
||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||
| December 31, 2007: |
||||||||||||||||||||||||||
| Total capital (to risk-weighted assets) |
$ | 57,902 | 15.82 | % | $ | ³ | 29,279 | ³ | 8.00 | % | $ | ³ | 36,599 | ³ | 10.00 | % | ||||||||||
| Tier 1 capital (to risk-weighted assets) |
55,449 | 15.15 | % | ³ | — | ³ | — | ³ | 21,959 | ³ | 6.00 | % | ||||||||||||||
| Core (Tier 1) capital (to adjusted total assets) |
55,449 | 8.43 | % | ³ | 26,295 | ³ | 4.00 | % | ³ | 32,869 | ³ | 5.00 | % | |||||||||||||
| Tangible capital (to adjusted total assets) |
55,449 | 8.43 | % | ³ | 9,861 | ³ | 1.50 | % | ³ | — | ³ | — | ||||||||||||||
| December 31, 2006: |
||||||||||||||||||||||||||
| Total capital (to risk-weighted assets) |
$ | 57,253 | 15.68 | % | $ | ³ | 29,209 | ³ | 8.00 | % | $ | ³ | 36,511 | ³ | 10.00 | % | ||||||||||
| Tier 1 capital (to risk-weighted assets) |
54,624 | 14.96 | % | ³ | — | ³ | — | ³ | 21,906 | ³ | 6.00 | % | ||||||||||||||
| Core (Tier 1) capital (to adjusted total assets) |
54,624 | 8.59 | % | ³ | 25,446 | ³ | 4.00 | % | ³ | 31,808 | ³ | 5.00 | % | |||||||||||||
| Tangible capital (to adjusted total assets) |
54,624 | 8.59 | % | ³ | 9,542 | ³ | 1.50 | % | ³ | — | ³ | — | ||||||||||||||
29
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11. Benefits Plans
PENSION PLAN (“PLAN”)
The following tables set forth the Plan’s funded status and components of net periodic pension cost:
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| Measurement Date | October 1, 2007 |
October 1, 2006 |
||||||
| Change in Benefit Obligation |
||||||||
| Benefit obligation, beginning |
$ | 7,902,564 | $ | 7,417,361 | ||||
| Service cost |
256,756 | 257,724 | ||||||
| Interest cost |
488,604 | 431,744 | ||||||
| Actuarial (gain) loss |
393,773 | (13,528 | ) | |||||
| Benefits paid |
(1,108,323 | ) | (190,737 | ) | ||||
| Benefit obligation, ending |
$ | 7,933,374 | $ | 7,902,564 | ||||
| Change in Plan Assets |
||||||||
| Fair value of assets, beginning |
$ | 7,424,663 | $ | 6,900,126 | ||||
| Actual return on plan assets |
697,986 | 565,274 | ||||||
| Employer contributions |
343,080 | 150,000 | ||||||
| Benefits paid |
(1,108,323 | ) | (190,737 | ) | ||||
| Fair value of assets, ending |
$ | 7,357,406 | $ | 7,424,663 | ||||
| Reconciliation of Funded Status |
||||||||
| Accumulated benefit obligation |
$ | 6,905,310 | $ | 7,035,564 | ||||
| Projected benefit obligation |
$ | 7,933,374 | $ | 7,902,564 | ||||
| Fair value of assets |
(7,357,406 | ) | (7,424,663 | ) | ||||
| Funded status at end of year |
$ | (575,968 | ) | $ | (477,901 | ) | ||
| Assumptions Used |
||||||||
| Discount rate |
6.625 | % | 6.25 | % | ||||
| Rate of increase in compensation |
4.00 | % | 3.50 | % | ||||
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Net Periodic Pension Expense |
||||||||||||
| Service cost |
$ | 256,756 | $ | 257,724 | $ | 238,844 | ||||||
| Interest cost |
488,604 | 431,744 | 423,100 | |||||||||
| Expected return on assets |
(593,844 | ) | (549,860 | ) | (524,220 | ) | ||||||
| Amortization of unrecognized loss |
188,992 | 214,968 | 163,988 | |||||||||
| Settlement Charge |
280,309 | — | — | |||||||||
| Unrecognized past service liability |
17,772 | 17,772 | 17,772 | |||||||||
| Net Periodic Pension Expense |
$ | 638,589 | $ | 372,348 | $ | 319,484 | ||||||
| Assumptions Used |
||||||||||||
| Discount rate |
6.25 | % | 5.88 | % | 6.25 | % | ||||||
| Rate of increase in compensation |
3.50 | % | 3.00 | % | 3.50 | % | ||||||
| Long-term rate of return on plan assets |
8.00 | % | 8.00 | % | 8.00 | % | ||||||
At December 31, 2007 and 2006, unrecognized net loss of $2,409,792 and $2,589,462, respectively, and unrecognized prior service cost of $72,690 and $90,462 respectively, were included in accumulated other comprehensive loss in accordance with SFAS No. 158. For the year ended December 31, 2008, $167,856 of net loss and $17,772 of prior service cost are expected to be recognized in pension expense.
PLAN ASSETS
For 2007 and 2006, the Plan’s assets realized an annual return of 2.3% and 11.6%, respectively. The weighted-average allocations by asset category are as follows:
| December 31, | ||||||
| 2007 | 2006 | |||||
| Certificates of deposit |
36 | % | 41 | % | ||
| Mutual fund |
29 | % | 26 | % | ||
| Mortgage-backed securities |
— | 2 | % | |||
| Equity securities |
35 | % | 31 | % | ||
| 100 | % | 100 | % | |||
For 2008, the Company intends to maintain the current asset mix and seeks to achieve an optimal risk/reward profile by limiting market exposure to present levels. Based on an analysis of the current market environment, we project a 4% return from cash, a 5% return from fixed income and a 7% return from equities, for an overall expected return of approximately 6%.
The long-term rate of return on assets assumption is set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Plan’s actual target allocation of asset classes. Equities and fixed income securities are assumed to earn real rates of return in the ranges of 5-8% and 2-5%, respectively. Additionally, the long-term inflation rate is projected to be 3%. When these overall return expectations are applied to a typical plan’s target allocation, the result is an expected return of 6% to 8%.
Equity securities include Pamrapo Bancorp, Inc. common stock in the amounts of $828,000 (11% of total plan assets) and $657,000 (9% of total plan assets) at December 31, 2007 and 2006, respectively.
30
CONTRIBUTIONS
The Company expects to contribute, based upon actuarial estimates, approximately $370,000 to the pension plan in 2008.
ESTIMATED FUTURE BENEFIT PAYMENTS
Benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the years ended December 31 as follows:
| 2008 |
$ | 433,664 | |
| 2009 |
458,442 | ||
| 2010 |
462,096 | ||
| 2011 |
467,501 | ||
| 2012 |
493,181 | ||
| 2013-2017 |
2,919,350 | ||
| $ | 5,234,234 | ||
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 25% of their compensation of which the Savings Bank will match 25% of the first 10% of the employee’s contribution up to a maximum of 2.5% of compensation. The SIP expense amounted to approximately $52,000, $72,000, and $139,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (“SERP”)
The following tables set forth the SERP’s funded status and components of net periodic SERP cost:
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| Measurement Date | October 1, 2007 | October 1, 2006 | ||||||
| Projected benefit obligation, beginning |
$ | 2,022,107 | $ | 2,364,510 | ||||
| Interest cost |
118,188 | 130,116 | ||||||
| Actuarial gain |
(253,565 | ) | (332,135 | ) | ||||
| Benefit payments |
(123,078 | ) | (140,384 | ) | ||||
| Projected benefit obligation, ending |
1,763,652 | 2,022,107 | ||||||
| Plan assets at fair value |
— | — | ||||||
| Projected benefit obligation in excess of plan assets |
$ | 1,763,652 | $ | 2,022,107 | ||||
| Assumptions: |
||||||||
| Discount rate |
6.625 | % | 6.25 | % | ||||
| Rate of increase in compensation |
4.00 | % | 3.50 | % | ||||
At December 31, 2007 and 2006, unrecognized net gain of $470,318 and $218,945, respectively and unrecognized prior service cost of $158,124 and $210,992, respectively, were included in accumulated other comprehensive loss in accordance with SFAS No. 158. For the year ended December 31, 2008, $43,040 of net gain and $48,124 of prior service cost are expected to be recognized in SERP expense.
Net periodic SERP cost includes the following components:
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Service cost |
$ | — | $ | — | $ | — | ||||||
| Interest cost |
118,188 | 130,116 | 158,360 | |||||||||
| Net amortization |
52,868 | 92,052 | 124,100 | |||||||||
| Unrecognized (gain) |
(2,192 | ) | — | — | ||||||||
| Net periodic SERP cost |
$ | 168,864 | $ | 222,168 | $ | 282,460 | ||||||
| Benefit payments |
$ | 123,078 | $ | 140,384 | $ | 140,384 | ||||||
| Contributions made |
$ | 123,078 | $ | 140,384 | $ | 140,384 | ||||||
| Assumptions Used |
||||||||||||
| Discount rate |
6.25 | % | 5.875 | % | 6.25 | % | ||||||
| Rate of increase in compensation |
3.50 | % | 3.00 | % | 3.50 | % | ||||||
| Amortization period (in years) |
7.63 | 6.88 | 7.75 | |||||||||
31
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
CONTRIBUTIONS
The Company expects to contribute, based upon actuarial estimates, approximately $243,000 to the SERP plan in 2008.
ESTIMATED FUTURE
BENEFIT PAYMENTS
Benefit payments, which reflect expected future service as appropriate, are expected to be paid for the years ended December 31 as follows:
| 2008 |
$ | 243,337 | |
| 2009 |
233,818 | ||
| 2010 |
232,187 | ||
| 2011 |
232,187 | ||
| 2012 |
167,259 | ||
| 2013-2017 |
776,295 | ||
| $ | 1,885,083 | ||
STOCK OPTIONS
Stock options granted under a stockholder approved stock option plan may be either options that qualify as incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or non-statutory options. Options vest in accordance with the plan and may be exercised up to ten years from the date of grant or within one year after retirement. All options granted will be exercisable in the event the optionee terminates his employment, or due to death or disability. A summary of stock option activity follows:
| Number of Options Shares | Range of Exercise Price |
Weighted Average Exercise Price | ||||||||||||
| Vested | Non-Vested | Total | ||||||||||||
| December 31, 2004 |
108,569 | 9,000 | 117,569 | $ | 18.41 - 29.25 | 22.56 | ||||||||
| Vested |
9,000 | (9,000 | ) | — | 29.25 | 29.25 | ||||||||
| Exercised |
(16,569 | ) | — | (16,569 | ) | 18.41 | 18.41 | |||||||
| December 31, 2005 |
101,000 | — | 101,000 | 18.41-29.25 | 23.24 | |||||||||
| Forfeitures |
(6,000 | ) | (6,000 | ) | 29.25 | 29.25 | ||||||||
| Exercised |
(28,000 | ) | — | (28,000 | ) | 18.41 | 18.41 | |||||||
| December 31, 2006 |
67,000 | — | 67,000 | 18.41 - 29.25 | 24.72 | |||||||||
| Forfeitures |
(3,000 | ) | — | (3,000 | ) | 29.25 | 29.25 | |||||||
| Exercised |
— | — | — | — | — | |||||||||
| December 31, 2007 |
64,000 | — | 64,000 | $ | 18.41 - 29.25 | 24.51 | ||||||||
As of December 31, 2007, the intrinsic value of options outstanding was $50,120.
At December 31, 2007 and 2006, the weighted average remaining contractual life of the stock options granted was approximately 5.1 years and 7.1 years, respectively, and stock options for up to 22,380 additional shares of common stock were available for future grants. There were 3,000 and 6,000 options forfeited during the years 2007 and 2006, respectively, and none forfeited in 2005.
32
Note 12. 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, 2007 and 2006, include approximately $6.9 million 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, | ||||||
| 2007 | 2006 | |||||
| Deferred tax assets: |
||||||
| Allowance for loan losses |
$ | 1,285,208 | $ | 1,082,802 | ||
| Benefit plans |
868,829 | 890,849 | ||||
| Deferred loan fees |
15,149 | 25,771 | ||||
| Depreciation |
280,051 | 223,247 | ||||
| Reserve for uncollected interest |
54,643 | 7,992 | ||||
| 2,503,880 | 2,230,661 | |||||
| Deferred tax liabilities: |
||||||
| Unrealized gain on securities available for sale |
200 | 2,900 | ||||
| 200 | 2,900 | |||||
| Net Deferred Tax Assets |
$ | ,503,680 | $ | 2,227,761 | ||
The components of income taxes are summarized as follows:
| Years Ended December 31, | |||||||||||
| 2007 | 2006 | 2005 | |||||||||
| Current expense: |
|||||||||||
| Federal |
$ | 2,627,268 | $ | 3,372,510 | $ | 4,196,641 | |||||
| State |
350,052 | 517,762 | 864,210 | ||||||||
| 2,977,320 | 3,890,272 | 5,060,851 | |||||||||
| Deferred tax expense (benefit): |
|||||||||||
| Federal |
(366,029 | ) | 27,756 | (46,894 | ) | ||||||
| State |
(107,865 | ) | 9,714 | (2,367 | ) | ||||||
| (473,894 | ) | 37,470 | (49,261 | ) | |||||||
| $ | 2,503,426 | $ | 3,927,742 | $ | 5,011,590 | ||||||
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:
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Federal income tax |
$ | 2,330,929 | $ | 3,559,667 | $ | 4,411,627 | ||||||
| Increases in income taxes resulting from |
||||||||||||
| New Jersey income tax, net of federal income tax effect |
159,843 | 348,134 | 568,816 | |||||||||
| Other items, net |
12,654 | 19,941 | 31,147 | |||||||||
| Effective Income Tax |
$ | 2,503,426 | $ | 3,927,742 | $ | 5,011,590 | ||||||
| Effective Income Tax Rate |
36.52 | % | 37.52 | % | 38.62 | % | ||||||
33
Note 13. 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 fund lines of credit secured by real estate. 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 non-performance 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 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 the following off-balance sheet arrangements at December 31, 2007:
| December 31, | ||||||
| 2007 | 2006 | |||||
| To originate loans |
$ | 8,477,000 | $ | 7,680,250 | ||
| Unused lines of credit |
$ | 10,617,000 | $ | 10,981,000 | ||
| Letters of credit |
$ | 559,000 | $ | 1,775,000 | ||
At December 31, 2007, the outstanding commitments to originate fixed rate loans were $6,777,000 with interest rates ranging from 5.50% to 8.75%. The outstanding commitments to originate adjustable rate loans were $1,700,000 with interest rates ranging from 6.25% to 8.25%. All commitments are due to expire within ninety days.
At December 31, 2007, undisbursed funds from approved lines of credit under a homeowners’ equity and a commercial equity lending program amounted to approximately $9,771,000 and $846,000, 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 (.5%) to 3.75% above the prime rate.
Rental expenses related to the occupancy of premises totaled $468,000, $457,000, and $428,000 for the years ended December 31, 2007, 2006 and 2005, respectively. At December 31, 2007, minimum non-cancelable obligations under lease agreements with original terms of more than one year are as follows:
| December 31, |
|||
| 2008 |
$ | 471,000 | |
| 2009 |
443,000 | ||
| 2010 |
420,000 | ||
| 2011 |
428,000 | ||
| 2012 |
436,000 | ||
| Thereafter |
672,000 | ||
| $ | 2,870,000 | ||
The Company, Bank, Service Corp., and Investment Company are also parties 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
Note 14. Comprehensive Income (Loss)
The components of accumulated other comprehensive (loss) included in stockholders’ equity are as follows:
| At December 31, | ||||||||
| 2007 | 2006 | |||||||
| Net unrealized gain on securities available for sale |
$ | 486 | $ | 7,215 | ||||
| Tax effect |
(200 | ) | (2,900 | ) | ||||
| Net of tax amount |
286 | 4,315 | ||||||
| Benefit plans adjustments |
(2,170,288 | ) | (2,671,971 | ) | ||||
| Tax effect |
868,114 | 1,068,789 | ||||||
| Net of tax amount |
(1,302,174 | ) | (1,603,182 | ) | ||||
| Accumulated other comprehensive (loss) |
$ | (1,301,888 | ) | $ | (1,598,867 | ) | ||
The components of other comprehensive income (loss) and related tax effects are presented in the following table:
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Unrealized holding gains (losses) on securities available for sale: |
||||||||||||
| Unrealized holding (losses) arising during the year |
$ | (6,729 | ) | $ | (36,191 | ) | $ | (44,165 | ) | |||
| Reclassification adjustment for gains included in net income |
— | (430,089 | ) | — | ||||||||
| Net unrealized losses on securities available for sale |
(6,729 | ) | (466,280 | ) | (44,165 | ) | ||||||
| Defined benefit pension plan: |
||||||||||||
| Pension losses |
292,014 | — | — | |||||||||
| Prior service cost |
(70,640 | ) | — | — | ||||||||
| Settlement accounting |
280,309 | — | — | |||||||||
| Net change in defined benefit pension plan accrued expense |
501,683 | — | — | |||||||||
| Other comprehensive income (loss) before taxes |
494,954 | (466,280 | ) | (44,165 | ) | |||||||
| Tax effect |
(197,975 | ) | 185,992 | 13,300 | ||||||||
| Other comprehensive income (loss) |
$ | 296,979 | $ | (280,288 | ) | $ | (30,865 | ) | ||||
35
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15. Earnings Per Common Share
The following is a summary of the calculation of earnings per share (EPS):
| Years Ended December 31, | |||||||||
| 2007 | 2006 | 2005 | |||||||
| Net income |
$ | 4,352,248 | $ | 6,541,867 | $ | 7,963,783 | |||
| Weighted average common shares outstanding for computation of basic EPS |
4,975,542 | 4,975,542 | 4,975,470 | ||||||
| Dilutive common-equivalent shares |
3,110 | 5,163 | 11,292 | ||||||
| Weighted average common shares for computation of diluted EPS |
4,978,652 | 4,980,708 | 4,986,762 | ||||||
| Earnings per common share: |
|||||||||
| Basic |
$ | 0.87 | $ | 1.31 | $ | 1.60 | |||
| Diluted |
$ | 0.87 | $ | 1.31 | $ | 1.60 | |||
Note 16. Fair Values of Financial Instruments
The carrying amounts and fair value of the financial instruments are as follows:
| December 31, | ||||||||||||
| 2007 | 2006 | |||||||||||
| Carrying Value |
Estimated Fair Value |
Carrying Value |
Estimated Fair Value | |||||||||
| (In Thousands) | ||||||||||||
| Financial assets: |
||||||||||||
| Cash and cash equivalents |
$ | 66,896 | $ | 66,896 | $ | 13,347 | $ | 13,347 | ||||
| Securities available for sale |
917 | 917 | 1,170 | 1,170 | ||||||||
| Investment securities held to maturity |
10,377 | 10,650 | 9,168 | 9,599 | ||||||||
| Mortgage-backed securities held to maturity |
123,907 | 121,422 | 141,053 | 136,449 | ||||||||
| FHLB stock |
4,996 | 4,996 | 5,721 | 5,721 | ||||||||
| Loans receivable |
439,053 | 447,980 | 454,859 | 449,785 | ||||||||
| Interest receivable |
2,738 | 2,738 | 2,894 | 2,894 | ||||||||
| Financial liabilities: |
||||||||||||
| Deposits |
507,961 | 509,052 | 469,941 | 469,370 | ||||||||
| Advances |
84,000 | 86,111 | 101,000 | 99,157 | ||||||||
| Interest payable |
424 | 424 | 467 | 467 | ||||||||
36
For financial instruments with off-balance sheet risk (primarily loan commitments), the carrying value (deferred loan fees and costs) and the fair value are not deemed material.
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.
Note 17. Parent Company Financial Information
STATEMENTS OF FINANCIAL CONDITION
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 4,413,918 | $ | 5,486,043 | ||||
| Investment in subsidiary |
54,146,766 | 53,024,620 | ||||||
| Refundable income taxes |
140,595 | 116,763 | ||||||
| Total Assets |
$ | 58,701,279 | $ | 58,627,426 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Liabilities, other |
$ | 61,805 | $ | 59,680 | ||||
| Stockholders’ equity |
||||||||
| Common stock |
69,000 | 69,000 | ||||||
| Paid-in capital in excess of par value |
19,339,615 | 19,339,615 | ||||||
| Retained earnings |
63,711,451 | 63,936,702 | ||||||
| Accumulated other comprehensive loss |
(1,301,888 | ) | (1,598,867 | ) | ||||
| Treasury stock, at cost |
(23,178,704 | ) | (23,178,704 | ) | ||||
| Total Stockholders’ Equity |
58,639,474 | 58,567,746 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 58,701,279 | $ | 58,627,426 | ||||
37
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
STATEMENTS OF INCOME
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Dividends from subsidiary |
$ | 3,800,000 | $ | 5,000,000 | $ | 6,000,000 | ||||||
| Interest income |
2,823 | 3,160 | 3,121 | |||||||||
| Income before Expenses |
3,802,823 | 5,003,160 | 6,003,121 | |||||||||
| Non-interest expenses |
414,257 | 344,580 | 255,787 | |||||||||
| Income before Equity in Undistributed Earnings of Subsidiary and Income Tax Benefit |
3,388,566 | 4,658,580 | 5,747,334 | |||||||||
| Equity in undistributed earnings of subsidiary |
825,167 | 1,768,604 | 2,131,533 | |||||||||
| Income before Income Tax Benefit |
4,213,733 | 6,427,184 | 7,878,867 | |||||||||
| Income Tax Benefit |
(138,515 | ) | (114,683 | ) | (84,916 | ) | ||||||
| Net Income |
$ | 4,352,248 | $ | 6,541,867 | $ | 7,963,783 | ||||||
STATEMENTS OF CASH FLOW
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Cash Flows from Operating Activities |
||||||||||||
| Net income |
$ | 4,352,248 | $ | 6,541,867 | $ | 7,963,783 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Equity in undistributed earnings of subsidiary |
(825,167 | ) | (1,768,604 | ) | (2,131,532 | ) | ||||||
| Award of treasury stock |
— | — | 15,159 | |||||||||
| (Increase) decrease in refundable income taxes |
(23,832 | ) | (30,347 | ) | 41,518 | |||||||
| Increase (decrease) in other liabilities |
2,125 | (730 | ) | (1,740 | ) | |||||||
| Net Cash Provided by Operating Activities |
3,505,374 | 4,742,186 | 5,887,188 | |||||||||
| Cash Flows from Financing Activities |
||||||||||||
| Cash dividends paid |
(4,577,499 | ) | (4,577,499 | ) | (4,378,477 | ) | ||||||
| Sale of treasury stock |
— | 515,480 | 305,035 | |||||||||
| Purchase of treasury stock |
— | (644,620 | ) | (372,862 | ) | |||||||
| Net Cash Used in Financing Activities |
(4,577,499 | ) | (4,706,639 | ) | (4,446,304 | ) | ||||||
| Net (Decrease) increase in Cash and Cash Equivalents |
(1,072,125 | ) | 35,547 | 1,440,884 | ||||||||
| Cash and Cash Equivalents – Beginning |
5,486,043 | 5,450,496 | 4,009,612 | |||||||||
| Cash and Cash Equivalents – Ending |
$ | 4,413,918 | $ | 5,486,043 | $ | 5,450,496 | ||||||
38
Note 17. Quarterly Financial Data (Unaudited)
| Year Ended December 31, 2007 | ||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||
| (In Thousands, Except Per Share Amounts) | ||||||||||||
| Interest income |
$ | 9,330 | $ | 9,276 | $ | 9,298 | $ | 9,198 | ||||
| Interest expense |
4,409 | 4,540 | 4,580 | 4,553 | ||||||||
| Net Interest Income |
4,921 | 4,736 | 4,718 | 4,645 | ||||||||
| Provision for loan losses |
195 | 175 | 150 | 150 | ||||||||
| Net Interest Income after Provision for loan losses |
4,726 | 4,561 | 4,568 | 4,495 | ||||||||
| Non-interest income |
664 | 643 | 505 | 534 | ||||||||
| Non-interest expenses |
3,441 | 3,388 | 3,257 | 3,755 | ||||||||
| Income before Income Taxes |
1,949 | 1,816 | 1,816 | 1,274 | ||||||||
| Income taxes |
723 | 663 | 671 | 446 | ||||||||
| Net Income |
$ | 1,226 | $ | 1,153 | $ | 1,145 | $ | 828 | ||||
| Net income per common share: |
||||||||||||
| Basic |
$ | 0.25 | $ | 0.23 | $ | 0.23 | $ | 0.17 | ||||
| Diluted |
$ | 0.25 | $ | 0.23 | $ | 0.23 | $ | 0.17 | ||||
| Dividends per common share |
$ | 0.23 | $ | 0.23 | $ | 0.23 | $ | 0.23 | ||||
| Year Ended December 31, 2006 | ||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||
| (In Thousands, Except Per Share Amounts) | ||||||||||||
| Interest income |
$ | 9,229 | $ | 9,413 | $ | 9,505 | $ | 9,390 | ||||
| Interest expense |
3,525 | 3,898 | 4,170 | 4,388 | ||||||||
| Net Interest Income |
5,704 | 5,515 | 5,335 | 5,002 | ||||||||
| Provision for loan losses |
— | — | — | — | ||||||||
| Net Interest Income after Provision for loan losses |
5,704 | 5,515 | 5,335 | 5,002 | ||||||||
| Non-interest income |
561 | 584 | 952 | 701 | ||||||||
| Non-interest expenses |
3,354 | 3,683 | 3,411 | 3,436 | ||||||||
| Income before Income Taxes |
2,911 | 2,416 | 2,876 | 2,267 | ||||||||
| Income taxes |
1,099 | 896 | 1,084 | 849 | ||||||||
| Net Income |
$ | 1,812 | $ | 1,520 | $ | 1,792 | $ | 1,418 | ||||
| Net income per common share: |
||||||||||||
| Basic |
$ | 0.36 | $ | 0.31 | $ | 0.36 | $ | 0.28 | ||||
| Diluted |
$ | 0.36 | $ | 0.31 | $ | 0.36 | $ | 0.28 | ||||
| Dividends per common share |
$ | 0.23 | $ | 0.23 | $ | 0.23 | $ | 0.23 | ||||
39
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
Selected Consolidated Financial Condition and Operating Data of the Company
| At December 31, | ||||||||||||||||||||
| Financial condition data: |
2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| Total amount of: |
||||||||||||||||||||
| Assets |
$ | 636,895 | $ | 639,899 | $ | 646,086 | $ | 636,560 | $ | 657,428 | ||||||||||
| Loans receivable |
378,641 | 395,800 | 438,250 | 454,859 | 439,053 | |||||||||||||||
| Securities available for sale |
3,922 | 3,639 | 3,321 | 1,170 | 917 | |||||||||||||||
| Mortgage-backed securities |
218,418 | 200,077 | 167,009 | 141,053 | 123,907 | |||||||||||||||
| Investment securities |
9,422 | 9,309 | 10,287 | 9,168 | 10,377 | |||||||||||||||
| Deposits |
492,161 | 489,350 | 474,003 | 469,941 | 507,961 | |||||||||||||||
| Advances and other borrowed money |
87,118 | 89,000 | 106,400 | 101,000 | 84,000 | |||||||||||||||
| Stockholders’ equity |
51,323 | 55,114 | 58,616 | 58,568 | 58,639 | |||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| Operating data: |
2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| Interest income |
$ | 36,755 | $ | 35,983 | $ | 36,517 | $ | 37,537 | $ | 37,102 | ||||||||||
| Interest expense |
13,433 | 11,391 | 12,430 | 15,981 | 18,082 | |||||||||||||||
| Net interest income |
23,322 | 24,592 | 24,087 | 21,556 | 19,020 | |||||||||||||||
| Provision for loan losses |
84 | 82 | 110 | — | 670 | |||||||||||||||
| Non-interest income |
2,555 | 2,599 | 2,541 | 2,798 | 2,347 | |||||||||||||||
| Non-interest expenses |
12,809 | 13,792 | 13,543 | 13,884 | 13,841 | |||||||||||||||
| Income taxes |
5,203 | 5,373 | 5,011 | 3,928 | 2,504 | |||||||||||||||
| Net income |
$ | 7,781 | $ | 7,944 | $ | 7,964 | $ | 6,542 | $ | 4,352 | ||||||||||
| Net income per share |
||||||||||||||||||||
| Basic |
$ | 1.54 | $ | 1.60 | $ | 1.60 | $ | 1.31 | $ | 0.87 | ||||||||||
| Diluted |
1.54 | 1.59 | 1.60 | 1.31 | 0.87 | |||||||||||||||
| Dividends per share |
$ | 0.80 | $ | 0.84 | $ | 0.88 | $ | 0.92 | $ | 0.92 | ||||||||||
| Dividend payout ratio |
52.02 | % | 52.60 | % | 54.97 | % | 69.97 | % | 105.18 | % | ||||||||||
40
| At Or For Year Ended December 31, | |||||||||||||||
| 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||
| Selected Financial Ratios: |
|||||||||||||||
| Return on average assets |
1.25 | % | 1.24 | % | 1.24 | % | 1.02 | % | 0.69 | % | |||||
| Return on average equity |
15.45 | % | 15.00 | % | 14.06 | % | 10.95 | % | 7.35 | % | |||||
| Average equity/average assets |
8.08 | % | 8.26 | % | 8.82 | % | 9.29 | % | 9.37 | % | |||||
| Interest rate spread |
3.57 | % | 3.66 | % | 3.52 | % | 3.00 | % | 2.56 | % | |||||
| Net yield on average interest-earning assets |
3.86 | % | 3.92 | % | 3.84 | % | 3.43 | % | 3.07 | % | |||||
| Non-interest expenses to average assets |
2.06 | % | 2.15 | % | 2.11 | % | 2.16 | % | 2.19 | % | |||||
| Equity/total assets |
8.06 | % | 8.61 | % | 9.07 | % | 9.20 | % | 8.92 | % | |||||
| Capital ratios: |
|||||||||||||||
| Tangible |
7.26 | % | 7.92 | % | 8.18 | % | 8.59 | % | 8.43 | % | |||||
| Core |
7.26 | % | 7.92 | % | 8.18 | % | 8.59 | % | 8.43 | % | |||||
| Risk-based |
15.13 | % | 15.89 | % | 15.25 | % | 15.68 | % | 15.82 | % | |||||
| Non-performing loans to total assets |
0.24 | % | 0.41 | % | 0.30 | % | 0.36 | % | 0.83 | % | |||||
| Non-performing loans to loans receivable |
0.41 | % | 0.67 | % | 0.44 | % | 0.50 | % | 1.25 | % | |||||
| Non-performing assets to total assets |
0.24 | % | 0.41 | % | 0.30 | % | 0.36 | % | 0.91 | % | |||||
| Allowance for loan losses to non-performing loans |
161.53 | % | 96.44 | % | 139.93 | % | 116.32 | % | 57.54 | % | |||||
| Average interest-earning assets/average interest-bearing liabilities |
1.13x | 1.14x | 1.16x | 1.17x | 1.17x | ||||||||||
| Net interest income after provision for loan losses to non-interest expenses |
1.81x | 1.79x | 1.77x | 1.55x | 1.33x | ||||||||||
41
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 NASDAQ Stock Market under the symbol “PBCI.” At March 5, 2008, the Company’s 4,975,542 outstanding shares of common stock were held by approximately 1,900 persons or entities.
The following table sets forth the high and low closing sales price per common share for the periods indicated.
| CLOSING PRICES | ||||||
| QUARTER ENDED |
HIGH | LOW | ||||
| March 31, 2006 |
$ | 22.00 | $ | 19.82 | ||
| June 30, 2006 |
20.85 | 19.00 | ||||
| September 30, 2006 |
20.00 | 19.02 | ||||
| December 31, 2006 |
26.50 | 19.09 | ||||
| March 31, 2007 |
24.87 | 22.00 | ||||
| June 30, 2007 |
22.72 | 19.66 | ||||
| September 30, 2007 |
19.74 | 17.26 | ||||
| December 31, 2007 |
22.25 | 18.00 | ||||
| DIVIDENDS WERE PAID AS FOLLOWS: |
||||||
| March, 2006 |
$ | .23 | ||||
| June, 2006 |
.23 | |||||
| September, 2006 |
.23 | |||||
| December, 2006 |
.23 | |||||
| March, 2007 |
.23 | |||||
| June, 2007 |
.23 | |||||
| September, 2007 |
.23 | |||||
| December, 2007 |
.23 | |||||
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 Company, 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 60 days advance notice to the OTS before declaring a dividend.
42
Stock Performance Chart
The following graph shows a five year comparison of shareholder return on the Company’s Common Stock with the cumulative total returns of companies on the Russell 2000 Index and the SNL NASDAQ Thrift Index. Total return assumes the reinvestment of all dividends. The graph assumes $100 was invested on December 31, 2002.
COMPARATIVE FIVE-YEAR TOTAL RETURNS
Pamrapo Bancorp, Inc., Russell 2000 Index, SNL NASDAQ Thrift Index
(Performance Results Through 12/31/07)
| Period Ending | ||||||||||||
| Index |
12/31/02 | 12/31/03 | 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | ||||||
| Pamrapo Bancorp, Inc. |
100.00 | 155.22 | 156.64 | 141.32 | 162.01 | 145.27 | ||||||
| Russell 2000 |
100.00 | 147.25 | 174.24 | 182.18 | 215.64 | 212.26 | ||||||
| SNL NASDAQ Thrift Index |
100.00 | 151.41 | 170.49 | 169.77 | 202.50 | 176.10 | ||||||
Source : SNL Financial LC, Charlottesville, VA (434) 977-1600 © 2008 www.snl.com
43